THIS IS THE SIXTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE APPEARANCES THIS MORNING (MONDAY, MARCH 3) ON CNBC'S SQUAWK BOX.
ANNOUNCER: Live from Omaha, Nebraska, here again, Becky Quick with special guest Warren Buffett.
QUICK: Welcome back, everyone. As you know, we are taking your viewer e-mail questions. They've been coming in, and we haven't shown Mr. Buffett any of these questions. We've been catching him by surprise, asking him on the fly. So I'd like to go back to one of the questions from earlier because Warren said he's been thinking about it and has another answer for him. This is from Jake again from Cleveland, Ohio. And again, if you missed this earlier he'd asked him, `Among the CEOs within the universe of publicly traded companies in which Berkshire doesn't have an ownership position, which CEO do you believe is doing the best job on behalf of shareholders?' Now Warren, you mentioned some CEOs, but you told me you just thought of another.
BUFFETT: Yeah, I think Bob Iger at Disney has done an absolutely terrific job since coming in a couple of years ago, and he--it's a--it's not an easy company to manage and he is--he's done a first class job. He's shareholder oriented. He works well--extraordinarily well with the people that are involved. He understands his business. He's moved them into new areas, so I give Bob high marks. And actually, Jim Kilts, who was at Gillette when we were there, he's not running the company now, but if I find out he's going to run a company, I'm going to buy stock in it.
QUICK: Well, let me ask you that. You mentioned both Disney, and you mentioned Jeff Immelt of General Electric. Why don't you own those stocks if you think they're doing such a great job?
BUFFETT: Well, unfortunately, the market recognizes the fact they're doing that job, to some degree, although neither one of them think that, incidentally. They both think their stocks way underpriced, and it may well be, but I have to--I have a universe of $20 trillion worth of stocks and bonds and everything to decide where to put the money, and every day I look at what's going to make the most sense for us. And they're close.
QUICK: They're close. OK. Stephen Battaglia writes in from Alexandria, Virginia. He asks, `Why do you think that you are afforded the exemption from the SEC to avoid revealing certain positions when others in your same position have to reveal theirs?' He also points out that he's a professional investor.
BUFFETT: Yeah, well, I think there are actually certainly many, many dozens, if not hundreds--you're entitled to get an exemption if you're in the--if you have a purchasing or a selling program going on. That's not a special rule for us at all. So if we--if we're buying X, Y, Z at the end of the quarter, we or any other institution that reports to the SEC is entitled to ask for an exemption for that, and they grant it. So it's not a special exemption at all for Berkshire.
QUICK: OK. We also got a lot of e-mails that came in from international places. This one came in from Switzerland and D.L. Frischnecht writes in, he says in regards to the subprime loan and banking crisis, he says, `In physics we know the fundamental principle of conservation of energy, so where did all these billions go? Was it burned in heaps at the Pall Mall, or is economics maybe not really a science?'
BUFFETT: Well, he's a little beyond me there, but the mistake was in lending, you know, unwisely, as Shakespeare would say. There were a lot of dumb lending practices that were dumb lending practices in private equity financing, and that's why the banks are hung up with the loans. It isn't that the companies are terrible, but if you loan too much money on anything, you're going to lose money. And if a house has doubled in price, and somebody lends 95 percent of the price that's doubled in a couple of years, there's a good chance they're going to lose money. If they--if they lend money to people where their income isn't going to make the payments--allow them to make the payments, they're going to lose money. So there's of ways to lose money, and for a while people thought houses could do nothing but go up, so they paid no attention to any other factor. They didn't pay attention to borrowers' income, they didn't, you know, and you know...
QUICK: But somebody's making that money, right? Somebody's on the other side of the train.
BUFFETT: Well, the person who--the person who buys the house--well, the person who sold the house got a bubble-type price. The person who buys the house now buys it cheaper than other ways. I mean, every time anybody tells about somebody losing a lot of money by selling a house, there's somebody else that's buying it at a more attractive price than they would've paid a year or two ago.
QUICK: OK. Here's an easier one for you.
QUICK: Gordon writes in from Meadville, Pennsylvania and he asks, `What do you put on your hamburgers?'
EMAIL TEXT: What do you put on your hamburgers? Gordon Barrett, Meadville, PA
BUFFETT: I put a lot of salt.
BUFFETT: Oh, yeah, well, I salt everything a lot, and I--sometimes I put tomato and mayonnaise, sometimes I put pickles and, you know, and then I top it all off with a little See's Candy, wash it down with Cherry Coke.
QUICK: Well, happy breakfast everyone for anybody who's looking at home. Sam from Tarnation, Texas, writes in, `In December on CNBC, you said that if unemployment rose to 5+ percent, some quote "very large dominoes" would start to fall. So what are those dominoes and have they started to fall?'
BUFFETT: Well, I think--I don't think 5, I said it was at 4.7 then, but if it started moving up significantly.
BUFFETT: Five is still not a really high level at all, but it's going the wrong direction, and some factors are in play that I think will keep it going that way, but when people aren't employed, then a lot of bad things happen.
