PART TWO - CLICK HERE TO RETURN TO PART ONE

BECKY:  Another story over the weekend in Barron’s, Ron Baron was interviewed.  He said that the most attractive time of, this is the most attractive time of his lifetime to be an investor.   Would you agree with that?

BUFFETT:  Well, no, but I would say it’s among the more attractive.  But 1974 and ’75, the stocks were far cheaper then.  And incidentally, the best year the Dow, ah, the S&P has ever had in my investing lifetime was a year of recession.  In 1954, people don’t remember these things, but, so you don’t want to not buy stocks just because business is lousy at the time.   That may be the very best time to buy stocks.  In 1954 the Dow was up 50 percent and the country was in a recession.  It was the best year I ever had in my life.  And I’ve had other good years in recessions, so you don’t want to say, it’s a big mistake to say business is bad, therefore I shouldn’t buy stocks.  That usually is the time to buy stocks.  And when everything is wonderful, it’s not usually a very good time to buy stocks.  But I don’t know when it will turn.  And the unemployment number, the job layoffs this month, the report we get about last month, you know, it’s an interesting statistic but it will not tell you what’s going to happen in the following months.

BECKY:  What do you watch?  If the jobs number is sort of a backward looking, or lagging indicator, what’s the number that you watch most closely out of all your lines of businesses?

BUFFETT:  Well, housing is so important.  It led us into this.  It was the housing bubble that pricked a lot of other bubbles.  But it was a huge bubble.  I look at,  I mean I’m very interested in something like housing starts because we’re going to form maybe a million, three-hundred thousand households a year, and they’re going to live someplace.  And if we’re building two million houses a year, we’re going to have trouble down the road and that’s exactly what we were doing a few years ago.  If we’re building 500-thousand then we’re eating up that inventory and the faster we eat up that inventory the better off we are.  That’s why it’s really not a good idea to have any big premium to induce people to buy new houses.  We don’t need new house.  We need to move the houses we’ve got around.  When that gets done and we hit equilibrium, the world will change in a big way.

BECKY:  Joe?

JOE:  Thanks, Becky.  Mr. Buffett, I think a lot of business people take some satisfaction, solace I guess, when you talk to President Obama, talk to his people.  And President Obama, I think, appreciates your support during the election and uses your name at times to say, well, Warren Buffett would talk to him about things and he agrees with how we feel on this.  But then there was a time when he mentioned Wells Fargo, and he said, well, Warren Buffett has a big investment in Wells Fargo.  I’m just wondering, do you still talk to the president on things?  Have you spoken to him since the election?

BUFFETT:  Ah, I’ve waved at him once or twice at public events and I’ve spoken to him once.

JOE:  Do you feel like you’re a confidant on –

BUFFETT:  I’m sorry, Joe.  I’ll correct that.  You said since the election.  I’ve spoken to him more often than that since the election.  I’ve spoken to him once since he was in office.

JOE:  When you disagreed with him on maybe trying to do too much, cap and trade or whatever, or the Wells Fargo comment is one that sticks in my mind, when we said well, Warren Buffett has a big investment in Wells Fargo, implying you were talking your book when you were talking about the banks.  Did that cause any consternation in you at that point?

BUFFETT:  (Laughs.)  I don’t think, I don’t think I’ll ever talk about what I talk with the president about.  But I will confirm I had one conversation with him.  But the truth is we do have a big investment in Wells Fargo.  I’ve owned Wells Fargo since 1991.  I’ll probably own it five or ten years from now, so it really doesn’t make any difference to me whether Wells Fargo’s stock goes up or down in a day or a week or a month.  It does make, it’s enormously important to me how they conduct their business.  And I think they’ve done an incredibly good job of running their business.  They’ve got the lowest cost of money in the country; they’ve got the greatest community banking system that the world has ever seen.  And incidentally, when the government needed to do something with what was probably the fourth largest bank in deposits, Wachovia, they transferred it over to Wells Fargo and they didn’t have to put up a dime of guarantees or money by the FDIC.  So the government obviously had to think pretty well of Wells Fargo at that time. (Laughs.)

BECKY:  Carl?

SENATOR GREGG: Mr. Buffett, I was just wondering.  You mentioned this issue of prioritization of debt, which is a huge issue, and as you know the Congress is dealing with this issue of cramdown, which basically allows bankruptcy courts to rewrite the prioritization of debt.  I’d be interested in your thoughts on that.  It seems to me that following up on your basic theory there, that cramdown would undermine the prioritization of debts substantially.

