Full Transcript: Billionaire Investor Warren Buffett Speaks with CNBC’s Becky Quick on “Squawk Box”


WHEN: Today, Monday, May 8th

WHERE: CNBC's "Squawk Box"

Following is the full unofficial transcript of a CNBC interview with Berkshire Hathaway Chairman & CEO Warren Buffett on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Monday, May 8th. Video from the interview is available on CNBC.com.

All references must be sourced the CNBC.

JOE KERNEN: What time did you get in last night from Omaha?


JOE KERNEN: So that was perfect for you

ANDREW ROSS SORKIN: -- Perfect good enough to see the kids and to give them little dolls of Warren Buffett. I went and bought some dolls of Warren Buffett which is my nice segue to get back to Becky, who is in Omaha. Not with the doll Warren Buffett, but with the real thing.

JOE KERNEN: Now, these aren't voodoo dolls, right?




JOE KERNEN: I don't know. I mean what do I--it sounds strange, that's--

ANDREW ROSS SORKIN: No, they talk-- Warren knows--

BECKY QUICK: No, it's they--


BECKY QUICK: --it's the Secret Millionaire one, right?

ANDREW ROSS SORKIN: The Secret Millionaires. They talk. They have a DVD. We're gonna watch the cartoons, and my-- my kids are gonna learn about money from Warren Buffett. And we have the-I got both of them-- I got two.

JOE KERNEN: WarrenI wanna see if it works. I'm gonna stick--


JOE KERNEN: I'm gonna stick a needle into one of these—


JOE KERNEN: --little-- I'm just-- see if you feel anything when I do this. Warren, are-- are get read-- no, I actually don't have one. But I'm gonna try that. Did you-- how much do you get for each one of—them


JOE KERNEN: I betcha he makes money on each one of those. I-- you can never have enough. Right, Warren?

WARREN BUFFETT: You'll get the voodoo dolls-- Joe. I've got a special one for you.

JOE KERNEN: Startin' on ya early, Warren.

WARREN BUFFETT: I know. I'm weak too.

JOE KERNEN: Yeah. You're vulnerable. Okay, good. All right.

BECKY QUICK: Well, guys, let's-- jump into this right now with both feet. Warren Buffett is our guest this morning. He's the chairman and CEO of Berkshire Hathaway. And-- this is his first interview sitting down since-- he spoke to 40,000 or so Berkshire shareholders over the weekend, just across the street from here. Warren, thank you very much for joining us this morning. I was kinda thinking back-- and this is 52 years now that you've been doing the annual meeting. And the annual meeting has changed quite a bit over that course of time, but it-- in reflecting back on the weekend yourself, what was your headline out of this weekend? What was your takeaway and what did you think?

WARREN BUFFETT: I would say people continue to have fun. I mean-- you know, it's-- kind of a half Mardi Gras, half annual meeting that they come for and-- I see thousands of 'em ate in a Steak House last night. There are a couple hundred there, and they're all smiling. And---- you know, there were planes that didn't fly and a few things that-- but in-- inconveniencies. But they-- have fun and they-- meet a lot of people that-- they saw the previous year. And matter of fact, when we went to Steak House the directors all went there. The same guy picked up our check that's probably picked it up for 10 straight years. And it just-- he's happy there. You know? It-- I'm tryin' to find out where he's eating today, actually.

BECKY QUICK: So that you can buy him lunch?


BECKY QUICK: Or so that you can show up and-- and get another free lunch out of it?

WARREN BUFFETT: Yeah. No, it-- but everybody's in a good mood. I mean they're clapping at the Steak House. And they-- they come because they expect to have a good time, and-- we try not to disappoint 'em.

BECKY QUICK: Well, we-- watched a lot of different things and heard-- so much from the Q&A this weekend. And I was tryin' to figure out the theme myself. One of the ones that-- themes that stuck out with me is technology, and how much that was discussed this weekend. For a guy who claims that he's not really a technology guy, in fact doesn't even own a smart phone-- you spent an awful lot of time talking about technology investments that-- that you made or didn't make. That you missed out on. I was thinking in particular-- about Apple. That you talked-- quite a bit about, why you got into that. IBM. Why you are selling some of that stake. But you also talked about companies like-- Google where you said you missed it. And maybe you could tell us a little bit about that for people who—

WARREN BUFFETT: Yeah, well, I did miss it, but-- I-- Charlie actually brought up the fact, we must have too, and-- Google I should have had some insight into, because Geico was a heavy user very early on. So here we saw value in something. At-- that time-- I have no idea what we're paying for a click now, but-- but we were paying $10 or $11 a click for something that had no cost of goods sold, and we were gonna keep doing it. I mean we could see that. So-- I should have had more insight into that. Now, whether Bing was gonna come along or other people were gonna take away the market, that's another question. Whether you had sort of a-- first user advantage that would be-- would prevail. And there is a lot of technology to it. So--somebody could have come along with a better technological product that I would not have had any insights into that. I certainly had insights into the benefit to the user. I think a blazer surgeon or something like-- I think it may have sold for 60 or 70 bucks or something of the sort. Mesothelioma. I mean that-- I don't know what it brings now, but just imagine having something. Every time you just hit a click, you know, a cash register rung somewhere out in California. So it was an extraordinary-- and is an extraordinary business. And--it has some aspects of a natural monopoly. I mean it-- it's very easy for me when I go to the computer. I've worked with Google before, and-- but I'm looking for information for the annual report. I used to have to mail away to federal agencies or go down to the public library, and now I can get it in 10 seconds. So it's-- a hugely valuable device, which the other guy pays for. The-- user of the computer doesn't. The-- answer is we missed it. And I knew once they came to see me before they—

BECKY QUICK: Sergei and Larry came to see you?

WARREN BUFFETT: Yeah, and actually Eric did too.


WARREN BUFFETT: Yeah, yeah. I liked 'em.

BECKY QUICK: So when you say you missed it, that-- that suggests that it's now at a valuation-- you understand the company but it's now at a valuation that doesn't make sense to you? Why don't you just buy it now?

WARREN BUFFETT: Well, it's-- if I was forced to buy it or short it, I'd buy it. Same way as Amazon. But it's a little hard when you look at something at X and it sells at 10x. To buy it, it shouldn't be, but I can just tell you psychologically it's harder. If you looked in the first place and passed the-- at X to then buy it at 10X. That's cost people a lot of money at Berkshire. I mean they-- saw it at a lower price and they just said, "If it ever gets back there, I'll buy it." But that's a terrible way to think, but

BECKY QUICK: The train has left the station, actually—

WARREN BUFFETT: Yeah, exactly.

BECKY QUICK: As you like to, so-- so frequently—


BECKY QUICK: --point out. How come you don't feel that way about shares of Apple? How come you feel like that's a different story?

WARREN BUFFETT: Well-- the--shares when we bought 'em, at least, were much more reasonable in relation to current earnings. Apple didn't have to do a lot better in the future than they were doing at the current time. When you get into-- a Google and Amazon you're paying for the future more. But that may-- they may well have—a better future. I mean that may be more than justified. But-- and Apple-- I wouldn't say is easier for me to understand than Google now, perhaps, or Amazon now, but-- certainly would have been five years ago. It's amazing where-- Apple's and-- or-- well, where-- yeah, Apple's ended up with consumers. I mean I--can very easily determine the competitive position of Apple now and--who's trying to chase 'em, and how easy it is to chase 'em. We happen to be well situated in terms of having these massive home furnishing stores, and I can learn very easily how consumers react to different things-- there. Probably easier than I can-- trying to pick out what's really happening at Amazon at any given time.

BECKY QUICK: So you use your research at the Nebraska Furniture Mart to-- tell you that consumers prefer Apple over Samsung or-- I mean what type of thing are you--?

WARREN BUFFETT: Well, the interesting thing is it-- if you come in to buy a TV set at the Furniture Mart-- price is extremely important. Now, obviously picture is-- there's all those great pictures, just sitting up there. So you can have Samsung. You can have all these different-- ones. And-- if you put on a sale-- and you drop the price of Samsung 10%, we can fill that department with people who come out for it. You can't move people by price-- in the smart phone market remotely like you can move 'em in appliances or all kinds of things. But-- people want the product. They don't want the cheapest product. And-- the loyalty is huge. Now, that doesn't mean somebody can't come along with a product that-- that just jumps the field in some way. But-- and then once you have the product, the degree to which it sort of controls your life, I mean it's a very, very, very valuable product to the people that build their lives around it. And that's true of eight years old and it's true of 80-year-olds.

BECKY QUICK: People who have questioned Apple's future have said things like, "Well, right now people are paying $800 for a smart phone." And-- the other reality in technology is that prices eventually come down. And unless you're adding more and more value to that product, the price will come down. So what happens if people-- I mean I guess the question is will people always be willing to pay $800 or more for a phone, or will that wind up being a cost that comes down and down—


BECKY QUICK: --just as technology changes--?

WARREN BUFFETT: --it can be that way, but-- it-- usually because there's competition between different products. And some manufacturer decides that they can't beat, say, Apple on their own terms, so drop it 100 bucks or 200 bucks. Some products are very susceptible to that, and other products are not. And-- so far-- I mean you've had smart phones and big differences in price categories. And-- people come back in and-- if they had an Apple before, you know can have a much cheaper cell phone-- selling right next to the smart phone, selling right next to it. And-- I'll look at it. You have a cheaper TV. The picture's looking at you and-- you say, "What-- wait, wait." I say, "What's the difference?"


WARREN BUFFETT: And you buy the cheaper TV. And--that's true of-- I mean most items are price-sensitive. And it's not to say that-- an Apple isn't-- has somewhat price sensitivity. It's very, very-- very little.


WARREN BUFFETT: That-- but somebody could come along and leapfrog something in the way of the technology and add some benefits that-- as-- that would be the more competitive threat to me than price competition. It would be benefit competition.

BECKY QUICK: Yeah, I don't know what that is, but then-- you know, Apple gave me a whole lot of things that I never realized I needed--

WARREN BUFFETT: That's—the thing

BECKY QUICK: --until they came up with them.

WARREN BUFFETT: And somebody else is tryin' to think of some other things to give you along the same line.

BECKY QUICK: Right. Let's-- talk about just the stock price again. You said that it made sense to you when you started buying into it. Shares have appreciated since then--

WARREN BUFFETT: That's the problem. I'm cheap. It-- and there's always an anchoring problem with buying stocks. We used to buy 'em, at X and actually it's harder to buy 'em at higher prices.

BECKY QUICK: So does that signify that you've stopped buying in Apple because of where prices have —

WARREN BUFFETT: Well-- maybe, maybe not.


WARREN BUFFETT: But-- you slid it in there nice, so—

BECKY QUICK: Yeah, I tried. I guess when you see things like the earnings that came out-- you had mentioned to us the other day that you weren't bothered or disappointed by the earnings. When you see—


BECKY QUICK: --stock price pull back, you let-- you probably like it at that point?

WARREN BUFFETT: Oh yeah. I mean Apple, with a non-new product, I think they sold something like 50 million. You know, or something that's a lotta units to sell of something at $700, and a lot of those are going to people that they're actually replacing a present Apple. But they do know that a new product's gonna be out in six months or something, and, you know, who knows. maybe they got promised Apple for their birthday or their graduation. But I would be tempted, if I were going to buy one, to wait until a new model comes out. I-- what do I lose by doing it except the use of one in between? That's a lotta product to sell. What--a new model coming out, well, you think about $15 million.

BECKY QUICK: We've talked to you pretty extensively about IBM. Andrew and I got the chance to ask questions from the stage at the shareholder meeting this weekend, but we each only asked about six questions and we got thousands of questions from shareholders. One question that did come in from a shareholder that I didn't get the chance to as you was about-- IBM and Watson. And-- you'd been pretty public about the fact that you were using Watson at Geico. He wondered if your sale of IBM was related in any way to the performance of Watson.

WARREN BUFFETT: No, well, we've been experimenting. There's a lotta possibilities-- with the Watson at Geico. And we've experimented with various different possibilities. And it's-- so far it's done certain things and it hasn't done certain things. But that same kind of experimentation is going on in hospitals and going on-- you know, in-- in a whole bunch of areas. H&R Block. I worked with it this year. And-- Watson is a pretty amazing invention that has-- and-- it is getting-- put into use-- a lotta places. So it's a really interesting product. And I'm sure the revenue is growing very significantly, but from a very small base. But I would say that you've got other very smart people-- that have been given some time to work on other products, and I would say that when you get into that area, you do have to worry-- maybe even more than with the phone. You have to worry about somebody jumping the utility of something like that. The-- where it really becomes valuable-- I mean it's obviously valuable in being able to-- look at-- x-rays and all that sort of thing. Much better and faster than humans can. And--real all the literature. You know-- millions of pages and all that. I would think the real-- the biggest value will come in is when it actually replaces human labor. I mean that is so quantifiable and-- you know, machines don't-- come round an anually and ask for--higher wages, and they don't need-- they don't need healthcare. And I've-- if they can do a little maintenance. But it-- if they replaced-- and if it should replace people in a big way. It would have a lot of value, unless somebody else has some other products to do the same thing.

BECKY QUICK: So it's artificial intelligence, but it's-- very much still in the artificial, emphasis on artificial in that

WARREN BUFFETT: Yeah, I think they call it something slightly different than that, but I-- you and I had a sort of common language would call it artificial, intelligence. And-- it is intelligent. The question is-- how much better results can you get with it than using human beings? Or how many human beings you can displace in getting it? Or in-- can you get some entirely new form of information that humans are actually incapable of getting 'cause they can't keep every word that's been written about prostate cancer or something in their minds. And-- they've read everything-- what was published yesterday at-- so it's -- I think it's got great potential. It has not come as long-- along as fast commercially as you would have hoped on that. It's probably growing at a very fast rate, but the base is probably fairly small and are there people who are gonna be cashing you.

