This is a transcript and video clip of the first part of Warren Buffett's live interview this morning on Squawk on the Street with CNBC's Becky Quick, in which he talks about the Federal Reserve, the U.S. dollar, the economy, and how his retail businesses are doing this holiday season.
Becky: I'm here with a very special guest today - Warren Buffett. Warren, we know it's hard to get you out of Omaha, but very once in a while he does leave Nebraska. Today's he's in San Francisco, and he's here for a very special cause, campaigning, or actually trying to raise money for Hillary Clinton who is running for president.
We're going to get to all of that in a moment, but, Warren, first off, I just want to start off talking about the Fed. We spoke last night, talked a little bit about what the Fed rate decision means. Tell us again what it means to you as an investor.
Buffett: As an investor, the Fed action today means nothing. We will buy a stock that we like today if the Fed raised rates or if they lowered them 50 basis points. We wouldn't sell anything based on it. It just isn't important to somebody that's going to own a business, or a part of a business through a stock, what the Fed does. If you were going to buy a farm today, if you were going to buy an apartment house today, and you looked at it as a good investment, you would not sit around, you know, on pins and needles, waiting to see what the Fed did.
We bought Washington Post stock in 1973 and it's worked out over one-hundred for one and I don't know what the Fed was doing then. So it's not a factor in our thinking on investment decisions.
Becky: Still, when you're looking at broader issues, something like a bet on the dollar or against the dollar, as you've done in the past, it is something you have to pay attention to, what the Fed is doing.
Buffett: Well, it's a big macro factor. The Fed is not the primary determiner of what happens to the dollar. Now it's true that when you have a weak dollar like we do now, if they take the rates way down, it will put more pressure on the dollar. But the real determinant is the current account balance, the trade balance. And over time, if you keep shipping two billion dollars a day out of the country, as we do of assets, you put pressure on the dollar and that's what's happened.
Becky: There are some people who, for the most part all of the economists we've spoken to say they expect a 25 basis point cut from the Fed today. There are some people, especially some market players, who are pushing for a 50 basis point cut. Is there any risk to cutting that, especially when you look at all the bad news that's out there today?
Buffett: Well, there's some .. it does have some effect on the foreign exchange market. But I really leave Fed policy to the Fed governors. Easier money obviously stimulates the economy and it depends how much they think it needs stimulation. But it will not make any difference. If you buy or sell a stock today and you look back five years from now, the important thing will not be what the Fed did today. The important thing will be what that company did.
Becky: Well, what about the economy from your perspective? How does it stand right now?
Buffett: It's sort of amazing. We have this enormous weakness in housing. That effects an awful lot of people. There's a wealth effect to it, everything. So far, it hasn't spilled over into employment. Now we have a set of dominoes in line that there could be some real effect from if unemployment rose. But so far, you know, it's been at 4.7, well, it won't make any difference if it goes to 4.8 or 4.9, but if unemployment really took off, there are a lot of dominoes in the economy that probably would get hit by that.
Becky: What did you think about the jobs number that we got on Friday? It was stronger than some economists had expected but not as strong as ADP had predicted.
Buffett: Well that's true, but it's still been amazingly strong when you think about what's going on in the housing-related industries. I mean, we're in the brick business, we're in the carpet business, we're in insulation, we're in paint. And those areas have really gotten hit. So, you've got a situation where tens of millions of Americans feel poorer because they thought that their house would automatically appreciate every year. And many of them have lived off re-fies. That's been taken out of the picture. So far it hasn't affected employment that much and if it doesn't I don't think we would have a recession, but if it does, I think there are some big dominoes out there.
Becky: Now you mention that a lot of your businesses are very directly involved in this. Everything from bricks to carpeting to insulation. I know you speak with the managers of the companies pretty frequently. What are they telling you? Are things better or worse than they were six months ago?
Buffett: Well, in the construction-related industries, I would say, if anything, they're worse. And they weren't so hot six months ago. I get daily figures around Christmas-time at all our retail operations, jewelry. And what's happened there is right after Thanksgiving, you know, supposed Black Friday and all that, sales were huge for a couple of days. They've tapered off a lot and I'm adjusting for the calendar and everything. But they've been pretty soft since those first couple of days. So, we'll see what happens in the Christmas season, but I would say so far it is not looking very buoyant to me.
Becky: You know, Britt Beamer is one of the strategists and retail analysts we speak with every week. He said that he thinks consumers are really holding out, waiting for big bargains. They're not going to shop until that last weekend.
Buffett: Yeah, well, they always do that. They've been trained to do it. But our retailers like to think that, and then every day I look at the figures and they haven't moved yet. Every year there's a huge rush toward the end, particularly in something like jewelry, and I'm sure we'll get it, but I'm not so sure we're going to be beating last year's figures.
Becky: That's the most concerning view I've heard from you as long as I can remember talking to you.
Buffett: Yeah, but .. We will have ... I hope I live long enough to see a couple of recessions in this country. (Laughs.) At your age, you'll see 6 or 7 in your lifetime. It is the nature of capitalism to periodically have recessions. People overshoot. So, it isn't the end of the world. I mean, as a matter of fact, for an investor, you know, it turns out to be the times when you make your best buys. I made by far the best buys I've ever made in my lifetime in 1974. And that was a time of great pessimism and the oil shock and stagflation and all those sort of things. But stocks were cheap.
The real thing to look at is how much you're getting for your money and not worry about what they're going to do next year. The American economy is going to do fine over time.
Becky: But when you start talking about that, are you comparing what's happening right now to 1974?
Becky: Do you think prices are as cheap?
Buffett: No, no, they're not remotely .. oh no, they're not within miles as cheap. But, you know, they may get cheaper. We'll find out. But if they get cheaper .. as long as you're a net buyer of stocks, which we are at Berkshire, we want them to be cheaper. I mean, if they reduce the price of hamburgers at McDonald's today I feel terrific. Now I don't go back and think, gee, I paid a little more yesterday. I think I'm going to be buying them cheaper today. Anything you're going to be buying in the future, you want to have get cheaper.
Becky: You know, Larry Bossidy was a guest host of Squawk Box this morning. He said, when he looks out at the market and looks at financials, he can't believe how much they've been beaten down and he says that could be the best-performing sector next year. Is that a view you might share with him?
Buffett: Well, we own a few. What you'll see in the financials, I think you'll see an enormous divergence in the performance. I wouldn't want to be, I wouldn't think in terms of the group there, because some of them have done some very dumb things. John Stumpf (CEO) of Wells Fargohad the best quote. He said it's puzzling to him why bankers have come up with these new ways to lose money when the old ways were working so well. (Laughs.) But they have. And in some places it's really been brutal. Other places, it doesn't make much difference. So I think if the group gets knocked down and you can pick out the better companies, the ones that really haven't gone crazy in recent years, particularly in the real-estate field, it would be a very good place to look.
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