BUFFETT: And we're closer to seeing that now than we were when we talked in December.
QUICK: OK. Tory from Bellevue, Nebraska, writes in and said, `You support Barack Obama and Hillary Clinton to be President and Chief Executive of the United States. Would you support either one of them to your successor as President and Chief Executive of Berkshire Hathaway?'
EMAIL TEXT: You support Barack Obama and Hillary Clinton to be the President and Chief Executive of the United States. Would you support either one to be your successor as President and Chief Executive of Berkshire Hathaway? Tory L. Lucas, Bellevue, NE
BUFFETT: Well, I would certainly employ them to run a business, but running a business is a little bit different form my job. I couldn't run the Furniture Mart very well, but I've got the best people in the world in the Blumkin boys running this place. So I would them--I would put either one of them in charge of a business. I don't think I'd give them my specific job, which is strictly allocation of capital. I've got a little different job. But if they're looking, one of them will probably be looking for a job here in a few weeks. I would be glad to hire either one of them. !
QUICK: OK. Douglas from Alexandria, Virginia writes in and says, `You stated that people, including you, aren't paying enough taxes. OK. So why don't you send some of your billions to the government?'
EMAIL TEXT: You have stated that people, including you, aren't paying enough taxes. OK. So why don't you send some of your billions to the government? Douglas Smith, Alexandria, VA
BUFFETT: Well, I don't--I don't say generally people. I think the lower class, the middle class, even the upper middle class are paying more than they should be paying. I think that the super rich, like myself, you know, my tax rate was 17 and a fraction percent in 2006, and everybody else in the office was paying way more. I'm not advocating tax increases across the board at all. I'm advocating a redistribution to the super rich. In the last 20 years, the total wealth of the Forbes 400 has gone from 220,000,000,000 to a 1,540,000,000, seven for one. The average wage has gone no place in real terms, it's up about 80, 85 percent and that's exactly what inflation is. So the world has gotten tilted to the super rich, and I think that the middle class and even the upper middle class, I think they've been getting a very raw deal. So I would change their taxes and move them over to people like me.
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.
QUICK: Back to the point, we've got a lot of questions like this from viewers saying...
QUICK: ...why don't you send your billions in? Here's the address.
BUFFETT: Well, my billions will go to society. Every share of stock I've got. And, on balance, I think that the five foundations I'm giving to will probably get a better result than sending to the government, but I wouldn't have any objection to sending to the government. This society has showered everything on me. I've gotten everything in life I've wanted, and I will spend less than 1 percent of my net worth, I and my family, during my lifetime. If the only choice were to give it to the government or to give it to create a dynasty of Buffetts, I would give it to the government.
QUICK: OK. Fair enough. We have a lot more questions that have come in from you, the viewers, and we'll have many more of them when we come right back after this.
JIM CRAMER (ON TAPE): Asking the icon. Sir, isn't it true that we have an energy policy backing ethanol that is creating so much inflation that perhaps it would be better to stop the emphasis on ethanol, allowing inflation to come down and the Federal Reserve to cut more? Am I wrong that mankind is being crucified upon a cross of ethanol right now, and it's killing the poorer nations and the people in our country who can't afford anymore to eat chicken or beef?
QUICK: Warren, what do you think?
BUFFETT: I wouldn't put it exactly in those terms, but I would say that ethanol is a relatively inefficient way of creating gasoline--gasoline equivalent, and it uses a lot of energy in the process of raising the corn that does it. And, as correctly pointed out, it has a by-product of raising agricultural products elsewhere. In economics you can never do one thing. Anytime anybody tells you they're doing something in economics, then you have to say, `And then what?' And the `and then what' in the case of ethanol is A, if you use it to plant more corn, you're going to use--in terms of fertilizer and everything, you're going to use a lot of energy. And secondly, you're going to raise the prices, on balance, you'll raise the prices of other agricultural products. So there's no question that that--that's a fairly correct statement of the problem.
QUICK: Those are very brave words when you realize we're standing in the "Cornhusker State."
QUICK: Do you get pushback from that?
BUFFETT: My son was head of the Nebraska Ethanol Commission. He is a farmer. He lives $5 1/2 corn, he loves $12 soy beans, I don't blame him. But I'm not running for anything, fortunately, and, you know, I can call them as I see them.
QUICK: OK. Let's get back to some of our viewer e-mail questions.
QUICK: This one comes in from George Greene in Wilmington, North Carolina. He says, `Do you believe the media sensationalizing news events has caused the turmoil in the market as well as driven up the price of oil due to constantly talking about $100 a barrel?' He's talking about the `fog in Houston for two days, it shouldn't cause an increase due to a possible supply disruption.' Is this our fault?
BUFFETT: Yeah. In other words, if you just keep people ignorant, will markets work better?
BUFFETT: You know, the nature of it, you are reporting spot news all the time, but you're going to get spot news one way or another, and the problem is the way people react. And--but they're going to react--they reacted too much to short term news, and if it doesn't come from you, it'll come from somebody else. So just do the most reliable job you can of reporting.