BECKY QUICK: Okay. Andrew and Joe, we're going to-- have much more with Mr. Buffett today, but right now we'll send it back to you-- for a quick update as well.

JOE KERNEN: Okay. He-- Warren hasn't seen any actual indications of any malevolent intent from Watson, yet, has he? I mean I-- just the idea of Watson controlling, like, what's going on in high-- you know? I just remember what happened to those astronauts. You know what I mean? The ones that were actually--in the-- you know, just slowly how it turns down all of the-- you know, life supports. I mean-- the-- no-- have you seen that, yet, Warren? That's what I worry about with-- with Watson. I mean does he--seem like a nice guy?

WARREN BUFFETT: I-- well, I've sat in the same room with him-- for hours, and I kept an eye on him.

JOE KERNEN: That's what I mean. You know, I—when-- they don't----need us, why--- and-- you just-- you said it. Healthcare. We-- asked for raises. We eat food. We-- I mean we're pretty superfluous at-- to some extent. And I just-- I don't trust Watson as far as I can throw him, he's probably fairly large-- I mean the server, right?

WARREN BUFFETT: Well, we all know what happened with Hal and Space Odyssey.


WARREN BUFFETT: Yeah. The-- actually, I've talked with some very smart people, not at IBM, just about the whole idea about artificial intelligence. I see 'em out in Sun Valley, they're really smart. And-- you know, they all go different directions on this. But it-- is not-- and not about Watson specifically. The whole subject of artificial intelligence. And-- -- you've read about it too, though, I-- you know?


WARREN BUFFETT: I mean they--

JOE KERNEN: Some people are worried—


JOE KERNEN: Are genuinely worried. Not just kidding—

WARREN BUFFETT: Some people are-- some people are work—

JOE KERNEN: Yeah, genuinely. —

WARREN BUFFETT: So some people are worried, but—

JOE KERNEN: Down the road, really, we probably do—need to think about it. You-- know? And—

WARREN BUFFETT: Joe, I've got the cure for it. I got the cure for it. I'm 86. You won't worry as much under those circumstances.

JOE KERNEN: Yeah. Exactly. Yeah, it might be-- far off. I-- thank you for doin' this, Warren. Your--voice-- we were just talkin' about what amazing-- what you do for-- three or four days is like-- superhuman almost.

WARREN BUFFETT: three or four days a week-- three or four days a year, I work. And-- when I work I make sure everybody's knowing it and then I disappear.

ANDREW ROSS SORKIN: Okay, Warren. We're gonna-- come back to you in just a couple of minutes. I will-- I'm gonna try to get you-- a Warren doll. I think you--need one. I think you need one. Warren, thank you. We'll come back to you in just a second.

BECKY QUICK: Andrew, thank you very much. Again, we are live with Warren Buffett this morning in his first sit-down since speaking to the Berkshire Hathaway shareholders who made it here to Omaha this weekend, about 40,000 or so of them. Warren, Joe just mentioned at the top that-- the markets are probably not all that surprised by the results with the French election-- Macron winning, Le Pen-- going ahead and admitting defeat in this situation. When did you find out about the French situation? When did you hear about Le Pen-- conceding?

WARREN BUFFETT: When did I hear about Le Pen conceding--?

BECKY QUICK: Conceding, yeah.

WARREN BUFFETT: It woulda been pretty early l-- la—

BECKY QUICK: So you-- it wasn't something that you were necessary-- my point is, it wasn't something you were sitting around, waiting on--?

WARREN BUFFETT: No, no, no. Not-- no, not in the least. No—


WARREN BUFFETT: I can't think of when I've really done much about purchases or sales in connection with any election. I mean, every time-- when I was a kid every time a Democrat got elected and-- like Roosevelt or anybody, you know, they-- there was a wake in our house and my father would start storing sugar in the basement or something like that. And so I've learned to not put too much weight in any given election.

BECKY QUICK: This was not something-- if things had gone the other way do you think the market reaction would've been-- as swift as some pundits had anticipated?

WARREN BUFFETT: Well, it-- might well have been. But-- people do get fooled on market-- reactions and-- as we saw. Well just with the Trump election it went down a whole lot and then came right back up in a matter of few hours. So-- I don't think I'm any good at that. I mean, I there'd be-- people'd be a lot faster if we-- if I was on the floor of-an exchange, you know? I'd probably starve to death

BECKY QUICK: Yeah, you'll make those kneejerk reactions and investments

WARREN BUFFETT: No, I-- and--it's-- but just think of all the events that have happened in 100 years or something, or even in the 75 years I've invested. And-- if I had reacted to every one I-- my reaction percentage would-- be terrible and I'd have a lot more in the way of costs, and I'd be outta the market at times-- I never really wanna be outta the market. I--- it isn't a question of being in the market, it's a question of owning businesses. And if I wanted to own farms I wouldn't keep buying and selling 'em based on some election result or something like that. I'd own farms and I'd try and figure out the best place to own 'em, and get the best tenants I could on 'em, and all of that sorta thing. So I look at businesses the same way.

BECKY QUICK: Let--talk about the U.S. economy-- because there have been a lot of questions about just how we're doing. We had that first quarter GDP number that came in-- with a really lousy 0.7%. Does this feel like a 0.7% economy to you? What do you see?

WARREN BUFFETT: Well, I don't-- it doesn't feel like-- one. I don't think it is one. I think since the fall of 2009-- and I think we've said this every time I've talked with you-- it's more or less grown at a 2% rate. And I think-- deviations from that are as likely to be through problems in collectin' the information or-- having the proper seasonal, or by the fact that quarter to quarter they-- it's measured rather than over a year agos quarter then. So you multiply by four and change. So a two-tenths change becomes an eight-tenth, yeah, annual type figure. And-- I do not look at those figures with a lot of intr-- I mean, obviously when you get into 2008 and 2009 period and when the economy's falling apart it's a pretty good gauge of how it-- fast it's falling apart compared to some-- earlier recession or something. But I have never done-- I've never made a trade in a stock based on a GDP figure.

BECKY QUICK: Let's talk about the figures that you do pay attention to, and those are the numbers that you see coming back from the businesses you own outright, or that ya own major portions in, something like the railroads. Let's talk about what you're seeing right now.

WARREN BUFFETT: Well, railroad figures, which you can get every week. I think the AAR puts them out on Wednesday. I get them Wednesday morning. And they show 20 different categories, plus intermodal is shown by railroad. They show the Canadian roads. So they are short line roads. And basically the economy is doing okay. And when I say okay I mean sort of the same 2% rate. Now, it's not that precise through the rail figures. But one thing that's helped with rails is that natural gas has gone up in price. And there's a lot of coal that doesn't move at $2 natural gas that moves at $3 or – I mean, a lot. There's a lot of electric generation that they flip a switch basically – and it's the input. And right now, natural gas is, I think, close to $3.25 on Friday. And that dictates the use of coal a lot of places, where if it was $2.25, they'd be running natural gas. So that's – coal shipments are actually probably up the most percentage-wise of any of the 20 categories. They're certainly most up dollar-wise. On the other hand, petroleum products would be less. Grain is moving more this year. There's just a lot of crops still out there. And there's going to be more coming on. So at BNSF, we move 13,000 cars of grain. And they move at 33,000 – $3,500 or something like that. So to get an extra 1,000 cars of grain you got an extra $3 million of revenue. But that's a product of low prices for grain, so the farmers wanted to store more big crops. And we'll learn in the Fall this year whether you have another big crop and we'll carry a lot of grain if it happens. And if for some reason there's a low crop, it comes down. And they're just category crushed. I mean, you name them all.

BECKY QUICK: One of the things that surprised me that I hadn't realized until we spoke with Matt Rose of BNSF this weekend is that the truckers, who I always thought of as the railroad's biggest competitor, didn't realize they're also their largest customer, that they are shipping so much for them.

WARREN BUFFETT: That's true. That's what – we carry a lot of trucks. You know, they load those babies on there. And double stack them. And I think our five biggest customers, I mean, you've got, well, JB Hunt would be the biggest. But Schneider which just went public here recently. Those are big customers. I mean, they have an advantage just to start with in loading in a huge percentage of cases. But if you really are going to move heavy traffic, hundreds and hundreds of miles, bulk traffic, they're better off sticking them on our railroad and then picking them up the other end. At Christmas time, you know, whether UPS or people like that, a lot of it will move by rail.

BECKY QUICK: Also when it comes to housing, you've got a pretty good idea what's happening there. Not only do you have a realtor company. You've got ACME Brick, Shaw Carpet, Clayton Homes, Benjamin Moore Paint. I was trying to think through all of the components of housing. Where do you see the housing market right now?

WARREN BUFFETT: It's getting better. I mean, it isn't booming. But both in resale of existing homes, Clayton Home sales – that's a manufactured home product – they're up significantly this year. We have three site built builders with it. Clayton is starting to go into that in Kansas City and Tennessee and Georgia. And they're all doing fine. Now it's not boom time for any of these. But it's a lot better than it was three or four years ago. And it's better than it was last year. And I would anticipate that it continues to get better. It looks – there was this huge shift after 2008 and '09 for people to rent rather than to buy. I mean, we had 69% home ownership. And I think it dropped to 63% or something of the sort. And there's some reasons why maybe it will stay lower. For one thing, when people bought houses in the early 2000s, they thought almost for sure they could sell them for profit later on. So you had flippers or people that at least were convinced that they couldn't lose. People don't feel that way after what happened. And then anytime you have a recession, it affects matrimony. Whole bunch of things. But that's wearing off. And home building will be the best in this year, in my view, since things went to hell in 2008.

BECKY QUICK: Millennials are actually starting to buy homes?

WARREN BUFFETT: Yeah, and, you know, I can't really get into specific age groups too well. But I see the aggregate figures. And that's true. You know, brick sales will be better and the earliest they have been so far this year. And they were better last year. And carpet – now people are changing their minds about what kind of covering they want for their floor. They're going more to hardwood. There's been some change in preferences. But when new home sales pick up, you know, flooring sales pick up. When houses change hands, paint picks up. There's a big system there that feeds. And we see improvement. We're not seeing boom times or anything. But you can get some feeling for that part of the economy. And we've got 80 plus auto dealerships. And you would know what was going on that anyway because the car companies report so frequently as, you know, sales. But the economy's getting better. The economy was – has been getting better since 2009.

BECKY QUICK: In terms of what you see from the industrial side of things, you've got Marmon, IMC. I just think through a lot of industrial areas, too. Have you seen a pickup in that part of the business?

WARREN BUFFETT: Well, that was slow up til recently. But we saw a fair uptick. Not huge, but noticeable in March. And we'll see how much carry through there is to that. The industrial stuff in many cases went into the energy, oil and gas business. So the slowdown in oil and gas affected a lot of different types of industrial activity. It backs up through a lot of equipment. So it was definitely affected by that. But the most recent figures would be encouraging but incomplete.

BECKY QUICK: I'd like to just ask you – we talk all the time about the animal spirits that started moving. You saw the stock market run up after Donald Trump's election. Does that show up in your numbers anywhere? Animal spirits are shortened – are short-hand for saying, you know, people got more optimistic. Businesses got more optimistic. Consumer confidence rose. The stock market rose. Does that show up in the sales line?

WARREN BUFFETT: Well, it certainly shows up. I mean, if you look at charge card the first quarter with Visa, American Express – you name it, I mean, get those figures. They were quite strong. And got stronger in March. And those are big numbers. I mean, people charged lots of stuff on credit cards. And if you – American Express lost the Costco account. So you're not comparing apples to apples there. But if you make adjustment for that – and incidentally that was around the world. And I think, I mean, these figures are announced by American Express. So I'm not telling anything new. But U.K. was up 17.5% for American Express. Well, you know, American Express has been around a while. They were up 15% in Japan. I'm talking local currency. I mean, and the U.S. was very good. Better than I anticipated. And it got better through the quarter. And certainly—

BECKY QUICK: Through the first quarter or the fourth quarter?

WARREN BUFFETT: The first quarter.

BECKY QUICK: First quarter, yeah.

WARREN BUFFETT: First quarter. And, you know, JPMorgan Chase is doing very well with their card. And I just think as you see, I mean, you can see what consumer's doing. Credit card volume will tell you a lot about the consumer and what their attitude is.

BECKY QUICK: Do you see that showing up at your consumer businesses, too, in the stores? At Nebraska Furniture Mart, at See's Candy, at Dairy Queen. How does that kind of play out?

WARREN BUFFETT: They're doing well. But the furniture mart – and we have other furniture stores, I mean, we have them with RC Willey in the West. And we have it with Jordan's in Boston. And well, they show decent gains.

BECKY QUICK: Okay, great. We're going to have much more from Warren, and by the way, guys, if you want to jump in, feel free to do that. But we're going to have much more from him coming up. We still have to talk to him about 3G and the political environment. And airlines and some of the controversy that's happened there. But right now we'll send it back to you.

BECKY QUICK: Welcome back to "Squawk Box," everybody. We are live in Omaha, Nebraska with Berkshire Hathaway's Chairman and CEO, Warren Buffett who is sitting down with us for his first interview since speaking to the Berkshire faithful who made their way here. About 40,000 shareholders who were here in Omaha over the weekend. And Warren, thank you again, for sitting down with us this morning.

