THIS IS THE FOURTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE APPEARANCES THIS MORNING (MONDAY, MARCH 3) ON CNBC'S SQUAWK BOX.
QUINTANILLA: And today's not a good day for the greenback, Joe.
KERNEN: Nope. It's a good day to have Buffett on, though, when we're talking about the dollar. As Carl said, this is a special morning for SQUAWK BOX. We're live with Warren Buffett in Omaha, Nebraska, answering e-mails. Just go to cnbc.com. Send them in. We'll still get them. Becky's with Mr. Buffett right now. And I know he has an earpiece in, Becky, probably just heard about where the dollar is.
KERNEN: We're going to talk to him about that, no doubt, at length today.
QUICK: Yeah, that's perfect, Joe. It's a--it's a great stepping off point for this, because when you see this kind of chaos and turmoil in the markets, well, who better to ask than probably the world's most watched investor, Warren Buffett, who's here with us today. And, Mr. Buffett, let's go over some of these exact things. Joe uses this as a perfect jumping off spot. You've made some negative comments about the dollar in the past. You see where it trades right now. What do you think?
BUFFETT: Well, for five years we've talked about it. It--we were following policies which were, in my view, five years ago, were certain to produce a weaker dollar over time. I never know what it's going to do in a month or a year, and maybe I don't know what it's going to do in five years, but I think I know what it's going to do in five years. And we--as long as we force-feed a couple of billion dollars a day to the rest of the world--they take it whether they like it or not, because we buy goods--buy two billion a day more than we well goods to the rest of the world...
BUFFETT: ...the dollar's going to get weaker over time. And the government can talk about how it's in our interest to have a strong dollar, but we're not following policies that lead to that, and it's just a consequence and it'll just continue to be. If you do the same thing over and over again, you're going to get the same result...
BUFFETT: ...and we are doing the same thing now that we were doing two, three, five years ago, and the dollar will weaken in an irregular basis, in my view, for some time to come.
QUICK: Now, you mention all this in the annual letter to shareholders.
BUFFETT: Right. QUICK: You also talk about how you are long the Brazilian real. If you think the dollar's going to get weaker, why aren't you short the dollar at this point?
CNBC has scheduled a one-hour special program on Buffett's unprecedented Squawk Box appearences.
It's called Warren Buffett - The Billionaire Next Door: Face to Face. It will be hosted by Becky Quick and airs tonight, Monday, March 3 at 9pm ET.
BUFFETT: Well, we bought more--we bought companies that have more and more of their earnings in those other dollars. So if we have a company that's earning money in Japan, one or two, in the end, we're earning more dollars than before. But the carrying costs, with low interest rates in the United States and higher rates elsewhere, there's a real carrying cost to maintaining an outright foreign currency position, whereas if we do it through future earning power in other areas, it looks to me like a more intelligent way to do it. But you can make money in, you know, you can make money even with low interest rates here if the--if the--if the spread keeps widening over time. But right now, the Brazilian real was a relatively small position, and I almost did it kind of as a commentary on what was going on because for decades people thought you put your money in South America any place, then you were going to lose it. And the South Americans actually parked their money here. But in the last five years, the Brazilian real has more than doubled against the dollar. If you were a Brazilian, you put your money in dollars you lost half your net worth, and that's continued since the end of the year.
QUICK: But it hasn't stopped you from betting against the dollar in the past. What changed your mind on that?
BUFFETT: Well, we had a positive carry. When we had...
BUFFETT: ...the 22 billion of foreign currency positions, we not only made money because those currencies appreciated, but there actually was a positive carry because of the interest factor on most of the currency. So we were picking up a couple hundred million dollars a year on positive carry. That's gone to a negative carry now, and that makes it expensive to hold certain foreign currency positions. If you want to hold a position in the euro, and you buy a euro out six months, it has to go up for you to break even.
QUICK: OK. We've been talking an awful lot about the economy today, and in the last half-hour, you mentioned that you think we very well might be in a recession. That's the first time I've heard you say that. What gets you to that point?
BUFFETT: Well, I see the figures coming in on all our retail operations, I see what's going on in terms of the wealth of Americans and how they feel about their houses. I see--I see purchasing power declin--obviously, when somebody forecloses on a home, the purchasing power of that family is not going to be very much. I see unemployment increasing a little bit although it's still relatively low. So I just--I think it's clear. What isn't clear is how far it goes.
QUICK: And so--and that's the question. You can't see how far out...