QUICK: Whoo! We got a pass. We got a pass from you on that one.
QUICK: We'll take it.
BUFFETT: Yeah. People have themselves to blame for crazy markets. You know, we're talking--if you talk about apartment houses, you talk about farms, normally or something like that. Prices move very gently and people don't get quotes on them every day. You don't have to look at the price of the stock market. I don't even look at--I don't look at the price of Berkshire's...
QUICK: You don't look at Berkshire share every day?
BUFFETT: No. What difference does it make? I haven't bought or sold a share in, you know, 25 or 30 years. I mean, it's the business that counts.
QUICK: Wait a second, come on. You have to have a rough idea for where you stock is trading.
BUFFETT: Oh sure, I've got a rough idea and some days I look at it, but I don't feel like it's a necessity to look at it. It doesn't tell me anything. The market is there to serve you and not to instruct you. That's the most important lesson in investing. And when it gives you the chance to do something because it's doing something silly, you do it and otherwise you ignore it.
QUICK: Can you remember the last day you didn't know exactly where Berkshire share was. Was this in the last week, maybe?
QUICK: Wow. OK.
QUICK: Jerry in Chicago, Illinois, writes in. He says, `In recent letters, you mentioned investment management "Helpers" and hedge fund "Hyper-Helpers." You say fee arrangements and costs work to the detriment of the investor. So what type of investment management fee structure do you think is fair? And if you were still running the Buffett Partnership, how would you determine fees?'
BUFFETT: Yeah. I--overall in terms of that--I think everybody should read Jack Bogle's book. Low--what you really want to do is you want to own an American industry which is going to do fine over time, but you want to make sure you don't put all your money in at once because you might pick just the wrong point.
BUFFETT: But if you buy in over time into a wonderful business, which is American industry, and you make sure you don't go in at just the wrong times, when people get excited, and you get to keep your costs low, you're going--you're going to beat 90 percent of the people because they're going to run up unnecessary costs. And if you have the whole world running hedge funds, and they're all charging you 2 and 20 or something of the sort, believe me, it doesn't make the cars, you know, Toyotas sell for any more money. It doesn't make the Furniture Mart make any more money. It just--it just transfers the profits of those enterprises to a bunch of people who are essentially telling you to buy and sell.
QUICK: OK. There's a question that came in from Kim Johnson in Spring, Texas. He said--this is a good question, I really like this one. `Would you be the same man you are today if you'd been accepted into Harvard Business School?'
BUFFETT: Well, no, because I wouldn't have gotten hired by Ben Graham later on, and I'd probably wouldn't have married my wife, because events would've been different. It was a two-year school there, and I got out in one year, therefore I had some time to put on a full court press on the romantic side. And--so, no, it was very fortunate for me. I didn't feel that way at the time. It was very fortunate for me they turned me down. So maybe they should be soliciting me for their alumni fund based on the fact they turned me down.
QUICK: OK. Melvin writes in from Manila. He says that `You mentioned in your annual letter to shareholders that Berkshire would be experiencing slower growth in the future and definitely would not be able to match the high growth rates of the past. So do you think the present price of Berkshire Hathaway stock reflects that outlook as well?'
EMAIL TEXT: You mentioned in your annual letter to shareholders that Berkshire would be experiencing slower growth in the future and will definitely not be able to match the high growth rates of the past years. Do you think the present price of Berkshire Hathaway stock reflects this outlook at well? Melvin Olivan, Manila, Philippines
BUFFETT: Well, we certainly try and explain the facts to everybody, so the price should reflect all of the facts that we give them, including my views about the fact that the past is not replicable. Well, if we knew we were going to compound at 21 percent a year for the next 40-some years...
BUFFETT: ...you know, a much higher price would be justified, but that is a total--that would be a totally crazy assumption.
QUICK: OK, guys, I'm going to throw you off in the control room here because I'm going to go out of order. I want to go to the Reed in Canton, Michigan. He wrote a question that says `You seem like the guy next door. Do you sit down and pay your own bills? Things like electric, heat, phone, credit cards, etc. It would be great to know that one of the richest men on the planet sits down and writes out his own checks every month or goes to the Quickie Mart and picks up a gallon of milk.' Do you do those things?
BUFFETT: Well, I like to go to supermarkets. I like to buy things there and roam the aisles and see what there is. Actually, my assistant writes out the checks, you know. So I do sign checks, but I don't--I do not make them out anymore.
QUICK: OK. All right. We have a lot more viewer e-mail that we will get through throughout the show. Also, Carl, when we return, when we come back on this, we're going to be talking about some of the news of the day and Mr. Buffett's particular thoughts on derivatives. He's got some new ideas he'd like to share, and we'll get to all of that when we come back.
QUINTANILLA: All right, Beck. As she said, a lot more with Warren Buffett coming up in the next hour of SQUAWK. We're also going to find out how politics and the economy are playing out in the CNBC Wealth in America report, and Charlie Gasparino going to join us. Also--did we mention?--more e-mails for Warren Buffett as this special edition of SQUAWK BOX continues.
Transcript prepared by BurrellesLuce
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