WARREN BUFFETT: Well, thanks for coming out.

BECKY QUICK: There were a lot of questions that were brought up by shareholders this weekend. And some of them had to do with 3G, the private investment firm that you all have been so active with in a lot of different ways. It's not new controversy. It's been issues that have been brought up because 3G operates a little differently when it buys a business than you have when you've bought a business in the past. They're all about operations and getting things streamlined very quickly. Usually when you buy a business, you like to have the management there, you keep the management, and you let things continue to run. But it did bring some questions and, again, from shareholders this year including questions about how politically savvy it is to be doing business with a company that's going to be laying off employees in this political environment, with this president who has said he is very much in favor of protecting American jobs. How do you respond to that?

WARREN BUFFETT: Well, it does get a political response and it varies depending on who's president or how much attention the particular layoff gets or whatever it may be. You know, if we had not changed any ways we did business, we would be living as we lived in 1776. I mean, productivity gains are the only way that consumption gains come. If productivity per capita stays the same, consumption per capita stays the same. Unfortunately over a couple hundred years in farming, for example, we literally came up with tools, we got rid of the horses and had tractors. We came up with better seed, better fertilizer. All of those things. So whereas 80% of the people had to be working out of farms just to feed the country a couple hundred years ago, we now have less than 3%. And that means 97% of people can turn out other things that you want. So productivity – everybody understands productivity gains are the key to living better. But when they happen to you, very understandably, you feel that you're getting the short end of the stick. Society may be benefiting, but you're getting hurt. And we tried buying a few businesses that had troubles and all of that. And it wasn't any fun eventually getting rid of 2,000 people working at Berkshire Textile Mills or in other businesses we were in. So we've tried at Berkshire to buy businesses that already very productive and keep them that way. Or to have their managers keep them that way. 3G has come into businesses where they really could do the same level of business with a lot fewer people. And they've made the changes very promptly when it happens. And they've been good about severance pay and all of that. But they have followed the standard capitalist formula, Marxism formula, of trying to do business with fewer people. And that benefits everybody. It particularly benefits the owner. But it's a painful process. And sometimes there's a big political reaction to it. GEICO, which now employs 36,000 people, in the early 1970s or right after a fellow named Jack Byrne came in who cleaned up the problem cut almost half of its employees. I mean, it got rid of thousands of people. And it was painful. It was because of a management mistake. The people that got laid off no fault of their own at all, just GEICO management come up with the wrong prices. And they were losing money, they were going to go bankrupt. And a fellow named Jack Byrne came in and he saved the company. But in the process of saving the company laid off thousands of people. They had to lay them off promptly. So there will be readjustment – well, the railroad industry, after World War II had something like 1.6 million people working in it. It has less than 200,000 now. From 1.6 million to under 200,000. And it's carrying considerably more freight than it was at that time. Now it's true there was a passenger factor to that. But the improvement in productivity has been dramatic. Otherwise, the railroad business – there wouldn't be any railroad businesses existing like it did in 1946. But if you're – that's easy to talk about. But it's the same problem as trade. Trade benefits people in invisible and small ways. And to the person it puts out of business who spent 25 years learning a trade as a steel worker or as a manufacturer of shoes, it is a disaster. And a rich country – and we're ungodly rich as a country – 57,000 or 58,000 of GDP per capita, we have to take care of people who are the roadkill in better output for all the rest of us. And I don't blame anybody for voting against the system that they think is bypassing them and just throwing them aside because if you're a 55-year-old steel worker or a 55-year-old shoe manufacturer, you are not going to learn a new trade. And, you know, you're not going to have another job that's good. And yeah society has to take care of them because it's achieving a societal objective which is to get more output per capita.

BECKY QUICK: Andrew has a question on this as well, Andrew?

ANDREW ROSS SORKIN: Hey, Warren, to the extent that 3G is successful at using its zero-base budgeting to bring more efficiencies out of the companies that it owns, how much pressure do you think it's going to put on other units of Berkshire or companies that Berkshire owns, for example, Coca-Cola, which may have to follow the same type of model to keep the same type of margins given the success that 3G may ultimately have?

WARREN BUFFETT: Yeah, James Quincey the new CEO of Coca-Cola or designated CEO, has already said that there'll be 1,200 jobs reduced at headquarters at Coca-Cola. Now Coca-Cola has been a very, very, very profitable company over the years. And could afford to have lots of people around who aren't really changing productivity that much. But volume has leveled off more or less. But I would argue that even if it was prosperous, it shouldn't have more people doing it than it needed. I mean, that's the guts of capitalism is you don't have a lot of people doing something when fewer people can get the job done. You free those people up to work in other areas and innovate for them so that they bring out new products. And people live better when there's more output per capita. So you don't gain anything by having thousands of people around. You can afford to do it in some cases. But Coca-Cola is doing exactly the right thing if they look at their operation and say, "How many people do we need to do the job right?" And if you're very prosperous – the cigarette companies were this way in the past. I mean, they were so prosperous it really didn't make any difference – I forget the name of the fellow that flew around sent the airplanes for his dogs and all of that sort of stuff. And they could afford to do it. But that output for America, you know, goes down when that plane flies around with a dog in it. And prosperous companies tend to be sloppier than companies that are in tougher businesses. You're forced to think harder. And packaged goods generally has been a very profitable business. I mean, if you look at the great companies in that field for decades and decades and decades, they earned high returns on capital. And so you probably found more sloppiness in employment than you would find if you ran a very tough retail business like my grandfather's grocery store. He just couldn't afford it.

BECKY QUICK: Do you still like these companies where you see the margins coming down pretty significantly in industries like consumer packaged goods? Companies like Coca-Cola, like Kraft. You've got major investments in these areas.

WARREN BUFFETT: Well, Kraft, the margins have come up because they're doing just as much business. But they don't have people there that they don't need. And Coca-Cola, James Quincey has announced 1,200 people in headquarters. I will guarantee you they won't sell us Coca-Cola because those 1,200 people are gone. I mean, and we have, in Berkshire's businesses – some of them – a certain amount of slop in them. I mean, we don't drive it as hard as we could. But that's no tribute to me. It just means that isn't something I like spending my time on. I don't like a lot of inefficiencies. And some of our companies are extremely efficient. But ithey are not as efficient as if to feed myself tonight I had to have them running a maximum efficiency. But that's a defect of mine. I mean, that is not something to brag about.

BECKY QUICK: Straight ahead, Warren Buffett digs into Wells Fargo, defends the airlines and talks stock investments after the Berkshire Hathaway annual meeting. His comments in a special one-hour event coming up. Plus centrist candidate Emmanuel Macron winning the French presidential election. Market reaction and what it means for the global economy is just minutes away. And reports this morning that Comcast and Charter Communications are joining forces in the wireless business. We have the details straight ahead. The second hour of this special edition of "Squawk Box" with Warren Buffett begins right now.

JOE KERNEN: Let's get back to Becky who's in Omaha this morning, following the Berkshire Hathaway annual meeting. And she's joined by none other than Warren Buffett this morning who, Becky, you don't need to know about a company you don't necessarily have to use their products and stuff. I'm just thinking about, you know, Warren, opining on the airline industry. You know where I'm going with this.

BECKY QUICK: I thought you were talking about Apple because he doesn't have an iPhone either.

JOE KERNEN: Or Apple. Or Apple. But, you know, I love to hear his comments on the airline industry. Because, you know, friends have been telling him about what it's like to be at one of those airports and stuff. And you would walk on and you'd be like the kid, the rich kid that says, "Who are these other people, dad?" when they finally fly on – you have no idea, Buffett. I mean, don't pretend to. So you've read up on it, I guess, right? That's about the extent of it.

WARREN BUFFETT: I would make a small bet, Joe, that I have taken more commercial airline flights than you have in your life.

JOE KERNEN: Well, you're 86 or 87. All right, okay. All right. You've taken more breaths than me, too. That's not going to do it. I always say that.

WARREN BUFFETT: Ok, I see your –

JOE KERNEN: The last movie you saw in flight was – it had just come out, it was Casablanca. That was the last movie you saw on an in-flight commercial.



WARREN BUFFETT: I saw Sully the other day while riding on a plane. It's about a plane that goes down. But I have to admit it was on a commercial plane.

BECKY QUICK: Hey, Warren, let's shift gears here. We were going to talk about something else, but let's talk airlines right here since Joe just gave us that great entrée going into it.

WARREN BUFFETT: Sure. Yeah, right. Sort of an easy answer.

BECKY QUICK: Exactly. Like, answer this now following up. You are, through Berkshire, the largest investor in four major airlines.


BECKY QUICK: Including United. And we have seen the troubles at United. We haven't really gotten the chance to talk to you too much about that. What did you think, as the largest shareholder, when you saw the video of Dr. David Dao being dragged off? And then the response from Oscar Munoz who was called in front of Congress last week to testify on this along with some other airlines CEOs.

WARREN BUFFETT: Obviously it's a terrible mistake. And you actually stated that, you know, I saw the event with the fellow being dragged off and then the response. I kind of wonder whether Oscar had actually seen that when he made the response. If so, it was a bigger mistake by far than if he hadn't seen it. I mean, and I don't know the answer to that. But the natural tendency, if you've got 80,000 employees and you're about – some incident is to defend your employee. But it wouldn't be your natural tendency if you had seen the tape. So I don't know precisely. In either case, it was a mistake. In one case it was an egregious mistake. And you know, he's apologized many times. But your first reaction is going to get a lot of attention.

BECKY QUICK: You know, I understand what you're pointing to. Like, United has had some employees that have been unhappy since the merger. They've had some issues, some legacy issues and things they've been trying to deal with. He has been concerned about trying to make sure that the employees feel good about things. But, again, that video and that tone deaf response made a lot of people feel like they have forgotten that these are customers. Paying customers.

WARREN BUFFETT: No, I mean, and I worry about that with 367,000 employees as well. Somebody stands on their feet all day selling candy and people are yelling at them and, you know, it's Valentine's Day and they're trying like crazy to keep up. There'll be certain people who may blow up, you know, late in the day. And, I mean, we have actually had someone just walk off the job. They just get tired of the job.

BECKY QUICK: Oh really?

WARREN BUFFETT: Yeah, sure. Well, what really gets them is that we hire lots of temporary help obviously at holidays. And the customers know more about the product than the people we hire. I mean, we'll hire people and have 100 different pieces and maybe educate them a little. But the customer's been coming in for 30 years. And that psychologically is hard to handle when the customer starts telling you, "You don't know what you're doing." You know, and so a certain number of people may behave badly and what you hope is they don't behave real badly. And not too many people do it. But we'll have somebody do something. We'll have more than one somebody do something. If we have thousands and thousands of retail transactions, for example, some people don't follow the rules. We had an accident in O'Hare a while back on the railroad that somebody didn't follow the rules. And there the penalty is huge, I mean, in terms of injuries and so on. You do the best you can on it. And you know, the first report I get from Matt Rose every quarter, the first topic is safety.

BECKY QUICK: The head of BNSF?

WARREN BUFFETT: The head of BNSF. First report is safety. And the injuries have been driven down and down. But he's not happy til they get to zero. Well, I know that's what he wants to do. But you can't get them to zero. But you really want people to be treating everybody they meet in business as if it's the person they love the most. I mean, at GEICO, we've got thousands of people on the phone and they're just getting calls all the time. And I like them to have a picture of whomever they love the most, you know, it can be their mother, their wife, their dog. I don't care. Whatever it is, be talking to that person because it really comes through.

BECKY QUICK: You know, you mention that on Valentine's Day maybe you have somebody on their feet all day. They get fed up and maybe they walk off the job. You can understand why airline employees get frustrated because everybody in the airport is mad because conditions in the airport, getting through TSA. And then frankly, what the airlines have done themselves with their own policies where you're charging people for bags, you're cramming people in with less and less legroom. It's become very commoditized making the people feel like maybe more like cattle than like customers coming through here. But part of that, the airlines are responsible for. Not all of it, for sure.

WARREN BUFFETT: Oh, I understand.

BECKY QUICK: Not all of it. But the airlines themselves have created some of those situations.

WARREN BUFFETT: Yeah. One of the things they found is that a very high percentage of people are very price conscious. So you know, they may become like cattle cars, but people would rather be treated like – a significant percentage would rather be treated that way and fly for X than have far more leg room and more, you know, all kinds of things, and travel for X plus 25%. So to some extent they try to segment.

BECKY QUICK: Have they pushed a little too far along those lines?

WARREN BUFFETT: Well, it's still – the customer with how, you know, basically by flying, you know, and –

BECKY QUICK: Well, the customer would tell them by flying somewhere else. But the problem is with airlines you often don't have a choice.

WARREN BUFFETT: Often don't have a choice.

BECKY QUICK: More than 70% of the airlines are – the flights that are originated out of Newark are United Airline flights. I don't have a choice when that's my home.


BECKY QUICK: My home place to go.

WARREN BUFFETT: But some people, I mean, we suggested to people actually that came to the Berkshire meeting because the prices went up a lot. The demand went up a lot. Put on thousands and thousands and thousands of extra seats, the airlines told me. So I actually put in the annual report every year you can fly to Kansas City during the annual meeting time way cheaper than you can fly to Omaha. And you can rent a car there and be here in a couple of hours. And a fair number of people actually do that, you know, but a lot of people don't. I mean, people have different preferences. But there's no question, I mean, I would hate to run an airline. People are traveling. They're hoping to make a wedding, they're hoping to make a business appointment. I mean, it's important to them.

