This morning on CNBC's Squawk Box, Warren Buffett chatted by telephone with the Squawk team and guest host Jack Welch, the former Chairman and CEO of CNBC parent General Electric. Becky Quick is traveling with Buffett in China, and put him on the phone to react to news this morning that Merrill Lynch had to write-down almost $8 billionin bad bets on mortgage securities and leveraged loans.
Among the topics: Merrill Lynch's big write-down, the SIV "super fund", the health of the U.S. economy, the railroad industry and why lots of furniture-buyers in Boston are hoping the Red Sox win the World Series.
Carl: If you're just waking up, Merrill Lynch coming out with an addition two-and-a-half billion dollars in writeoffs for the third quarter. We have Becky Quick traveling with Warren Buffett in China this morning. They arrived in Dalian, how long ago Becky?
Becky: Carl, we've been here for just about ten hours, less than 12 hours. We arrived this morning, I believe, around 9:30. We've just finished up from that dinner we told you about before. Last time I called in, you were asking about some of those PetroChina headlines that have been coming out, and my guess is that happened because Mr. Buffett earlier today, probably about three hours ago, was at a press conference with somewhere between 35 to 50 journalists here in Dalian. He was asked a series of questions, one of which was what about that PetroChina stake? He did point out he has sold off his entire stake, as he said before. And he also added to that today, that since he's sold off, since that news was made, he had written a letter to the head of PetroChina thanking him for all of his efforts and his work and the reason he sold out of that stock is because it had appreciated so much and he did make a handy profit out of it. Of course, the stock's taken off since then, and he pointed that out as well. He had written that letter to make sure it arrived in China before he did today.
This news from Merrill Lynch that you were just talking about, was something Mr Buffett and I had just been talking about. We just heard the news ourselves when we called into the control room. But he's here right now and I thought I'd put him on with you. I hear you also have a friend of his on the set, Jack Welch, so maybe the two of them could talk a little bit about that. I'll put him on right now.
Joe Kernen: Great. Mr. Buffett?
Warren Buffett: Jack?
Joe: How are you? It's Joe Kernen.
Joe: Good to hear from you.
Warren: Oh, hi, Joe.
Joe; You avoided the Bear Stearns investment, never had any interest, we found that out now. Now we see that Merrill Lynch lost $2.85, their write-down in the last month has become seven-and-a-half billion. Do you think we're getting close to fair value yet on some of this stuff?
Warren: Well, I don't know the answer to that. That is a big number, but, I, you know, I've, I've looked at some of the instruments out there and they're hard to figure the value of.
Joe: Is it marked to myth, that's a term you like to use. Are we still at mark to myth or is it getting closer to being marked to reality?
Warren: Well, we're getting closer, but that doesn't mean we're there. (Laughs.) The way to find out what something is worth is to sell a small piece of it. You know, if they sell 10 percent of their position, it's hard to argue the other 90 percent is worth more than that. It may be worth less because of size, but it's not worth more. You know, they may not like the market but I didn't like it with some of the stocks I've owned over the years but that was the market.
Jack Welch: Warren .. Jack.
Warren: Jack, how are ya?
Jack: Hey, how are you?
Warren: I'm here in China, and they're all asking me about the round of golf you played against Greg Norman some years ago. You have anything you'd like me to tell them?
Jack: Give them the t-shirt you made.
Warren: I'm giving it to them hole-by-hole, just the way you've always gave it to me. (Laughter.)