QUICK: ...this lasts, if it's something we pull out of quickly.
BUFFETT: I didn't see it--in '73 and '74, I didn't see how bad things were going to get. I kept buying more as I got worse, but I--if I'd seen in '73 what was going to happen in '74, I wouldn't have bought anything in '73. You can't predict. We don't try and time anything or predict. We just look for where there are good values, and if we find them, we buy them, and if we don't, we don't buy anything.
QUICK: OK. Another issue we've been talking about an awful lot with you is the bond insurers and where things stand. On Friday on SQUAWK BOX Wilbur Ross came in and talked about how he was buying into AGO, Assured Guarantee. He says that he's in direct competition with you right now because he's writing a lot of reinsurance as well with--through AGO. What do you think of the competition?
BUFFETT: Well, I always prefer no competition, but that's hard to find in this world. So there will be competition in bond insurance, it's the nature of it. And what people have to decide, though, we just insured a bond that comes due in the year 2054. Now if you're--if you're going to buy insurance from somebody and the test will be whether somebody pays in 2054, I personally think Berkshire Hathaway is the best bet around. I--it isn't where--credit analysis or insurance analysis isn't where you are today, it's like Wayne Gretzky says, you know, `Don't go to the puck, go to where the puck's going to be.' Well, the payment needs to be there in 2054. The question is, is Berkshire Hathaway the one that's likely to be there in 2054?
QUICK: OK. I know the guys have some questions in the studio as well.
QUICK: Joe and Carl?
KERNEN: Yeah, I have a follow-up for Warren on the policies we've been pursuing and what we can do about it. Warren, obviously we're consumers to the rest of the world because we have a lot of prosperity here, obviously. And I'm trying to figure out how we were--we should reverse the policies that caused us to consume so much and send all this money abroad. Do you think that free trade is a hindrance to what we're doing? Is NAFTA, has that been a negative for us? It seems like we're going to consume no matter what, and that's good for the rest of the world, and we're not going to export as much. How should we change our policy? What would make sense?
BUFFETT: Well, actually, we, you know, in the last 30-plus years, we've increased our exports from 5 percent of GDP to about 11 1/2 percent of GDP. We exported a trillion, six hundred billion dollars worth of goods last year, but the problem is that over the last 35 years our imports have also gone from 5 percent to GDP up to about 16 1/2 percent of GDP. So we've been prosperous ever since World War II and the trade deficit only has become really significant with the current account deficit in the last six or seven years. I wrote an article for Fortune about three years ago where I suggested one solution in terms of import certificates. I belive in free trade. In fact, I would have no barriers to countries or products or anything of the sort. But I do think the only true trade we had last year was the 1.6 trillion which we imported and exported and then on top of that we imported 700 billion more, and that was unreciprocated trade. So that creates problems over time because we do hand these little pieces of paper over to other countries, and we keep force-feeding those countries, and after a while they're not so enthusiastic about getting the money.
QUINTANILLA: In the letter, Warren, on Friday, you talk about how the weaker dollar's not done a lot bring our trade activity into balance, and yet all we hear about is the benefit of--to exporters, to manufacturing in this country that comes from a weaker dollar. Is the weaker dollar a net benefit or not?
BUFFETT: Well, a weaker dollar helps exports, but even despite that, as I put in the annual report, in the last five years, when the euro has gone from, I think, an average of 90-odd cents to today $1.51 or something like that, our trade deficit with Germany--and people don't think of us as having a trade deficit with Germany--but it's number five on the list, and that trade deficit has increased significantly with Germany. The Canadian dollar's gone from 60-odd cents to roughly par, and with Canada our trade deficit's increased. So a cheaper dollar does help exports, but you just saw that contract that didn't go to Boeing but partly went abroad. And, you know, that's with the euro at 1.51 and classic economics will tell you that that isn't supposed to happen, but it's happening.
QUICK: Do you think there'll be a backlash? We've already heard from several different congressman and congresswomen who were upset that that--that this is going to an overseas company and that some of those jobs will not be right here at home. What do you say to that?
BUFFETT: No. Well, it's a problem that--it's a real problem when, with the euro at $1.51 or whatever it is today, that still a competitive market sends those jobs abroad. I mean, it shows--you know, the whole world is living according to what David Ricardo said, you know, back in 1820 or thereabouts, and he was not contemplating this kind of a world. A cheapening dollar is not solving the problem, and that's why I wrote this article about import certificates a few years ago.