BECKY QUICK: It is. It is. And I understand all of those issues. I guess I'm asking you as the largest shareholder it sounds like you have not had any conversations with Oscar Munoz since any of this has happened.

WARREN BUFFETT: I've never met him or talked to him.

BECKY QUICK: So I'm asking you if it concerns you when reactions like this get the heads of these airlines called up in front of Congress.


BECKY QUICK: Would that potentially change the investment strategy?

WARREN BUFFETT: It wouldn't change the investment strategy. It's bad. I mean how bad it is, don't know. But there's no way that you aren't going to read about some airline. The one thing going for the airlines is they've become unbelievably safe. I never would have dreamt. But they have also worked toward having higher load factors. When they have load factors in the, you know, like they did in the past around '70, I mean, they went bankrupt. And they need high load factors. And high load factors mean a fair amount of discomfort. And it has kept prices from going up. But as you point out, I have not ridden a commercial airline for a long time.

BECKY QUICK: As Joe points out. Not me.

WARREN BUFFETT: It's a job I don't want, running an airline.

BECKY QUICK: I guess the only question is do you think Congress would do anything that would make your investment less worthwhile?

WARREN BUFFETT: They could. I don't think they will likely. But the interesting thing about it is if you regulated the airlines, reregulated them, you would have – well, whatever they decided to regulate – but you could have more leg space, you could have no overbooking. You could, I mean, you can regulate all kinds of things. The cost will go up. And that's the tradeoff.

BECKY QUICK: Andrew, you had a question too?

ANDREW ROSS SORKIN: In this similar vein, Warren, I have actually two questions. One relates to just whether you think forgetting about regulating the airlines per se. But just the idea that at least in certain markets you could see some pressure to open up more slots or effectively to take slots from different airlines and try to give them to others, what you think the risk is to the investment thesis from that perspective?

WARREN BUFFETT: Yeah. Well, if you get more planes around, call it seat miles. Too many seat miles around, it just gets to be brutal. I mean, they all went broke. If you put in bankruptcy and airlines into search you'll see 100 names or thereabouts just in the last 30 years. And you'll see, you know, all the big names you won't see Southwest or Alaska, but you'll see the big names. I mean, it's a brutal business because the incremental cost of one extra person in an empty seat is practically nothing. And the problem you'll have is keeping the pricing of that incremental seat from infecting all of the seats on the plane. And everybody knows the prices every day. So there's no way to dress it up or anything of the sort. There's ways of offering different combinations like whether you charge for this or that. And some people like that and some people don't like it. Everything you do though, your competition can copy. Now Becky makes a good point, if you've got enough of the gates at a given airline, then you have some protection as long as people want to fly from there. But people travel to other airports too under those circumstances. It's a very, very tough business. If you want one figure that really counts in determining how well the airlines are going to work economically it's going to be the percentage of seat occupancy basically. I was a director of U.S. Air, it was a really dumb investment on my part. I made it all by myself. I didn't even consult Charlie. And by the time the ink was drying, I knew it was dumb. And then it got dumber. And that airline actually went broke twice. Fortunately, there was a blip in between and we actually made a pretty fair profit out of the stock. But we didn't deserve it. And it went broke twice. And they would have a route like – and I'm pulling this out of the air obviously – but, you know, Philadelphia, Pittsburgh, or something like that. And as long as they were the dominant carry with a lot of gates at each end, it did fine. And then Southwest or somebody would come in and they would look at 14 cents a seat mile and revenue mile. And it's, you know, they could do it for 12 cents. And a big enough price differential will move people over. And of course the industry is looking for all kinds of things through loyalty points and all that. To make it stickier but in the truth, when people are going to fly from X to Y, they can go to their computer and figure out very quickly how much it's going to cost them. And it's a tough business. It was a suicidal business for a long time. Having the consolidation that came about through the bankruptcies has made it an extremely competitive businesses. I don't think it's a suicidal business anymore. But if they get down to running at 70% capacity or something like that, it'll be suicidal again.

BECKY QUICK: Andrew, you had a follow-up on that?

ANDREW ROSS SORKIN: Yeah, Warren, real quick. The other thing I was curious about is many of the U.S. airlines have lobbied – the Trump administration – have lobbied other Washington lawmakers against part of the Open Skies agreement arguing that a number of the Middle Eastern airlines like Emirates have effectively been subsidized and dumping their services in the United States at prices that are below what it truly costs them. About a $50 billion subsidy they've described. Do you agree with that assessment? What do you think should happen if that's true?

WARREN BUFFETT: I don't know the facts on it. But I would say that over the years, there's been a fair amount of below cost pricing. And anytime you're in a business where your competitor is getting into below cost pricing and there's not huge difference in the public's minds between flying airline A or airline B, the timing of their departures and all that – arrivals – may make some difference. But people are very price sensitive. And if people are pricing below cost – when I was on the board of U.S. Air, we had a lot of planes out in the desert. And if you get a lot of planes outta the desert you've got problems. And so I would say that you should try to figure out best system where having reliable, safe planes operating – it's better if they're overall operating profitably than if they're operating at a loss. Because if they're operating a loss you're going to have a bankruptcy situation and you're going to have to redo union contracts and all sorts of things like that. Incidentally, one other factor in the airline industry currently is, I mean, you really do have a pilot shortage to some degree. And pilots come in from the military. And they're just not coming in as much.

BECKY QUICK: What does that mean?

WARREN BUFFETT: Well, it just means that the pilot shortage has gained some strength relatively. Now, there are differentials as you work for the smaller airlines and all of that. But if you're running a big airline, one of the things on your list of things to worry about is—

BECKY QUICK: Labor costs going up.

WARREN BUFFETT: And you need experienced pilots. I mean, you have high requirements of hours for those people to be in those seats.

BECKY QUICK: We're going to have much more coming up with Warren Buffett. But, guys, why don't we send it back to you right now?

BECKY QUICK: Welcome back to "Squawk Box," everyone. We are live this morning in Omaha, Nebraska with Berkshire Hathaway's chairman and CEO Warren Buffett. He's been sitting down with us, going through a lot of issues. This is his first interview since talking to the 40,000 or so Berkshire shareholders who showed up here in Omaha this weekend. Warren, one of the items that came up with a little bit of controversy over the weekend was Wells Fargo. That was the first question that was posed to you from a shareholder. And the questions, a lot of them came in, and they were all kind of related to what you thought about Wells Fargo. Now in the past, you've run that clip from your Congressional hearings over Solomon Brothers. The very famous clip is where you say, "Lose money for the firm and I will be understanding. Lose a shred of reputation for the firm and I will be ruthless." I did have one shareholder who wrote in a question asking why you weren't ruthless when it came to Wells Fargo.

WARREN BUFFETT: Well, the CEO lost his job and gave back his pay. And I was not a director. So, I mean, I would say that the CEO feels that his life has been, in an important way, ruined. And incidentally, I know John some. I don't think it had anything to do with him making money. And I don't know what happened because I mean, we would talk to him once in a year or something of the sort. But they obviously came up with an incentive system that incented the wrong things. Now most businesses do that from time to time. We've done it at various businesses. I mean, you think you've come up with a brilliant idea and then you find out that it gets – it's probably happened in your family. I mean, you know, in terms of deciding what allowance to give or whatnot. You know, not everything works out as you anticipate. That's okay. But you get signals back that it isn't working and you got to stop it. The big mistake was whatever sufficient information had come back that this is producing a counterproductive effect, it's not resulting in more cross-selling as we call resulting in all kinds of games being played and phony accounts and all that sort of stuff. That's the moment of truth. I mean, that's the big moment. Because you have to stop it then. And you just got to say, "What's wrong with the system and how do we correct it?" And believe me, that happens at Berkshire. That happens every place. If you don't do it immediately and you let it run for a while, now you've got the ultimate problem because everybody that comes in says, "Well, yeah, but why didn't you do this when you first heard about it?" So that is the key time. And we have a hotline. We got about 4,000 complaints of one sort or another that come in on the hotline. Everybody that works for Berkshire has access to it. It comes into Omaha. Most are frivolous. The person next to me has bad breath or something like that. Well, they've got to work that one out on their own. Some of them, a good many of them, should go back to the human relations departments of the companies. Now, if they don't do the proper thing, then we then we have to do something about it. But mainly, they're things that are that level. And then a few are really, really important. And they're anonymous and there's no retribution. And you would certainly think that in any big bank including Wells Fargo or any big institution of any kind the hotline is bringing in lots of information. And whoever's in charge of that – at our place it is the head of internal audit – but it can be the general council, it can be there should be people looking at that. And they should be deciding which to send back to subsidiaries. But they should be deciding which ones should go to the CEO. And I've had a reasonable number of actions that came to me either through the hotline or anonymous letters to me and you can tell when it might be something serious. We've spent a lot of money investigating the things that come in like that because we turn it over to an outside person frequently. And a pretty good percentage of the time it lead to something pretty big. And at Wells Fargo, you know some stuff was coming up from the branches and people and somebody didn't pay any attention to it. And then if you wait a year, you know, it is just totally bad news.

BECKY QUICK: Have you lost confidence in the bank as a result? Do you think the bank's reputation has suffered as a result? And would you ever sell any shares as a result?

WARREN BUFFETT: Well, the reputation has been hurt. The fundamental earning power of the bank over a period of years has not been hurt in any material way. But--the reputation of the bank has been hurt. I would argue probably that better systems would be in place there now, just like they were at Salomon-- than probably exists at most of the competitors. I mean-- and that's true when other banks get slammed down on, whether it's mortgage things or some trading thing. I mean, that does focus the mind. And it focuses the directors, it focuses the media. So in general, I would bet on the practices being better in any operation that's had that kind of attack and scrutiny, and deserved attack and scrutiny, than it might be if you were just kinda sailing along, thinking everything-- I worry about getting complacent.

BECKY QUICK: Warren, we're gonna take a quick break. And Joe, I'll send it back to you.

JOE KERNEN: All right. Beck, thank you. Wow, lotta stuff Warren says it keeps flashing on my screen. It's amazing. Very important. Got people wanna know. And we're gonna have much more from Berkshire Hathaway's Warren Buffett.

BECKY QUICK: Andrew, thank you very much. Warren, we have been sitting down and talking with you for the last hour and a half which has been wonderful. And I haven't pushed you on this yet. But this is something you spent a little time talking about at annual meeting this weekend. Probably the question that we get from-- viewers and from shareholders more than any other is where do you think the market is headed? And what do you think of market valuations right now? It-- it's not something that you often comment on in depth. But this weekend you did talk a little bit about how it's harder and harder to find deals. How-- there are-- a number of factors that have certainly driven up the price of businesses. Can you tell us-- what's happening right now-- what-- going on?

WARREN BUFFETT: Well, the first part. Where the market's headed, I don't know. It'll-- be higher ten years from now. It'll be higher 20 years from now. It'll be higher 30 years from now. But I have no idea what the market will do in the short term. It if I thought it was a productive area of-- exploration, I'd do it. But I--don't know how to do it. My partner, Charlie Munger, doesn't know how to do it. So we think about businesses. Now unfortunately right now the largest, quote, "business" end quote, we own-- we've got about $95 billion in and it's selling at a 100 times earnings. And the earnings can't go up, which sounds like a pretty dumb investment and it is. But that's what we get on treasury bills basically and-- we literally have-- it's not all in bills. But we have $95 in cash including mostly bills and we are paying a 100 times earnings for something like I say whose earnings can't go up. You get 1% and that does not make me happy. And I like to buy businesses. We will buy businesses. But it makes it much tougher-- when there's 1% money around and the people who-- many of the people who buy businesses use as much borrowed money as they can. And when they get that-- at rates that are based off that very low rate of 1%-- they can pay a lot more money than we can-- using what-- pretty much all equity money 'cause that's the way we look at money. So-- we have not—made significant acquisition now for 15 months or thereabouts and—

BECKY QUICK: And getting a little itchy?

WARREN BUFFETT: I'm always-- I--if it goes for 15 minutes, I get itchy. But I can't afford to give into the fact-- I can't scratch. I get in big trouble. No. Once you buy a business, the business doesn't know what you paid for it. So it is not going to earn some appropriate amount just because you paid X for it. And if you do something dumb going in either in terms of the kind of business you buy or the price you pay for a perfectly decent business-- the results are with you forever. So it's my job to allocate capital and it's a very tough period in which to allocate capital. But that's okay. It makes it in-- why I come to work every day.

BECKY QUICK: You-- did say over the weekend that if-- See's Candy-- seller had tried to get $5 million more from you, you would have said no and walked away and that would have been a mistake. Are you still that cheap?