BUFFETT:  Well, if I were lending money on, ah, in any form, but certainly if I was lending money in housing, and I have seen people, courts unilaterally change the amount of the debt, I would be a little more careful about how I lent money.  (Laughs.)   Any time you get involved in the sanctity of contracts, you’re going to make people more reluctant to engage in those contracts in the future.  And you’re going to make those kind of contracts more expensive because somebody has to build in the cost of, ah, legislation or a court later fooling around with them.

SENATOR GREGG:  Well of course that was the point made by Daniel Webster in the Dartmouth College case, as I recall, so I think that’s nice to hear.

BUFFETT:  Yeah, well,  I’m glad I’ve got, I’m glad I’ve got authority on my side someplace.  (Laughs.)

BECKY:  Carl?

CARL:  Hey Warren, one last question.  I don’t want to give you too hard of a time about the op-ed –

BUFFETT:  That’s OK, give me a hard time.

CARL: - about the op-ed that you wrote in the Times last fall, but we all remember it.  Buy American.  I Am.  I wonder if you stand by what you wrote, first of all, and second if you felt any personal obligation or responsibility to talk people off the ledge at the time?  If any part of that was you trying to do some greater good, if that makes any sense?

BUFFETT:  No.  I was saying what I was doing.  And I said I don’t know what the stock market is going to do in a week or a month or a year.   But I, the truth is, I did feel that equities over a ten-year period of time were almost certain to beat a policy of buying ten-year bonds or buying short-term bonds and continuing to roll them, which a lot of people were doing.  So I thought people were following foolish policies.  If they really were committed to buying, like I say, the 10-year government or buying short-term bonds and rolling them, because they were going to lose purchasing power over time and equities were going to do fine over time – I had no idea what they do in the short-term – and I would still do, I still say the same thing.

BECKY:  I was going to ask that.  As we get into March and we saw some of those lows, did that make you feel even more strongly about those positions?

BUFFETT:  Oh, sure.

BECKY:  Did you continue buying?

BUFFETT:  Oh, the cheaper things go, the better I like it.  I mean, if I can buy the whole American economy at three-quarters of X instead of X, I feel better off.  And particularly when I compare it with rolling, you know, Treasury bills at a quarter of a percent, of a half of a percent, or buying the ten-year at three percent.  I know that buying the ten-year at three percent is not going to work out very well in terms of purchasing power.  I know that rolling Treasury bills is not going to work out in terms of purchasing power.  And I think I know that if you buy the American economy at 60 percent of what it was selling for a few years ago, and you get a cross-section of companies that aren’t highly leveraged, or something of that sort, you’re going to do well.

BECKY:  Does that mean that as we got into March that you stepped up or continued your buying, either in your personal portfolio or through Berkshire?

BUFFETT:  The cheaper things have become, the more I’ve wanted to buy, yeah.

BECKY:  And the more –

BUFFETT: If I run out of gas, I run out of gas.

BECKY:  I was going to say, in terms of how much cash you have on hand, are you able to do those things?

BUFFETT:  Sure.  I like, if McDonald’s reduces the price of hamburgers today, I’m going to feel good even though I bought hamburgers at a different price yesterday.  I mean, I’m going to be buying hamburgers every day for the rest of my life and the cheaper they get, the better I like it.  There’s nothing wrong with American business over the long-term.  I mean, the conditions that made it wonderful continue to, the Dow Jones Average started the 20^th century at 66.  It ended at 11,400.  We had a Great Depression, world wars, all kinds of things in between.  It doesn’t work perfectly every day, but it works over time.

BECKY:  One thing that’s not going to be getting cheaper is your New York Times.  There’s a story in the Financial Times today talking about how the New York Times is expected to raise its newsstand prices to two dollars from a dollar-fifty during the week and to six dollars from five dollars on the weekend.  Do newspapers have a future?  You’ve got a stake in Washington Post.

BUFFETT:  Unfortunately, they don’t.  I love newspapers.  But if the New York Times is going to sell for two dollars in the print edition and be free on the Internet, that’s a very unsustainable model over time.  I still read the print edition because I like to.   But if I were a young person making some lesser sum, why would I, why wouldn’t I go to the Internet and read it free rather than pick up the print edition.  So I, they’re going to have to answer that at some point and so far it hasn’t been answered.

BECKY:  But you are still keeping your stake in the Washington Post?

WPO loading...

