This is part six of an unofficial transcript of Warren Buffett's three-hour long live appearance on CNBC's Squawk Box this morning, Monday, November 14, 2011. (Click here for part five.)
Buffett revealed that Berkshire Hathaway has bought almost $11 billion worth of IBM common stock this year. He also said it is "not clear" that Europe has the will or ability to do "whatever is necessary" to fix its debt problems.
In this section, Buffett talks about investing in infrastructure and says that Bank of America CEO Brian Moynihan is doing a "terrific job."
Note: Steve Liesman's questions to Buffett are not included in the video clip.
ANDREW: Welcome back to SQUAWK BOX. Joining us now for a look at the economic outlook and the considerable uncertainty around next year is senior economics reporter Steve Liesman, the professor.
STEVE LIESMAN reporting: You're demoted again? What...
ANDREW: Demoted from where?
LIESMAN: From what?
JOE: Chief economist.
LIESMAN: Oh, chief economist, chief economist.
ANDREW: We'll upgrade or downgrade.
JOE: Senior economic reporter.
LIESMAN: Do you guys know what the smart money's buying right now?
ANDREW: I heard IBM.
LIESMAN: No. Johnson Controls.
ANDREW: Johnson Controls.
LIESMAN: Think about why.
JOE: For our...
LIESMAN: Think about why, think about why. Amid all the—do you want to...
ANDREW: Is this like you're trying to...
LIESMAN: It's a clue, it's a clue.
JOE: You're not Buffett. You're not Warren Buffett.
ANDREW: It's a quiz like Buffett.
LIESMAN: I know. But...
JOE: Who's buying...
LIESMAN: But just—Warren, do you—is Warren there? Warren, do you know why people would be buying Johnson Controls?
ANDREW: Who's buying Johnson Controls?
JOE: How do you know people are buying it?
LIESMAN: I'm just joking around here.
LIESMAN: But if there's a clue in there.
BECKY: Are we serious?
LIESMAN: There's a clue.
BUFFETT: That's the one we sold half of a while back.
BECKY: Oh, wait, we're back on air.
LIESMAN: Oh, OK. JCN.
LIESMAN: HAL, two letters added to HAL.
JOE: No, not the—OK, but the symbol's JCI, dude.
LIESMAN: That—JCN, I thought.
LIESMAN: Oh. JCN.
JOE: You know what, I should have known better than to let you go off on this with your economics joke.
LIESMAN: That's what I looked up, JCN was Johnson Controls.
JOE: No, it's JCI. Go ahead.
LIESMAN: And if I could ask Warren a question, Warren, how do you process all this uncertainty? You've got this forecast out there and it could go down to zero or it could be 2. Do you ignore all that uncertainty or is it something that you process it and make investment decisions on?
BUFFETT: The world's always uncertain. The world was uncertain on December 6th, 1941, we just didn't know it. The world was uncertain on October 18th, 1987, you know, we just didn't know it. The world was uncertain on September 10th, 2001, we just didn't know it. The world—there's always uncertainty. Now the question is, what do you do with your money? And if you—the one thing is if you leave it in your pocket, it'll become worth less—not worthless—worth less over time. That's certain—that's almost certain. You can put it in bonds and then you can get a certain 2 percent for 10 years and that's almost certain to be less than the decline and the purchasing power. You can put it in farms and the farms will probably keep growing corn and soybeans and they'll grow it whether, you know, whether Italy has trouble tomorrow or not. It's very interesting to me, if you own a farm and somebody said, you know, Italy's got problems. Do you sell your farm tomorrow?
BUFFETT: If you own a good business locally in Omaha and somebody says Italy's got problems tomorrow, do you sell your—do you sell your business? Do you sell your apartment house? No. But for some reason, people think if they own wonderful businesses indirectly through stocks, they've got to make a decision every five minutes. So I do not think if Ben Bernanke comes up and whispers to me that he's going to do X, Y or Z tomorrow, I'm not going to change my view about what businesses I want to own. I want—I'm going to own those businesses for years just like I would own a farm or an apartment house and they'll be all kinds of events and there'll be all kinds of uncertainties and in the end, what will really count is how that business or farm or apartment house does over the years.