WARREN BUFFETT: No. I'm not as cheap because that taught me something. I'm still cheap. But-- not as-- not as cheap as I used to be and-- Charlie saved us on that one. The seller saved us 'cause he did come down. But Charlie-- Charlie also was--pushing me somewhat. And you can afford to overpay a bit for a really fine business depending on your degree of certainty that it's a really fine business and is going to stay one for a long, long time. And you can't make that decision about most businesses. I mean, it's just not given demand to be able to foresee 20 years out on most businesses. On the other hand if you pay big prices for something, you're counting on earnings. You're counting on being right a very high percentage of the time. Our projections of earnings that go up and, of course, the best kind of earnings are the ones that go up without more capital investment. Very easy to have great earnings in the utility business. You just put a slug of money in and you get out of the return it. But the return isn't that great. So you're really looking for something that will-- grow and-- I did mention one thing at the meeting, which I don't think people appreciated it-- at all. Is if you take say the five largest businesses in the country by market value, you're probably-- and assuming Berkshire is in there. It flips in and flips out. Let's assume we're out. Those five businesses have a market value of $2.5 trillion or more, you know, starting with Apple. You could run those five businesses with no equity capital. So you have close to 10% of the market value perhaps of the United States in five extremely good businesses that essentially take no capital. Now that was not the case in the past. I mean, if you were at the turn of the century and you were talking about U.S. steel and the big railroads and all that, you made large sums or Rockefeller with the oil businessby earning money with refineries or-- steel mills. And finally you earned enough so that you bought another one, and you borrowed some money along the way. But you had to build up equity capital dramatically as you went along. And even if you go back to the Fortune 500 of 30 years ago, the companies-- that were big took big capital. Now you've got the five highest value companies in the country. They don't take any capital. Even IBM-- has net no tangible assets. If you take the equity-- gap equity, subtract the intangible assets, it's less than zero. And if you take businesses-- you know, you take a Google. I mean, they may invest some money in fixed assets and all. But they actually need no equity capital. So you could have a $2.5 trillion business in the United States and not need equity capital. And that is a different world than the past.

BECKY QUICK: You over the years-- over the last ten or 15 years have become a much more industrialized company. Things like the railroads that do require more capital equipment-- more capital investment. When did you notice-- that the top five market cap companies require no capital investment? When did you make this realization? And does that explain your investment in Apple?

WARREN BUFFETT: It doesn't explain it because I've understood that for a long time. But it's become more and more concentrated. It used to be Exxon Mobile up there and some-- so the shift has been taking place and essentially the great, great, great businesses have become businesses that don't capital. And-- and that really wasn't true. I mean, the auto industry took a lotta capital. The aerospace industry took a lotta capital. The railroad industry. These are huge industries that affected America. I mean, they changed our country. Now you've got companies that have huge, market values changing the country. They don't take any money.

BECKY QUICK: Those companies by the way for people who are listening on the radio, we did just show a chart of the-- of-- or a full screen of it. It's Apple, Microsoft, Amazon, Google and who am I leaving out? And?


BECKY QUICK: Facebook. Right. And Facebook. Those are the five-- and Alphabet, obviously, the parent company of Google. It-- that's a huge shift. Would you like Berkshire's businesses to be more reflective of that sort of new paradox?

WARREN BUFFETT: I'd love it. I just haven't-- been able to build-- I-- got See's Candy and I've had one since then quite like that. I've got-- we've got a few. But-- those are the wonderful business-- they'll-- the businesses that grow and don't require money. And, of course, that's why they're a wash in cash and-- to the extent that they made it abroad-- some of it, they'd have to pay some tax if they brought it back. Now they use some capital be-- I mean, they- build headquarters and they have small amounts of inventory in some cases and—

BECKY QUICK: Research and-- development for a lot of these—

WARREN BUFFETT: --but it took-- you don't need it. You absolutely-- I--can run those businesses and they-- I mean, they can run them a lot better with absolutely no equity capital. In fact, a huge, negative, equity capital. You can't run Exxon Mobile with-- negative capital, you know? You can't run U.S. Steel. You can't run the railroads. You can't run the utilities-- all these massive industries that-- really what the country was built on up till not that many years ago. And now there's this huge shift to intangibles. And they produce products that people love. So I'm not saying that this is in any way, you know, frivolous or anything of the sort that it happened this way. But it makes a big difference. When people talk about capital shortages and how we need, you know, to bring the money back to the-- there's a whole bunch of things that are sort of built-- on this conception of how business was 50 years ago and sometimes it's useful for the people in those businesses to sorta play up that fact and not what really has happened in the way of change. But yeah. It is a big change.

BECKY QUICK: You're talking also about the shift away from an industrial-- economy. Away-- away from-- more towards services. More towards white-collar jobs in many of these instances too.

WARREN BUFFETT: And if you can find businesses that don't capital and they earn a lotta money, that's how you can become rich very easily very early-- now it isn't so easy to come up with it. But you can get the capitalized value of something, and nobody says, "Yeah. But it's gonna take a $100 billion to build it." I mean, if Google had come along and the infrastructure required would have taken a $100 billion, you know, that would be a different situation. In fact, Jeff Bezos has talked about that in Amazon. He said, "Look, it. With Amazon," he said, "We needed the internet."

"Somebody else spent billions of dollars developing it. But it wouldn't have worked without the internet." And he said, "We needed transportation. Somebody else had already built the railroads and UPS all that sort of thing." And he said, "We needed payment systems. That would take billions of dollars to build. But that had already been done by Visa and all-- along the lines." So he took three huge requirements where the other guys had spent the money, and then he combined them in a way that he didn't have to spend the money.

BECKY QUICK: You have talked—

WARREN BUFFETT: And it's brilliant. I give him great credit—for it.

BECKY QUICK: --you have-- talked extensively over the last several days, even the last several months about how Jeff Bezos is the best leader you think we have right now in the United States, about how Amazon is a brilliant company. And now you're talking about how it's one of five companies that take no capital to continue to build. How come you don't buy shares of Amazon?

WARREN BUFFETT: Stupidity. I was impressed with Jeff early. I never thought he could pull off what he did, and what's really-- I-- mean, I thought he could pull off something. But on the scale that-- that has happened. I mean, it's changed your behavior, you know? It's changed everybody in the office's behavior. And the remarkable thing about Jeff-- and everything else he's done it in two -- industries almost simultaneously that really don't have that much connection. I've never seen any person develop two really important industries at the same time and really be the operational guy in both. And he's done a good job with the Washington Post on the side juston it personally. But-- but here you take Cloud services. I mean, he-- there was a show on this-- that he did three or four months ago. He thought he would have two years of runway. He got seven years. You do not want to give Jeff Bezos a seven-year head start.

BECKY QUICK: Before the competitors jump in on—


BECKY QUICK: --Cloud services.

WARREN BUFFETT: --so the same time he's develop--he's shaking up the whole retail world, he's also shaking up the IT-- world simultaneously. Andyou know, I take my hat off to him.

BECKY QUICK: But by not buying shares right now it suggests that maybe you think they're too rich? Or-- is it that you don't understand the company's valuation?

WARREN BUFFETT: It's a big valuation. It-- it's very hard when you thought about something one-tenth the price to buy it . But we do it occasionally and, you know, you're talking now about getting multiples from the hundreds of billions. And-- but if you-- if you told me that you were gonna shoot me at the end of ten years ifthe short worked out better than the long, I mean, I would take the long side.


WARREN BUFFETT: I'm not buying any. But-- these are powerful, powerful ideas with big potential and he's executed.

BECKY QUICK: And he's executed on it. And-- that's what you tip your hat to. Now have you been in the process of looking for other companies? Back to your $95 billion. I thought it was $90 billion you told me last week. It's $95 billion in cash--

WARREN BUFFETT: Yeah. I-- we--

BECKY QUICK: --and cash equivalents?

WARREN BUFFETT: --we--put out-- our 10Q over the weekend and-- I think if you add up the cash every place. Now I don't really count all of it. This is regulated and there's-- butt -- if-- if you take the balance sheet and you add up treasury bills cash and equivalents and, you know, it goes up every month. It's higher now than it was on March 31st.

BECKY QUICK: And-- again the arenas? You're looking for deals anywhere? But probably something north of $5 billion are the type that you really—

WARREN BUFFETT: Yeah. Further north the better. I'd like to be in the North Pole.

BECKY QUICK: Okay. Guys, we're gonna have more from Warren Buffett in just a few minutes. Including when we come back, we'll ask him what the most factor is in determining-- market valuations right now. It's a question that we'll put to him right after this break.

ANDREW ROSS SORKIN: Okay. Thank you for that-- Becky. When we return, Berkshire Hathaway Vice Chair Charlie Munger. And Microsoft cofounder Bill Gates are also going to join Becky live alongside the Oracle of Omaha starting in just 15 minutes.

BECKY QUICK: Good morning again, everybody, and welcome back to this special edition of Squawk Box. We are live in Omaha, Nebraska with Berkshire Hathaway's chairman and CEO Warren Buffett in his first sit-down interview since speaking to the Berkshire Faithful, the 40,000 or so shareholders who convened here just across the street this weekend. And-- Warren, you mentioned something in the commercial break back before that there is-- one essential factor that will determine-- what you think about market prices and market valuations. What-- is that?

WARREN BUFFETT: Yeah. I can tell you the right question. I can't tell you the right answer necessarily. The-- most important item over timein valuation is-- is obviously interest rates. I mean, if-- iinterest rates are destined to be a very low levels-- not necessarily as low as they are now. But--very low compared to 100-year averages or 50-year averages, it makes any stream of earnings from investments worth more money. I mean, if you're-- the bogey is always what-- what government bonds yield. Now you can pick your maturity - and you see it in real estate. Real estate yields adapt quite-- quite quickly and fairly directly-- with interest rates and with-- appropriately. But stocks don't do it as much. But it's the same principle. Any investment is worth all the cash you're gonna get out between now and judgment day discounted back. Well, the discounting back is affected by whether you choose interest rates like those of Japan or interest rates like those we had in 1982 before Paul Volker took a sledge hammer to the economy. So when we had 15% short term rates in 1982, it was silly to pay 20 times earnings for stocks unless you felt the world was going to change at in a very-- material way. Once it's-- it's a huge bargain to buy stocks now if you knew these interest rates would stay at this level. And-- you can buy 30-year bonds. I mean, in Europe, they've been selling 50-year bonds. So, I mean, people are making a judgment every day and, I mean, the yardstick is there. It's just a question of whether you believe the yardstick or not. But that is something we don't like-- incorporate into what we will pay for a business. But it is incorporated in the market. It's not fully incorporated in the market. The stock market is dirt cheap now if these interest rates were guaranteed for ten or 15 or 20 years. And, of course, a 20-year bond? That's--you are in a sense making that kind of commitment. But that's the big-- that's the big thing-- that's the big thing investors have to think about.

BECKY QUICK: When you start thinking about that, Ben Bernanke was on with us-- just a week ago on—


BECKY QUICK: --Squawk Box. And he talked about how he thinks interest rates are going to be much lower for a long time to come. It's kind of the new, normal theory around 3% or so. Does that sound like something that you would buy into?

WARREN BUFFETT: Well, it's something I'd consider. But nobody thought we were gonna-- in 2009, nobody thought we would have a recovery like we've had, an employee coming back a couple hundred thousand a month-- month after-- I mean, the economy is doing well now. And I don't think people thought we were gonna have that for seven or eight years, and rates only inch up as much as they have. Now in part I do think that's because Europe is so low that the degree of difference that you wanna you have from there and the consequences for the dollar, and then the consequences for export industries. All kinds of things enter into how large a differential we really would want from a place like Europe. But nobody thought Japan-- you gt back 30 years ago, nobody thought Japan was gonna have these rates 30 years hence. And I didn't think in 2009 we would have these rates seven or eight years hence and—

BECKY QUICK: Ben Bernanke said the same thing. That he didn't think rates would still be—


BECKY QUICK: --this low at this point.

WARREN BUFFETT: --if there is something about this world that is going to cause interest rates to be very, very low, stocks will look very cheap and I will have passed up buying some businesses I should have bought.

BECKY QUICK: We-- we've had a guest on who--posited he thinks that interest rates will go back to 0% sometime in the next five years because he thinks we'll hit a recession, and when you realize how long it has taken us to build up, there's not a lotta dry powder there. It's not outside the realm of the possible.

WARREN BUFFETT: Yeah. Well-- we'll have recessions from time to time. But we had-- we had a recession when rates were 15% for a short term too. So I don't think anybody can predict 'em. That's the problem. I certainly don't think I can predict 'em. I obviously have ranges in my mind and all sorts of things. The one thing I know is that I don't like 'em-- from the standpoint of investing Berkshire's capital at this-- I will pay more—

BECKY QUICK: You don't like—

BECKY QUICK: --you don't like treasuries, you mean?

WARREN BUFFETT: Well, they are a big, big, big drag on returns and I will pay more for businesses when they are this low after I've sort of become used to this I mean, I don't think it's unthinkable that stay low for a very low time. And by low I mean a 100 basis points higher than where they are now. And it's the big variable for investors. I mean

BECKY QUICK: You said you have a range in your mind that you kind of keep at. What is your range that you're thinking of? And for how many years?

WARREN BUFFETT: Well it's not that good. But I would say this. Anybody that prefers bonds today to stocks is making a big mistake. I've been saying that year after year after year. Now I don't I won't say that under all circumstances. But-- it is ridiculous in my view for somebody to buy 30-year bond, in some countries 50-year bonds and so on, at these rates in preference to buying stocks. Stocks will bounce around a lot more and they can go down 50%. But a 30-year bond can go down 50% too at these rates and it bonds are a terrible choice against stocks and I've been saying that a long time, and it's just dictated by mathematics.

BECKY QUICK: Okay. Great. Warren, again thank you for your time. We have more to come and Joe, we'll send it back to you to tell everybodywhat is next.

JOE KERNEN: Yep. Thanks, Becky. Coming up Berkshire Hathaway Vice Chair Charlie Munger. And Microsoft cofounder Bill Gates will join Becky live alongside the Oracle of Omaha. We're gonna talk all kinds of different things. Markets and tax reform, health care among other things.

JOE KERNEN: Okay. Let's get back out to Becky in Omaha and she joins us now with two more special guests on top of Mr. Buffett. Continues. Hi, Beck.

