TRANSCRIPT/VIDEO PART SIX: Three Hours With Warren Buffett - Live From Omaha
Unidentified Man #2: Hi, Warren. Given the state of the US credit markets and the way that banks are withholding lending from retail customers essentially, how do you see the housing market playing out over the next 18 to 24 months?
QUICK: Hm. That's a great question. How do you see the housing market playing out, given how banks are lending right now?
BUFFETT: Hm. It will be pretty tough. The, you know, we had a very, very big bubble and we had a lot of people do things they shouldn't have done as borrowers in terms of either counting on making payments they couldn't make or lying about their financial circumstances. We had a lot of mortgage lenders that were doing bad things and we had a lot of investors that were doing stupid things. So you put all that together and you put it into an $11 trillion mortgage market and you've got lots of pain for the investors and you've got pain for the people that can't make their payments. Now the nice thing about borrowing on a house is if you make your payments, you keep it. And so if you signed up for payments you could handle, you're fine unless you lose your job or there's a divorce or death or something of that sort. But a lot of people speculated on houses and bought them with no down payments. And the consequences of that won't get washed out in the next month or two. They will last, in my view, a considerable period of time. But the good thing about it is we have--we have household formation growth in this country. We're not a stagnant economy and we will work our way out of it, but it took--with the farm crisis here in the early '80s, it took years to work our way out of it.
QUICK: There are people who will point to statistics like with housing starts that we saw earlier this week. People said, hey, it's still down, but the rate of decline is decreasing. Is that about the best thing people can find to say about this? Or is the best...
BUFFETT: Well, the best thing they could find is if there weren't any housing starts, then we would clear up the inventory much quicker.
BUFFETT: I mean, in the end, housing starts work against the housing recovery. So it's going to--it will take time. I mean, there--the losses are huge with the home builders and then the losses of people losing homes but, again, only if they don't make the payments. And lenders are losing a lot of money. People are finding out they didn't have any idea what they were doing when they bought the CDOs and that sort of thing. And the rating agencies did not cover themselves with glory and frankly Wall Street didn't either. So it's--there's a lot of blame to go around and we probably shouldn't worry too much about that. We should--we should worry about really creating enough households so that the excess supply gets sopped up. There's a lot of vacant homes now. And the market won't really come back until you get a normal--a close to normal ratio of vacant homes, homes up for sale compared to current sales, and that's a ways off.
QUICK: We get anecdotal evidence all the time from people who say they are having a really tough time even though they have great credit. They can't get a mortgage. Other people saying I can't get a second mortgage, I can't find something for a second home. Is it your sense from what you know about lending right now that lending has gotten that much tighter?
BUFFETT: Well, I don't know about every area in the country.
BUFFETT: But I think if you have a significant down payment and you have a job and your income covers the payments by the old traditional yard sticks, I don't think there's a problem getting a loan. I mean, Wells Fargo is lending a lot of money.
BUFFETT: And they're looking for more loans. But they're not going to lend it to you for nothing down. They're not going to lend you so that you have payments that are 50 percent of your income and that stuff--you've got to get the bad practices out of the system and then we won't have these problems.
QUICK: Fair to say that since you think these problems could stick around for a long period of time that maybe the home builders don't look that cheap and you haven't been looking there for bargains?
BUFFETT: No. The home builders still have plenty of problems and that doesn't mean--you know, the time to buy the stocks is not necessarily when they've already--their business has already turned up.
BUFFETT: I don't look--I don't try to pick turns in any kind of an industry in terms of buying stocks. I just like to buy them when I think they're cheap relative to their long-term earning power and I don't happen to have that conviction about home builders now, but it very well may be the case. It's just I don't have the conviction.
QUICK: OK. Warren, we have more to come. It's been a long morning already but, hey, time is flying by.
BUFFETT: You're paying me by the hour. I mean, why should I complain?
QUICK: OK. We'll have much more with Warren Buffett when we return and more from Carl in Beijing. Stick around folks, SQUAWK BOX is coming right back.
WILL WARREN LEARN MANDARIN?
QUICK: No, it's not in his ear, folks. Welcome back, everybody. Let's get back to our conversation with Warren Buffett. Carl is also joining us right now from Beijing, and Carl, we've been chatting all through the morning talking about a lot of different things.
CARL QUINTANILLA, co-anchor (Beijing): Yes.
QUICK: But actually, we're going to have a conversation with Warren, too. One of the things he'd been wondering. Warren, do you want to toss out to Carl, what you've been thinking about?
BUFFETT: Well, I wonder what he enjoys the most over there. I mean, he has seen these terrific athletes. What one memory are you going to come back with, Carl?