BUFFETT: And I can't time the buying and selling of it.
BECKY: All right.
JOE: You know, I had to, Liesman, you know, I had to go all the way out to S, I had to go 10 spaces to add one letter before I got an actual symbol.
LIESMAN: Can I just ask Warren another question?
JOE: We've got to go.
LIESMAN: We've got to go. Just one quick question, Warren, about at some point, the uncertainty fades away and the banks have to be something that's of interest to you. Is there—is there a point in time where you might—you might take a bigger stake in some of these banks out there? I know you did B of A.
BUFFETT: Yeah, well, I've bought Wells Fargo in the last quarter and the quarter before that and the quarter before that. And I also bought it about 20 years ago, so I—if I find a good business, if I own privately a good McDonald's stand, I own 40 percent of it and somebody wanted to sell me 10 percent more at an attractive price, I'd buy 10 percent more and I wouldn't worry about the news headlines that day. I'm going to own these businesses five or 10 or 20 years from now and they'll be all kinds of good news and all kinds of bad news, but the good businesses, they do wonders for you over time.
BECKY: All right. We're going to continue this conversation with Berkshire Hathaway chairman and CEO Warren Buffett. We'll have much more SQUAWK BOX.
JOE: OK. More with Warren. I'm going to just ask one thing and then I'm going to let you ask some more things.
ANDREW: Go for it.
JOE: Is that cool? All right. So, Warren, I'm thinking back to the pipeline and to infrastructure in general. And I'm trying to figure out how you—what you feel about infrastructure because the way you answer that question about the pipeline in that, well, you know, they talk about jobs here, they talk about jobs there. See, to me, that seems like just crucial infrastructure that if we're going to do something, that would be great, to bring oil in from our friendly to the north, it helps with our relations with Canada, we're not going to get off carbon any time soon, so it made a lot of sense to me. I'm wondering, because of your answer to that, do you think other infrastructure projects are sort of the same? Because that seems like one we could actually use. Building trains, you know, building high-speed rail between cities where people don't even want to go or some of these other ideas, Solyndra, I don't know, that type of infrastructure seems even less—makes less economic sense than the pipeline did.
BUFFETT: Yeah. We will—we will spend at BNSF 3.7 billion this year on the railroad and a lot of this what you'd call infrastructure, in fact. And that's by a large margin more than we've ever spent. One thing you'll get a kick out of, you talk about infrastructure, we actually had to build six bridges in connection with the—because of the floods that look place here. The floods were really tough this year, particularly on our railroad. And Matt Rose who runs BNSF, knowing how Charlie kind of grimaces whenever he hears about capital expenditures, he has named one of those bridges in Iowa the Charles T. Munger Bridge. We've even got a plaque put up there. So Charlie now has a bridge named after him. I don't have a bridge named after me yet.
JOE: Well, how much—well, how much of a role—it's amazing that it's so—a private company's building all that infrastructure. But what's the role of the government in terms of stimulus and the jobs plan? What's the role there for infrastructure? If you didn't think the pipeline makes sense, what makes sense for the government to be involved?
BUFFETT: I'm not saying the pipeline doesn't—I just don't know—I don't know the weight of the two arguments. I don't know that much about soil. I—it's just a subject that I...
JOE: Oh, OK.
BUFFETT: ...you know, like a whole lot of things that I don't know much about. But certainly, in terms of stimulus, infrastructure is a very, very logical place to spend real money. I mean, if you decide you're going to run a government deficit and large one and to act as a stimulus and you've got the kind of needs we have in this country in terms of all kinds of infrastructure...