BECKY QUICK: Hey, Joe. Yeah. We're calling this a meeting of the minds today. Three- incredibly intelligent-- people who are sitting down with us who have expertise in a series of some of the biggest issues facing our nation today. Charlie Munger is the vice chair of Berkshire Hathaway. Bill Gates, the cofounder of Microsoft and the head of the Bill and Melinda Gates Foundation. Warren Buffett of course is still with us. And-- gentleman-- I--was thinking that we could sit down and put all that brain power to work with some of the big issues that's facing our country right now. You all have spent a lotta time thinking about these issues, investing money in these issues and working on these issues. And-- I thought we'd start with health care. Not only because of the health care bill that was passed last week in the House. But Warren, you made some comments about that over the weekend at the meeting and, Charlie, you followed up with a few comments of your own. So I thought we'd jump right in when it comes to health care. Warren, you mentioned that when it comes to business, when it comes to the nation, but even for businesses, health care is more important than tax reform is because it's such a big chunk of GDP and such a big chunk of businesses' cost. Why don't you lay out what you think about where we stand right now with health care and what you think about the bill that was passed?

WARREN BUFFETT: Yeah. The-- you probably hear more from businesses leaders about corporate taxes being causing them to fight with one hand tied behind their back in terms of foreign competition. Corporate tax as a percentage of GDP have gone down from about 4% in 1960 to 2%. So they've been cut in half as a percentage of GDP. But health care has gone from 5% of GDP to 17% of GDP. And business pays a lot of the health care cost. So you-- you've lost 12 points and there's only a 100 cents on the dollar. But you've lost 12 points. Now in other countries-- most industrialized countries-- a number of them are also around 5% in 1960. And some of those have gone up to maybe 11% or something of the sort. But in terms of cost of manufacturing and really everything throughout the economy that is related to health care and health care is one seven one-sixth of the whole economy we've had a 12-point movement against American business and it continues. And I don't see anything necessarily in the horizon that would cause that number to be I think it's more likely to go up than down unless we change something fundamental. When something's happened to that extent, you better not count on it reversing itself from natural causes. There's a reason why it's happening and you better attack the reason if you care about changing the course of the cost.

BECKY QUICK: Charlie, let's get your perspective on this. You are the-- the head of Good Sarmatian Hospital. You're the chairman of Good Samaritan Hospital in Los Angeles. So you know health care on a very firsthand basis when it comes to this. But—

CHARLIE MUNGER: The wholesystem is cockamamie. It's almost ridiculous in its complexity and it's steadily increasing cost and Warren is absolutely right. It gives our companies a big disadvantage in competing with other manufacturers. They've got single-payer medicine andwe're paying it out of the company.

BECKY QUICK: You've also said though that-- there are some incredibly good aspects about our health care system that—


BECKY QUICK: --you're better off being sick here than anywhere else.

CHARLIE MUNGER: We have the best medicine at the top and we invented 60% of the world's good drugs. So we're in an amazing place. But if you look at it up close, the amount of waste from overtreatment of the dying is just disgusting. There's a lot wrong with the system.

BECKY QUICK: How would you fix it?

CHARLIE MUNGER: I would go to some…Medicare for all. I would police it. Pretty hard to keep out the fraud.

BECKY QUICK: Which is the universal health care system, essentially?

CHARLIE MUNGER: Yeah. With-- more anti-fraud. You get the same thing workman's comp. There's a lotta fraud and abuse in workman's comp system and the only way to keep it out is to be very tough on it all the time. And, of course, government's not very good at that.


CHARLIE MUNGER: You know? What's the incentive for some employee for the government fighting some poor guy with a broken back who's lying about everything? And so it's a very serious problem. But I think we should have single-payer medicine eventually and I think we should squeeze a lot of the fraud and folly out of the system.

BECKY QUICK: You're a Republican, so.

CHARLIE MUNGER: Yes. But I'm not a normal Republican.

BECKY QUICK: How would you get us to that point?

CHARLIE MUNGER: Well, it's very hard. But I think if they go to these cockamamie systems taking care of all the insurances, it just gets more and more complicated. And there's a lot to be said for having a basic health care like Medicaid that's for all.

BECKY QUICK: Bill, you wanna weigh in on that?

BILL GATES: Well, there's sort of two issues. There's how much money is there to help people with health care? And then are you changing the system-- so it's more efficient in some way? And it's a bit disappointing we don't have more ideas about bringing cost down. I think it's a super important problem. I think a lot of-- both politicians and non-politicians should come together on that. But the issue of the taxes and access-- which are also important, but they're getting most of the debate. So efficiency-- even during the Obama years was not the primary discussion.

CHARLIE MUNGER: One of the interesting things is that Kaiser Permanente, a non-profit bureaucracy-- if the whole nation had Kaiser Permanente care, the average quality of the care would go way up, and the cost would go down. So some people are doing a pretty good job.

BECKY QUICK: What do they do? What is the secret?

CHARLIE MUNGER: Well, they don't overtreat the dying and they have very good internists and pediatricians that they hire right outta medical school. It's just a very good system and the people who have the Kaiser Permanente care like it.

BECKY QUICK: Charlie, do you worry that if we went to a single-payer health care system we would lose the good parts of our system? The—

CHARLIE MUNGER: No. I think it would have an alternatice system that people could use. We-- already have that. We have a lot of our best doctors have opted out of Medicare. They just go to concierge medicine. They just leave the system. We have various ways that people who wanna pay more and have somewhat better care. They think-- and I-- of course, we want that as a safety valve. And that's what Europe has. You can opt out and buy your own. You can go to some other country and get your medical care or you can take the state. But nobody in any of these advance countries including Canada has the least interest of giving up I mean, medicine for all.

BECKY QUICK: Warren, you pointed out—

CHARLIE MUNGER: And it has ruined their capitalism either.

BECKY QUICK: But Warren did—

CHARLIE MUNGER: Like Canada doesn't have any capitalism.

BECKY QUICK: Warren, you did point out over the weekend though that our medical system subsidizes all those other nations. I believe it was you. Maybe it was Charlie. Someone said this over – that in terms of innovation –

WARREN BUFFETT: Well, I think it's true. I think somebody else may have emphasized that, but—

CHARLIE MUNGER: We get paid for it.

WARREN BUFFETT: But Bill would know far more about this than I would. But in terms of the major improvements in medical care or medicines for 320 million people out of seven billion, we've probably done quite a bit more than our share. But I defer to bill on that.


BILL GATES: Well, it's absolutely true that the companies here in terms of inventing new procedures, drugs, vaccines they've done a great job. Those are sold globally. You could say there's a small factor that because we go first and because the way the pricing system works that a tiny bit of our medical costs do accrue to the world. It's an industry in which the U.S. is strong, and the number of jobs in that area have actually shifted into the United States instead of out.

BECKY QUICK: It's a bright spot.

WARREN BUFFETT: It's an unusual system though in that the innovation and heavy research and all that is very, very, very largely concentrated on coming out with better products, which we'd love to have. But you don't see them handing out any rewards for bringing down cost. I mean, if you have a steel business or a retail business I mean, you're trying to offer a better product all the time to your customer. You're also trying to bring down costs with a vengeance at the same time. And I don't think that exists in the medical business, and it's 17% of the economy.

BECKY QUICK: Bill pointed out that there are two ways of looking at this. One is you have to look at the cost efficiencies to bring down the prices. The other is decide how much you're going to be using to fund all of this. And Warren, you said over the weekend that your tax bill would have been 17% lower had the proposed tax plan that the House has not passed been in place last year.

WARREN BUFFETT: Yeah. No. Based on the House bill, I'm a lot healthier now than I was a week ago financially. If the bill were enacted as written and I don't know all the revisions. But I do know this revision although it's received really a very minor amount of press. I just did my tax return a month ago and my income tax was a little less than $4 million. And there's line 62 and there's 680,000 or something like that on there. And line 62 disappears under this bill. So I save $680,000 on a little less than $4 million and I haven't done anything this week. I mean, I just watched the people vote in Congress. And I would say this, if this elimination of the tax applies on net investment income – if a couple has $250,000 a year or more of income, I think it would be very interesting for the constituents of every congressman that voted for that bill to ask just one question. Are you above $250 on your adjusted gross income? And if you were, how much would you save from what you paid last year from this bill you just passed?

BECKY QUICK: Meaning that they are voting for a tax cut for themselves personally while they're –

WARREN BUFFETT: Absolutely. Anybody that has over $250 and has a net investment income and the numbers get very big. I mean, I've had years when there have been more than $680,000. But I am $680,000 better off if everything else is equal just because of what happened this week. Now it has to go through the Senate and then change in Congress and a lot of other things. But it was huge what they did on cutting taxes for the rich in this. I mean, if there's one clear-cut message that comes out of that bill, it is we're going to cut the hell out of income taxes for the rich on investment income.

BECKY QUICK: Bill, have you analyzed the bill? The health care bill? And then do you agree with that?

BILL GATES: Well, Warren's correct there's a 3.8% tax that kicks in at a very high level of capital gains.

BECKY QUICK: It was the Obama surcharge. The Obamacare surcharge.

BILL GATES: And that goes away. So that's a super progressive tax that may not continue.

CHARLIE MUNGER: It may, too.


BECKY QUICK: Because this has go to through the Senate and then —



CHARLIE MUNGER: But you already have something like Medicaid for everybody. If you are so impaired you need to be in a nursing home and you're out of assets, you automatically qualify to have your nursing home bills paid. And they don't let your doctor come by and walk by 20 beds and bill $40 to the government every three days. He's only allowed to come by and bill very seldom. We have a system that polices the caregivers and provides Medicare and social security disability. If you're sick enough, you get total – you're in Medicare.


CHARLIE MUNGER: We've already gone a long way towards single payer. It's not a revolutionary idea.

BECKY QUICK: Would you agree with that, Bill and Warren? Do you agree with single-payer idea?

WARREN BUFFETT: I personally do.

BILL GATES: Yeah. I think you do have to—


BILL GATES: Yeah. It's got to be policed. I mean, you have Veterans Affairs, that's like a Kaiser.

CHARLIE MUNGER: No. It's worse.

BILL GATES: Okay. Fine. Kaiser, I certainly agree Kaiser is an exemplar of quality and they've gotten the incentive systems quite right.

CHARLIE MUNGER: Right. It shows it can be done.

BECKY QUICK: Their incentive systems, if I'm correct, are they pay doctors a salary?


CHARLIE MUNGER: The doctor does not get rich in Kaiser. But he has a very nice life and he gets –

WARREN BUFFETT: How many people – don't they – it's more than ten million, isn't it, that—

CHARLIE MUNGER: Oh, sure. Yeah.

WARREN BUFFETT: I mean, this is not a small system.

BECKY QUICK: But the doctor has a set number of hours and is not working—

CHARLIE MUNGER: What happens is they give the doctor a life, you know? You can be a woman doctor and you can work 50 hours a week instead of 90 and they've got good people. It's a good system.

BILL GATES: Yeah. It's really a successor to the health maintenance organization, which was not policed well. But it gets rid of the incentive for overtreating. Now they've done it and done it really well without any of the problems the HMOs have historically.

CHARLIE MUNGER: Germany doesn't overtreat either. They just – those estimates are just made sensible.

BECKY QUICK: Well, you talk about overtreating. You talk about the way that we pay per transaction.

CHARLIE MUNGER: We let the caregiver, the hospital and the doctor, decide what should be done when they're getting paid for it and naturally they decide that a lot of things should be done.

BECKY QUICK: Instead of caring for the outcome to try and get patients healthier and better. In fact, Charlie, you mentioned over the weekend a hospital that had incredible rates for heart surgeries.

CHARLIE MUNGER: Yeah, in Redding. Yes. I said that nobody goes through a heart surgery better than a man who doesn't need it at all.

WARREN BUFFETT: Good way of increasing your success rate.

BECKY QUICK: But can you expand for the people who weren't listening this weekend, who didn't know about that? There was one hospital in particular?

CHARLIE MUNGER: Yes. And a lot of people thought they were doing the lord's work. It shows the capacity of the human mind to dilute itself.

BECKY QUICK: Because they were doing surgeries –

CHARLIE MUNGER: Totally unnecessary surgeries –

WARREN BUFFETT: And nobody died because they weren't sick in the first place.

CHARLIE MUNGER: And in huge volumes and the systems didn't catch it. That's wrong. Our system should get – one of the guys that's good at this stuff is Atul Gawande at Harvard Medical School. He's doing a lot of good in medicine.

BECKY QUICK: What types of things is he saying?

CHARLIE MUNGER: Well, it's everybody's checklists and make fewer errors and not offer incentives. And he was the one that blew the whistle on McAllen, Texas. The doctors up there were just totally abusing Medicare. They just cross referred everybody for a lot of unnecessary stuff. And so they were all getting paid very heavily and that one little place was spending twice as much as ordinary places. And when Atul blew the whistle on them, they stopped doing it.

WARREN BUFFETT: When Charlie read that article—

CHARLIE MUNGER: We need more of that.

WARREN BUFFETT: When Charlie read that article, he actually – you sent $25,000 to the New Yorker to give to the author of it just because you thought he'd made a contribution to society.

CHARLIE MUNGER: Yeah. He sent it back and I finally got him to take it so he could give it so somebody else.

BECKY QUICK: Can we shift to tax reform and where you all think about this. How much time, if any, you've spent. Warren, I'm guessing you've spent some time thinking about tax reform and what you think needs to happen?

WARREN BUFFETT: Well, corporate—

BECKY QUICK: Let's start on the corporate.