Quote  |  Chart  |  News  |  Profile

[WPO  Loading...      ()   ]

BUFFETT:  Yeah, I’ve had the Washington Post stock since 1973 so, you know, I’m in there for keeps.  And they have a good educational business, they have a good cable TV business.  But newspapers, I mean, if Mr. Guttenberg had come up with the Internet instead of movable type back in the late 15^th century, and for 400 years we’d used the Internet for news and all kinds of entertainment and everything else, and then I came along all of a sudden today and said I’ve got this wonderful idea, we’re going to chop down some trees up in Canada and we’re going to ship them to a paper mill which will cost us a fortune to run through, and deliver newsprint, and then we’ll ship that down to some newspaper and we’ll have a whole bunch of people staying up all night writing up things, and then we’ll send a bunch of kids out the next day all over town delivering  this thing, and we’re really going to wipe out the Internet with this, yeah, (laughs), it isn’t going to happen.

BECKY:  OK, there’s a story today in the Wall Street Journal about AIG

AIG loading...

Quote  |  Chart  |  News  |  Profile

[AIG  Loading...      ()   ], talking about how it is close to the sale of its Japanese headquarters building for about a billion dollars.  This is significant because, the paper points out, this is kind of a show of the decline of AIG in Asia.  You know AIG well.  You know Hank Greenberg.  What do you think about what’s happened to AIG over the course of the last few years.

BUFFETT:  Well, it’s a tragedy.  It started in the financial products business, I mean, there’s nothing wrong with their property-casualty insurance business.  We work with them.  And their life business, they had probably more of a stake than the asset side, but there’s still, they’ve got a big, powerful life distribution system.   They had a black box.  And the black box delivered little numbers to them that they loved, you know, quarter by quarter.  And then somebody looked into the black box and they found out it was a black hole.  And tens of tens of billions – I was there in September when they thought their problems were, 18 billion actually I think it was the exact number – and they really had no concept of how big the troubles were.  And it was a huge, huge black hole.  And they were making bets they didn’t understand.

BECKY:  You know, we’ve just gotten contacted by Bank of America, called in to point out the fact that they are denying the Financial Times article that we pointed out before, saying that they are denying they are seeking fresh capital.  Got any thoughts on that?

BUFFETT:  Well, one thing about Bank of America.  It has a wonderful deposit-gathering system.  It’s not quite as wonderful, in my view, as Wells, but that - (laughs.)  Bank of America might disagree with me.  Their money costs more than Wells but it’s very cheap compared to some of the other very large banks.  The Bank of America was built on that, if you go back decades.  They’ve got a wonderful system, and then they’ve got some activities that are maybe less wonderful.  But they do have a terrific base, so I don’t want to comment beyond that on that.  I don’t look at the specifics of B of A as hard as I look at the specifics of Wells.  But there is a very good fundamental asset underlying the Bank of America.

BECKY:  In your opinion of what happened this weekend, you had 35,000 shareholders who came from around the globe,  most that have ever come to one of your meetings, what was the most important takeaway for you?

BUFFETT:  Well, we had a lot of fun and we sold them a lot of goods.  We sold them 180-thousand dollars of See’s Candies, which was a record.  We had record numbers.  And I think people had a good time.  We had good weather, we got lucky on that.  We had a much better questioning system this year, so we had a much higher quality of Berkshire-related questions and we’re going to follow the same format next year and I hope we top 35,000.  People have a lot of fun.  I have a lot of fun.

BECKY:  Did any of the questions surprise you?  Were any of them tougher than you were expecting?

BUFFETT:  Well, we like tough questions.  It makes it more interesting.  We’d fall asleep, Charlie and I would, if everybody just said, you know, do you like hamburgers as well as you used to or something.  So tough questions are fine.  And if we don’t know the answer, we’ll say we don’t know it.  If  we think we know the answer we’ll try to respond.

BECKY:  Well, Warren, we want to thank you so much for being so generous with your time this morning, and we appreciate you going through the papers.  Just a quick head start, I’ll leave the rest of these with you so you can –

BUFFETT:  That’s terrific.  That’s terrific.  I’ll save some money.  (Laughs.)

BECKY:  Warren, thank you very much.  We appreciate it.  Warren Buffett.   

Current Berkshire stock prices:

Class A:

US%3bBRK.A loading...

Quote  |  Chart  |  News  |  Profile

[US;BRK.A  Loading...      ()   ]

Class B:

US%3bBRK.B loading...

Quote  |  Chart  |  News  |  Profile

[US;BRK.B  Loading...      ()   ]

For more Buffett Watch updates follow alexcrippen on Twitter.

Questions?  Comments?  Email me at