QUICK: You know, Warren, also in the letter to shareholders--I'm sorry, Joe. I'll ask this real quick and then I'll...
QUICK: ...throw it back to you. But in the letter to shareholders you also talked about how you are now looking at four potential successors for the chief investment officer position at Berkshire Hathaway.
BUFFETT: It's Joe and three others actually.
QUICK: Joe and three other people who are looking at this. You mentioned...
KERNEN: Three others?
QUICK: ...that they are middle-aged--yeah, three others, he's upset about that...
BUFFETT: Yeah, they're way behind you, Joe.
QUICK: You mentioned that these people are young to middle-age, that they're well-to-do to wealthy. These are all people outside Berkshire Hathaway. If we took a stab at it, are any of them women?
BUFFETT: Actually, none of--that's more than I usually tell, but yeah, none of them are women.
BUFFETT: But that's a good question, because I didn't hear from many women. I would say that I didn't hear--I would say the hunters, really, up to 1,000, I'll bet there weren't more than 3 percent women. I know some very good women inventors, but I'm not sure. Yeah.
QUICK: Hm. Only about 3 percent who wrote in to you.
BUFFETT: Wrote in, the applicants. I--that's a guess, but it was something like that.
QUICK: OK. And, Joe, I'm sorry. I interrupted you before. What was your question?
KERNEN: Yeah, I have a bunch of them. Going back to the--trying to figure out how we solve this trade problem. I know a lot of what we send--we send a lot of money over there for energy, obviously. Be good to bring more of that domestically, Warren, but you're a free-trader, you're positive on free trade. You back Senator Clinton and Senator Obama. I was wondering whether their positions, their recent positions--maybe it's to win Ohio, I don't know what you'd attribute it to--but the protectionist rhetoric from both candidates, are you in sync with that in terms of NAFTA and free trade?
BUFFETT: I'm not going to get too specific on the eve of the election tomorrow, whether or not I agree with them. I will say this, I don't agree with them on everything. But the--what I'm protectionist, I would like to protect us essentially selling close to as much to the rest of the world as we import from them. I think it's in our national interest. I don't care whether we have $100 billion current account deficit or 50 billion or 200 billion, but to have one that's 5-plus percent of GDP. Alan Greenspan said many years ago it was unsustainable. Ben Bernanke said last summer it was unsustainable.
BUFFETT: Everybody says it's unsustainable, and yet we keep doing it.
KERNEN: Are we--are we living beyond our means? Are we just consuming and consuming and driving SUVs and just, you know, we're just gluttonous, is that part of it? Do we need to tighten our belts?
BUFFETT: Well, in the end we have an enormous amount of assets in this country, which the world is willing to take. I mean, Indonesia or Thailand couldn't do this because they couldn't issue--they couldn't issue debt in their own currency and have people keep accepting it. But we--we're like a country that has a farm the size of Texas, or we're a family farm the size of Texas, and it beings all kinds of goods and services to us, but we want to consume 5 or 6 percent more than the farm produces, so we sell off a little bit of the farm every day or we mortgage a little bit of the farm every day. And we can't even see it because the farm is so big, and that we can--we can give a little mortgage and nobody notices, put an IOU on it. Or we can sell a little bit of it like when the sovereign wealth funds come in and we don't even hardly see it. But over time, it's like eating an extra 100 calories at every meal. I mean, you don't sit down at the table and then get up and everybody says, `My god, you're fat.' But if you keep doing it over time pretty soon they'll say, `My god, he's gotten fat.'
QUICK: And ver...
KERNEN: I wish you'd take something--I wish you'd take a different analogy there.
QUINTANILLA: Joe didn't know there was an alternative.
BUFFETT: Nothing--Joe, nothing personal--nothing personal.
KERNEN: No, no. Maybe you don't have a monitor, but it is personal, Warren.
BUFFETT: OK. If you've got a monitor, you can--you can retaliate. QUINTANILLA: They say the camera...
QUICK: OK, guys, we will--oh, go ahead, Carl.
QUINTANILLA: Go ahead--I was going to say they say camera adds 10 pounds, Joe.
QUINTANILLA: Although you don't see it on Warren--you don't see it on Warren. I don't know what your problem is.
KERNEN: I know what my problem is, he just described it. Eating, you know...
QUINTANILLA: We'll take a break here, Beck, and come back in a little bit.
Transcript prepared by BurrellesLuce
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