WARREN BUFFETT: Just the word reform, I mean, reform is usually when your taxes are cut. It'll be tax change whether it's a better tax system or not depends on how it's constructed and—

BECKY QUICK: Well, our taxes, are the corporate taxes something that is a competitive disadvantage for American corporations?

WARREN BUFFETT: Not much. Not much. No. I can't think of any business we're in where our tax rate puts us at a – and we're in a lot of businesses – a significant disadvantage with foreign countries. For one thing, ours aren't as high as we think they are in many cases. They're not as low elsewhere—

BECKY QUICK: You mean the actual—

WARREN BUFFETT: Corporate taxes are 2% —

BECKY QUICK: Instead of paying 35%, many companies are paying much lower.

WARREN BUFFETT: Sure. Sure and 2% of GDP is not a high by U.S. standards. And then when you compare it to 17% for health care, I mean, it's, you know, every businessperson is going to go there and say, "Our taxes are too high." And if they really try and make it revenue neutral, you know, my guess is it won't pass because the people will for whom it goes up are going to argue against it harder than the people where it goes down. I mean, it's great for lobbyists and all that. So if they talk about it being – they always talk about it being tax neutral. If it is tax neutral, I don't think it will pass.

BECKY QUICK: And tax neutral is one way. But other people that we've talked to including Steven Mnuchin and others have said that, "Look, we have dynamic scoring that can bring this in. And as a result we think we can bring taxes far down and not necessarily have a pay for as you go along with that."

CHARLIE MUNGER: Well, of course, everybody's gotten the idea based on the world success in printing money and not paying too much of a penalty. Everybody has a notion that you can just cut taxes and you don't have to raise revenues. That is a very dangerous thing to do. The fact that it's worked pretty well some of the time does not mean it always will.

WARREN BUFFETT: Dynamic scoring – I've never seen anybody introduce dynamic scoring that says that things will come out worse than just indicated by the figures, and clearly sometimes it does. I am very suspicious of dynamic scoring.

BECKY QUICK: Do you agree that there's some sort of a Laffer curve though where you raise taxes to a certain point and it is a law of diminishing returns?

WARREN BUFFETT: If you get taxes to a 100%. Actually some people would work them, but very few. But that's not an argument for changing my taxes at all, you know, except upward. Everybody that wants a cut in taxes, you know, they higher some academics. And they look for dynamic scoring, and they say, "The country will be better off if I pay less tax." And it's very hard. I mean, I don't blame them. It's understandable. And so be very, very, very suspicious of dynamic scoring.

BECKY QUICK: If we had a simpler tax code, one that would not allow for so many loopholes, one that would not make it worthwhile for big companies to employ legions of accountants to try and make use of those loopholes, would that not be better? If it did nothing other than just even it out so that everybody's paying the same rate?

WARREN BUFFETT: If you free up labor that is now engaged in a lot of senseless procedures and put them to work in a market system and things that the market demands, that is a plus. There's no question about it.

BILL GATES: Well, there's another issue which is the certainty of the tax code and leaving it alone if you create – if you're constantly switching and saying, "Now this switch may have gotten rid of a few counts now. This switch gets rid of them." Then you are getting – everybody has to learn the new stuff, and uncertainty is not good, you know? You'd like once you fix the tax system to leave it alone for a long, long time.

BECKY QUICK: We've heard business leader after business leader though say that this is an uncompetitive situation. If you're an American manufacturer, you have things that are coming against you. If you are a technology company, maybe you have a lot of money that you're keeping offshores. Bill, do you think that it would be better if the tax system were reformed? You've been a little quieter on this.

BILL GATES: I don't think that the success of the technology sector will be improved by some tax change. The tech companies are not starving right now and this only comes up when you have profits and these companies have very high profits. So it's not like we're going to be stronger in the tech sector by making owners of those stocks richer.

BECKY QUICK: Apple has a quarter of a trillion dollars that it's keeping much of it offshore. Would it make sense to have that money brought back to the United States? Does it matter?

CHARLIE MUNGER: I would say yes it does matter and I don't see why we don't want people artificially shifting money to some foreign place to avoid U.S. taxes. But it's not artificial if you're really making the money in the foreign place, and they don't have high taxes. Why would we care if somebody makes a lot of money in some foreign place and brings it back at a low tax? I think there's a lot – having all this money pile up abroad and then borrowing against it artificially, it's a cockamamie system.

BECKY QUICK: So how do we fix it?

CHARLIE MUNGER: Well, I think they bring it back if you had a one-time forgiveness and I don't think that would hurt anybody.

BECKY QUICK: The tax holiday? We tried that in the Bush administration.

CHARLIE MUNGER: Yeah. And it worked.

BECKY QUICK: Worked temporarily.

WARREN BUFFETT: If you have a holiday, then that encourages more investment abroad and particularly in artificial places—

BECKY QUICK: To wait for the next holiday.

WARREN BUFFETT: We'll bring it back later on. I mean, there's some countries that are very small countries that have an awful lot of businesses. And if the consequence of doing that is you get a big break occasionally, you're going to try to figure out how to do more of it. It doesn't increase investment in the United States. It increases investment in some place where you still got a low rate. Maybe you'll get it back again.

CHARLIE MUNGER: Well, I'd go down – come down hard on all that stuff where you shift some patent that was invented here, send it over to Lichtenstein and collect all the patent royalties. It's gaming the system. But assuming you actually have made the money abroad and the taxes abroad are low, I don't see why we should impose a big tax on them when they would bring it back.

BECKY QUICK: Charlie, you would be a pretty strict dictator if you were running things, wouldn't you?

WARREN BUFFETT: He certainly is at Berkshire.

CHARLIE MUNGER: I don't like – if fraud runs rampant, say workman's comp, it just feeds on stuff like cancer. So you got to constantly police it, and a lot of people just won't do the work. It's a huge mistake because you're ruining your country and everybody gets sucked into the fraud and they do it because everybody else is doing it. So I'm a great believer in coming down hard on that stuff. Way harder than the government does and other people do.

BECKY QUICK: Kind of like Singapore?

CHARLIE MUNGER: Yes. Well I'm a big admirer of Singapore. You're right about that.


WARREN BUFFETT: Well, he's also in charge of public relations at Berkshire.

BECKY QUICK: Bill, just in terms of—

CHARLIE MUNGER: Caning actually leaves a scar. I'm quite serious.

BILL GATES: I never noticed that.

BECKY QUICK: Bill, very quickly, just the idea of a constant tax code as you mentioned. A holiday, a tax holiday doesn't necessarily lend into that idea and I'm guessing you're getting at the idea that American businesses want to know what the rules of the road are before they will invest on a long period over many, many years.

BILL GATES: Yeah. A lot of government policies including taxes, you want great predictability. And so it'll be interesting to see what they do. The overseas money although it's kind of a complicated thing, it's not like when that money comes to the U.S. people will start building factories that they weren't building otherwise. It doesn't change the profit potential of capital investment.

CHARLIE MUNGER: It's more likely to do something with it.

WARREN BUFFETT: Yeah. But some of it's already lent to us. I mean, or it's lent to XYZ corporation. In other words when companies go to the market in the United States, foreign subsidiaries of companies that have so called trapped cash buy those bonds. I mean, so it actually goes from an industry that doesn't have much use for the capital to somebody that really does have some plans for the capital under the present system.

BECKY QUICK: Great. Gentleman, if you'll bear with us for just a moment, we're going to slip in a quick break. When we come back, we'll have much more from Charlie Munger, Bill Gates and Warren Buffett.

BECKY QUICK: Welcome back to this special edition of "Squawk Box," where we are live in Omaha, Nebraska with Charlie Munger, Warren Buffett and Bill Gates. We are calling this a meeting of the minds and trying to tackle some of the big issues facing our nation and our world today. We've already spoken about health care here in the United States and the tax reform that's under way. Bill, I thought we could talk a little bit about the budget process because this is something that matters to you at the Gates Foundation. You spend, what, about $5 billion a year in programs trying to improve people's lives? I think there's something like 122 million children's lives that have been saved through vaccinations and nutrition provided by the Gates Foundation over the years. When we start hearing things about cuts in the State Department, an 18% cut to the State Department budget, what does that mean? What would happen to the projects that you have worked on over the years?

BILL GATES: Yeah, what's amazing is the success that our foundation, working in partnership with the U.S. and others has had, at improving health. And that helps stabilize these countries so that they can get out of their poverty trap. It also lets us see any health problems like a pandemic coming out of those problem countries so we can protect Americans from that. There was a proposal that the State Department would've been cut 28% which, for these health related things, would've been a much bigger cut. And so we're glad that, you know, and looks like the Congress won't make those cuts because they don't think we're so weak that we need to withdraw the malaria bed nets or the HIV medicine. I'm very lucky that I get to go and see the great success and then, you know, say to the U.S. taxpayer, "Hey, we are performing miracles here." 122 million children's lives saved, over ten million people who are alive because we helped provide the drugs, the HIV drugs, the PEPFAR program that started under President Bush. So I think we're strong enough to help stabilize these countries, see the pandemics early. And I think that Congress will maintain these investments. So I'm, you know, I think that's very smart.

BECKY QUICK: We are getting close to a goal that you've been after for some time, which is the eradication of polio. How many cases this year?

BILL GATES: We've had five this year. Every day I get up, you know, check to see if there's been a new case. Right now, all the cases are in Pakistan, Afghanistan. We're still making sure in Nigeria, where Boko Haram is, we're still a little worried, have we missed some cases there. But those are the two hot spots. And so with luck, this'll be the last year where we have any cases.

BECKY QUICK: If you go a year with no cases, then it's declared eradicated? How does that work?

BILL GATES: Actually, they make you go three years, which is wise because they want to make sure you don't miss any. And so, we'd start that three year clock at the end of this year, if things go well, which right now it's on track. I'll be going to Rotary for their hundredth anniversary in June and congratulating them because they've been very involved in this. And their workers have volunteered, they've raised resources, they've spoken out. They're one of the big heroes in this whole effort.

BECKY QUICK: You know, there was a big shift I think in overall thinking. The election, this past election reflected that. Americans are worried about their own jobs. There's big chunks, swaths of the country where they feel like jobs have left, they have not been replaced. And Warren, we talked about this a little earlier, about job training programs that haven't been there. But people who have suffered through these issues of job losses here in the United States probably will look at it and say, "We need to take care of ourselves instead of looking abroad." Charlie, what do you say to people like that?

CHARLIE MUNGER: Well, there's a long tradition of Americans going after the worst poverty and disease abroad. John D. Rockefeller was one of the best philanthropists that ever lived, and Bill is following his example place after place. Rockefeller saved more damn lives and, of course, the Rockefellers helped bring in the miracle grains – has a good record. And what I like about what Gates and Buffett are doing is they're tackling stuff that other people don't.

BECKY QUICK: Joe has a question as well. Joe?

JOE KERNEN: It's on this topic, and it's for Bill Gates. I promised I'd ask this question, Bill, for a gentleman that runs a school in one of the poorest parts of the world. And I think you've kind of answered it already. It's hard to, you know, if you have health concerns, it's hard to have education. But his point is that he wishes that you would focus even more on education. He says that poverty is a bigger concern than health. And the problem is if the economy is too small for the number of people in it, there's no way to do anything about, you know, these lives that these people have, unless you grow the economy. So his point is that you get a better return from education than maybe from health care. But I think you've already answered it. It's hard to get an education if you're dealing with health problems as well. It's a chicken and egg thing, I guess.

BILL GATES: That's right. You really need both. If a kid is malnourished, they're not developing either their body or their brain. So first is health, then it's education. Then third is a government that creates opportunity. And when those three come together, you get out of this poverty trap. And so the U.S. government funds we've been talking about, some of those do go to international education. And that's why a lot of aid recipients like India, Brazil, Mexico, even South Korea in the 1970s, they have gotten out of poverty. And now they've turned around and they're contributing. We need to do that same thing for the poor countries in Africa.

BECKY QUICK: Warren, you spent I believe, $2.9 billion that you gave back to the Gates Foundation last year and the other four family foundations that you have. This has been several years, many years that you've been doing this. I know you believe very strongly in the foundation's cause, trying to make sure that all people have healthier and improved lives. But when you start thinking about that, it's massive amounts of money that you all are spending on this. But why is the government money so important to go along with this? Can't philanthropists just do it by themselves?

WARREN BUFFETT: Well, $5 billion is a lot of money. But if you're talking about percentages of budgets, Bill can give you better figures on this. The United States actually lags behind a number of countries in terms of the percentage we use for foreign aid and that sort of thing. But the answer is we were, all three of us, we're so lucky to be born in this country. I mean, it's incredible what has been accomplished here. And that can be maybe not replicated 100% around the world, but if you believe every life has equal value – I believe that and Bill believes that. Melinda believes it, my children believe it. The question is, what can you do to push that along so not only does every life have equal value, but every life has equal opportunity. And health enters into that obviously huge. Governmental policies do, education. Health is the one that you can see the impact on. Bill can give you the figures on the number of kids five and younger that die every year in the world. And it's been cut in half in, what, 30 years or something like that, Bill. And, you know, his goal is to cut it in half again. I mean, just think of the difference. I mean, if you have children of your own, you know, how would it have been if they'd lived in some terrible part of the world? So it just seems obvious that to help people around you and you help people around the world.

BECKY QUICK: Bill, you're a bit of a statesman. You travel the world bringing this mission to other countries. You also probably spend some time in Washington. What have you thought in terms of what Washington is thinking these days about foreign aid missions?