QUINTANILLA: That's a good--that's a good question, Warren. You know, I was here last summer and we did a documentary about McDonald's and the city at the time was full of cranes, was very dirty, very polluted, and I still can't get over even 20 days later how the Chinese marshaled whatever resources they had to get the city to look like it does right now. They figured out some way to do big projects in a short amount of time and I think that's going to be interesting to see how they leverage that as they go west to all those big cities that we really have no idea what they look like, what the infrastructure's like there. Pictures that come in over the next year from there, I think, are going to be fascinating. My question to you is if you had to guess at this moment, how--what is your investment in China, if there is going to be one, going to look like? Is it going to be individual companies? Is it going to be currency plays, debt? Have you--have you sorted that out in your own mind?
BUFFETT: It will certainly be extensions of the businesses that we already have. We opened that plant in Dalian for Iscar almost a year ago. I was amazed when I saw what has been accomplished in Dalian at the time. But we will be there with our businesses. But I like buying securities and I like buying companies, and I'm open to doing either one. And I would be surprised if we don't do something in the next few years.
QUICK: You would be surprised if you don't do something and then...
QUINTANILLA: I think it's interesting, too...
QUICK: Go ahead, Carl.
QUINTANILLA: In fact, I think it's interesting, Warren, you know, we walked in here and everyone worries about China slowing down as the global economy slows. You know, will their exports be bought? You know, is their economy dependent on exports? And the lesson we got from a lot of companies here was there is a self-contained economy here. There are Chinese businessmen doing business with other Chinese, and I wonder if you think that decoupling is significant or not?
BUFFETT: Well, I think their economy is going to do fine. Who knows whether it gets overheated or the inflation picks up or something, but it's like the United States. It really isn't important what happens in the next six months or a year. It's what's going to happen over the next 10 years. We're going to do well. The truth is, the Chinese will do better, because they're starting from a lower base, but they have learned a tremendous amount about business in the last 20 years, and about how to unleash the human potential, and that's something that our country learned earlier. And--but they're picking it up very, very, very fast.
QUICK: You know, Warren, we had Jim Chanos on the program several months ago, and he had said when we asked him, what's the one thing you worry about that you think could be the next big drop? He had pointed out, well, maybe you look at this endless infrastructure play when it comes to the Indias, the Chinas of the world. Maybe that is not going to be as strong as some people think. What do you think about that idea?
BUFFETT: I don't know whether it will be or not, but I know that 10 years from now, 20 years from now, China and India are going to be a long way ahead of where they are now. So I don't really--I don't worry too much about whether there's going to be a sudden interruption or something. I wouldn't be able to predict it anyway, and if I did, I still want to be in wonderful businesses bought at the right price and have them in the right place. So I don't--I don't worry about the things that I really am not going to understand anyway. I worry about what's important and knowable. And if I can find a few things that are important and knowable, I play in that box and I don't worry about what's unimportant and I don't worry about what's unknowable.
QUINTANILLA: Warren, are you--are you going to try to learn Mandarin at this stage of the game?
BUFFETT: No, no, I'm not even going to try to learn how to eat the food. I am--if I can't make a deal while eating at McDonald's, I'm in trouble.
QUICK: Hey, Warren, you have a little bit of insight into the Olympics, too, right? You were in Las Vegas just before the United States basketball team left to go over.
QUICK: They were in Las Vegas at the same time. They were playing the Canadian team as they warmed up. What insight can you tell us about the Redeem Team?
BUFFETT: Well, they were--we had dinner, a good many of them. LeBron was there, it was on a Thursday night, I think, and they played the Canadians the next day. And they are--they were determined to win. I mean, enough of this being humiliated stuff. So, that was a team that I would have bet a lot of money on in terms of how they were going to do when they got there, and they're a remarkable group. I was a little disappointed. I went to the Canadian game, and they had me on the sidelines, so I thought this was going to be my big moment, right? No chance. So I left at the half. I mean, if they weren't going to put me in the game, the hell with it.
QUICK: The only guy who walked away from that game early. Hey, Carl, we just want to say thank you again for everything, all your coverage, all your hard work over the last few weeks, you and your entire team out there. I know you're on your way home. We want to make sure you have a safe trip, and I can't wait for you to come home. Hurry back, OK?
QUINTANILLA: It's going to be--it's going to be fun to be back at the desk, Beck. I'll see you next week.
QUICK: OK. Carl and the entire team who are out there in Beijing, we thank you all. When we come back, folks, we have a quick parting shot from Warren Buffett. Stay right here.