BILL GATES: Well, the history is the U.S. has been generous. Not at the level of other countries, but because we have a large economy. In absolute, we give the most. So it's $30 billion a year going out to help these poor countries. Germany and the U.K. are tied for second at about $18 billion each. And so the scale of government resources is what lets us get the bed nets and the HIV medicine out there. Philanthropy alone couldn't do it. It can try out new things in an innovative way. But only that government level generosities let us achieve these incredible goals. And as I've met with the Congress, I've been impressed at the commitment to continuing this by both parties.

BECKY QUICK: Have you spoken to Rex Tillerson, the head of the secretary – the secretary of state?

BILL GATES: I have. And I'm sure I'll be talking with him a lot more because we're in partnership with the part of the State Department called USAID that is delivering that $30 billion. And we're always getting smarter about how we measure it, how we do it in a smarter way. And so he'll be a key partner for us.

BECKY QUICK: Okay. We're going to slip in a quick break right here. We'll have much more coming back with these three gentlemen in just a moment.

BECKY QUICK: Welcome back to "Squawk Box," everyone. We are live in Omaha, Nebraska this morning with Warren Buffett, Charlie Munger and Bill Gates. And we've been talking about a lot of different issues this morning. But one thing, gentlemen, our viewers are always keen to hear are your insights into the markets, where you think about things. Warren already told us this morning that he thinks interest rates are the one key factor that determine whether markets are valued too rich or not. And I just wonder if you two could add some comments to that. Bill, what do you think about the market's valuation these days.

BILL GATES: Well, the multiples are fairly high. And that's because, as Warren says, it's all benchmarked to the interest rate. So if interest rates go up a lot there you'd expect some retreat from these levels.

BECKY QUICK: Charlie, when you look around, is it hard to find deals these days? Is it hard to find opportunities?

CHARLIE MUNGER: Of course. Of course, it's hard. We have an army of people in – finance and we've got an army of people in so-called shadow banking who are financing these people to buy any companies that they want, with that liberal leverage. And, of course, they pay high prices. They get part of the upside and they don't take any of the downside. And they get fees off of the top. So it's fee driven buying. And it's very extreme. Of course, it makes it hard for us to buy companies.

BECKY QUICK: Do you find more opportunities in the United States or elsewhere right now?

CHARLIE MUNGER: Well, we're not –we have long periods where we don't do much anywhere.

WARREN BUFFETT: We're taking up space now. We've run out of opportunities.

CHARLIE MUNGER: That's why we have so much in the way of treasury notes.

BECKY QUICK: $95 billion roughly cash and cash equivalent at Berkshire.

CHARLIE MUNGER: We don't like that. But there're times in finance when people just throw the money away as though it were confetti. I think there's a lot of idiotic deal making in venture capital now. And there's a lot of idiot – if we had some big recession, I think a lot of this labored finance would present a lot of agony.

BECKY QUICK: Do you think—

CHARLIE MUNGER: And so I don't think that the future is just guaranteed to be all rosy.

BECKY QUICK: Do you think a recession's in the cards or—

CHARLIE MUNGER: No, I don't think any of us know. Anybody that isn't modest about his theories about economics hasn't been paying attention in the last six years. People have been utterly surprised in things they deeply believed or fixed in that weren't fixed at all. Who would've guessed that we could print all this money and then not have any inflation?

BECKY QUICK: Do you think we've gotten out of this, or is this still a movie that has yet to – or do you think that this is still a movie that we haven't seen the ending on yet?

CHARLIE MUNGER: I think it's always a movie where you haven't seen the ending. One thing you know is there'll be good stretches and bad stretches in the future.

BECKY QUICK: All three of you are in the positions you're in because you have had phenomenal successes in investing and in business. But you didn't get there without some hiccups along the way.

CHARLIE MUNGER: Yeah, but we got ahead, we're pretty conservative.

BECKY QUICK: I ask this just because Warren has talked about his worst trades in the past. And Warren, I believe you said it was Berkshire Hathaway itself that was your worst trade.

WARREN BUFFETT: Yeah, but I have plenty of other competitors. The three basic businesses – there are three companies came together for Berkshire, actually. Diversified Retailing and Blue Chip Stamps were two others. And the base companies of both of the other two totally failed, disappeared. So we're three for three in terms of our building blocks. And we thought they were okay at the time, didn't we, Charlie?

CHARLIE MUNGER: Well, we bought them so cheaply, that we could return more money than we paid. And then we took the money and bought these other companies. So it wasn't as though we lost big chunks of money. It's just that it was such a dumb way to do business. Scrambling around with those unfashionable dying businesses, Textile Mills in New England. The power costs in the south on the TBA country were 60% lower than they were in New England and they could – textiles that can yield piece of electricity. What kind of an idiot would go into textiles in New England?

WARREN BUFFETT: The guy on your right.


BECKY QUICK: Charlie, if you had to go back through the years, what would you quantify as your worst trade that you've ever made?

CHARLIE MUNGER: Well, I might if I went way back, I could find you trades when I levered a bunch of convertible bonds and, you know, you go back to the very earliest Munger struggling for rationale, you'd find some dumb trades.

WARREN BUFFETT: Every smart guy is tempted by leverage.


WARREN BUFFETT: And some of them are broken by it. And it's somewhat capricious in terms of which ones get broken. Wouldn't you say, Charlie?


WARREN BUFFETT: And Charlie came close.

BECKY QUICK: Is there one that stings in particular?

CHARLIE MUNGER: Well, every failure stings. It took a long time. I made a tech company investment. And we damn near went broke and we hovered on the edge of a precipice for about three or four years. And it was agony. And it was a lot of money to me at the time. Now, we scrambled out of it with a pretty good profit. But it wasn't the world's smartest investment. And it took a lot of intelligent scrambling to rectify the situation. And I'm not looking to repeat the dumb decisions that got me there.

WARREN BUFFETT: We'll find new ones.


CHARLIE MUNGER: Yeah, we will.

BECKY QUICK: Bill, how about you? What's the worst trade you think you've ever made, or one of?

BILL GATES: Well, my expertise, or reported expertise, is more in software. And so things like, you know, my role in not having Microsoft lead in search or not lead in the phone operating systems.

CHARLIE MUNGER: Or in the Cloud.

BILL GATES: Right. We are number two there.

CHARLIE MUNGER: Yeah, but you started five years late.

BILL GATES: Yeah. So those are the ones that I think about at night, more than stock trades. I do have a heavy weighting in terms of the investment team I work with in Mexico. So we're not looking too smart right now, but I'm optimistic that will turn around quite well.

BECKY QUICK: Andrew, I think you have a question as well?

ANDREW ROSS SORKIN: Becky really, this question is for Warren. And it comes from a number of shareholders who sent in emails after the annual meeting, who said that we, meaning Becky and I and Carol, missed asking you directly what your views were of Donald Trump and his performance thus far as the president when it relates to the economy. So I thought I would just ask it straight up.

WARREN BUFFETT: Well, I don't think he's had that much of an effect on the economy yet. And I said a year ago at the annual meeting, much of the – I was 100% for Hillary and did a lot of fundraising and all of that sort of thing. And discussed with some of my friends, I said I thought Berkshire would do fine under either person that's president. And now, that doesn't mean you can't have recessions under either one. But the president is probably over emphasized – the presidency is – it's the most important job in the world. But it's still over emphasized in its relevancy to stock market fluctuations or even business prosperity. We'll see how it all plays out. But I do not make investment or business decisions based on who is president or who I think is going to be president.

ANDREW ROSS SORKIN: Warren, one more follow.

WARREN BUFFETT: Have we ever made – oh, excuse me. Okay, go ahead.

ANDREW ROSS SORKIN: No, no, one follow up came from another shareholder who asked, given – well, I'll read it to you. Given the many CEOs that have been supportive of Trump and seem to have his ear now as president, do you think that your support of Hillary Clinton has had any impact on Berkshire's ability to influence policy?

WARREN BUFFETT: No. I have never called the president in my life. Never. And I've never really sent messages to a president through a Cabinet member or anything of the sort. So and, obviously, I've not done so with Trump either. So and I've never – Berkshire Hathaway parent now at the subsidiaries where they have specific interests in railroads or utilities, they've employed lobbyists, I'm sure. I know they have. And they've made political contributions. Berkshire Hathaway parent has never, to my knowledge, employed a lobbyist, and certainly has never made a contribution in 52 years to a political candidate, from the dog catcher up to the president of the United States.

CHARLIE MUNGER: My idea is that generally, there's way too much hatred in American politics. And that the parties hate each other so much, they both get quite irrational. And I try to avoid that kind of dense hatred. Why should you expect perfectly rational behavior from a politician, whether on the left or the right? And what is so constructive about this miasma of hatred which you see all the time? It's quite counterproductive for the country. And all these politicians are partly right. I think Trump was exactly right when he said he ought to get along with China and he stopped talking about trade all the time. He frequently does some learning that's quite admirable.

BECKY QUICK: In terms of learning, gentlemen, the three of you have spent an awful lot of time together. And you learn from your mistakes, but I'd guess you also learn from each other. Is there something that you can say that you've learned along the way? And Warren, why don't you I start with you?

WARREN BUFFETT: Well, I'd be crazy if I went around people like Charlie and Bill and wasn't learning. I mean, that's been part of the great fun I've had with both of them. I mean, I've known them now both a long time. And when we have the annual meeting, and Charlie sits down next to me, you know, I'm going to learn something during the ensuing few hours. And the same way with when I met Bill, I think we spent about ten or 11 hours right there. And we were regarded as anti-social by the governor of the state of Washington because we wouldn't come out. So I can't think of much more fun than learning from other people. And these guys are, you know, they are unlimited resources in that way. They're much broader than I am. And so I've got way more to learn from them than they have from me. And I take advantage of it.

BECKY QUICK: What did you learn from Charlie yesterday sitting next to him?

WARREN BUFFETT: What did I learn from Charlie? Charlie was—

BECKY QUICK: Or two days ago, I should say.

WARREN BUFFETT: I'd have to go over it, but I'll guarantee I did, Becky. Just this morning, we're talking about, you know, essentially Kaiser. I mean, these are things I know something about, but it helps when I hear Charlie articulate thoughts on it. It helps when I hear Bill articulate thoughts on what could be done to improve the world.

BECKY QUICK: Bill, how about you?

BILL GATES: Well, it's been really unbelievable for me to have the friendship first with Warren and then with Charlie as well. Because they come at things from more of an economic, business point of view, and I'm more on the technical side, the fact that we often see things the same way is kind of amazing. And, you know, the world's unfolded in all these surprising ways. Take the financial recession. People still don't understand that. But as I sit and talk to the two of them, I get a sense of, "Okay, what would make that happen again?" Also, even beyond numbers, just the way they think about people. The way they think about integrity, setting an example. I am a much better manager because I've known the two of them.

BECKY QUICK: Charlie, you mentioned over the weekend that your wife wondered why you were spending so much time being so impressed with a young guy, Warren Buffett—

CHARLIE MUNGER: I wouldn't eat the carrots.


WARREN BUFFETT: Well, broccoli or spinach or Brussels sprouts or all that other stuff.

CHARLIE MUNGER: Yeah, right. No, I just told her that's a very unusual young man.

WARREN BUFFETT: Wonderful wife.

CHARLIE MUNGER: She was wasn't automatically in favor of a crew-cutted young man that thought he knew everything, operating from his sun porch. She came to appreciate you, but it wasn't immediate.

WARREN BUFFETT: Well, I appreciated her immediately. With better reason.

BECKY QUICK: What have you learned from Warren and from Bill over the years?

CHARLIE MUNGER: We've all learned a lot from each other and from the world. And it's amazing how, having worked so hard to learn, how much we don't know. We don't know what's going to happen to inflation five years out. We don't know whether we're going to have another recession.

WARREN BUFFETT: Well, we know we're going to have another one, just when. Yeah.

CHARLIE MUNGER: Yeah, we know there'll be another someday, yeah. And I do have once – my only controversial idea apart from my notion that we'll eventually get single payer health care. And that is that my fellow Republicans that want to take away all this regulation of the major finance, I think that's bonkers. I think that if you're using the government's credit to maintain your deposits, you should behave in a pretty careful, standardized way. Let the people who want to swing for the fences get a different forum. But I don't think we want our too big to fail places swinging for the fence.

BECKY QUICK: The argument--

CHARLIE MUNGER: I think they've got a duty to behave conservatively.

WARREN BUFFETT: Yeah, and we—

CHARLIE MUNGER: Berkshire behaves conservatively. We could've made so much more money with no trouble by just being a little more leveraged. Do we really miss it? I don't think that – what difference does it make whether Warren has another few million dollars?

BECKY QUICK: The arguments in favor of rolling back some of the regulation on the banks are that, as a result, it's tougher for businesses to get access to credit, it's tougher for consumers to get access to credit. And that, in turn, slows down the economy and hurts consumers and businesses along the way.

CHARLIE MUNGER: Yeah, but that – they like the – finance. In other words, some of the normal finance, they worry about. It is true that some of the new regulation has taken banks out of financing leveraged buyouts directly. And that we have shadow banking instead to do that. I think that's fine. What's wrong with shadow banking?

BECKY QUICK: Well, because you waited for the last two minutes for that controversial thought, we don't have more time to push you on that, so we'll let you have the last word on it. But Warren, Charlie, Bill, we want to thank you very much for your time today. We certainly appreciate it. And we appreciate your generosity with your time.

WARREN BUFFETT: Thanks for having us.


BECKY QUICK: Thank you. Folks, that does it for us today. Make sure you join us tomorrow. Right now, it's time for "Squawk on the Street."

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