BUFFETT: ...that's basically a good idea. Now I will say this. We bought the entire BNSF equity, we paid about 33 billion for, about maybe 10 billion of debt. So call it a $43 billion total purchase. For that we got 32,000 miles of track, we got 6,000 locomotives, we got 13,000 bridges, all kinds of things. I think in California and now the number's up to 90 billion or something like that for 800 and some miles of track. So you can do the math.
ANDREW: Hey, Warren, just a—just to change topics real quick. While you've been on the broadcast, Bank of America just announced this morning that it sold 10.4 billion shares of China Construction Bank for a pre-tax profit of $2.9 billion. You're an investor in the preferred shares, of course. I'm curious what you think of about the future of the company and also, more importantly, investors who watch you and watch you make these investments in preferred shares, should they be following you into the common shares?
BUFFETT: Not necessarily. Go back to the sale of the Chinese stock. Brian Moynihan, I think, is doing a terrific job in going back to basics. Bank of America, you know, went off in a hundred different directions and a couple of them, such as Countrywide, are going to be ungodly expensive before they get all through with it. That's got nothing to do with the present management and Brian has the job of cleaning up some of the problems of the past. Not that the Chinese bank itself was a problem, but in terms of getting the capital in line with the total assets, he does have a problem that needs working on and he's been working on it. And one way to do it is to sell extraneous assets. To bring down the liabilities to some degree, you can bring up the capital, but you can also bring down the liabilities. He's been doing both. He is following a very logical path. He can't do it all in a week or a month or even a year. I mean, the legacy problems that he got handed are significant and they're not, in many cases, they're not capable of immediate resolution. But he is doing the things quite promptly that he can do things about promptly—where he can do things promptly. I think he's making a lot of good decisions.
BECKY: The Wall Street Journal criticized him in an article last week for flip-flopping on a lot of these issues, for decided to pull back on the ATM fees, the $5 ATM fees, for deciding to go ahead and buy shares after saying they wouldn't...
BUFFETT: To issue shares.
BECKY: Or to issue shares after saying they would not issue additional shares. They said in the end it was the right decision, but he should've gotten to those decisions more quickly.
BUFFETT: Well, he's had a dynamic problem. I know when I went into Solomon, I found out a lot of things in the third month I didn't know in the first month. And when you have problems to clean up, when American Express had problems in the 1960s to clean up, when GEICO had problems in the 1970s to clean up, when Solomon had problems in the 1990s to clean up, usually the problems are bigger and more longer-lasting than you think, but they also are solvable. And it takes time, it takes a lot of effort, it takes—it takes a lot of grief, you know. But if you have a wonderful underlying business, which the B of A does, which GEICO did, which American Express did, you know, you'll get them resolved.
BUFFETT: If you have somebody there who puts their nose to the grindstone and does it.
ANDREW: Hey, Warren...
BUFFETT: In terms of the—go ahead.
ANDREW: Well, Warren, I just wanted to go back quickly to the preferred vs. common issuant and you said something very interesting, which is that when you make an investment in preferred shares, it doesn't necessarily mean that shareholders should rush to go buy the common. Is that right? And I ask it only because so many people who do give you these tremendous deals do it in part to quote unquote "rent the Buffett name." I know that when you...
BUFFETT: Now they...
ANDREW: I know that when you invested in Bank of America, my mother said, `Can you believe Warren Buffett just invested in Bank of America? Maybe I should buy shares.' And I said, `Mom, you don't understand. He's buying a different share than you would be buying.'
BUFFETT: Yeah, but I'm buying a different share in several ways, though, too, than she buys in that I was buying something for $5 billion, where we had no—where we contractually we're not allowed to resell it for five years. So in the sense, we were putting money in where we couldn't change our mind next week or hope that it bounced up or anything like that. We were putting money in saying that in five years, we think this is plenty good. And that is a real vote of confidence. I mean, it's not a vote of confidence to go out and buy, you know, to buy 100 shares of XYZ and sell it the next day. But when you put $5 billion in and you can't take it out, you can't touch it for five years, I think that is a valid vote of confidence. It doesn't mean that the common is a buy or a sell or a hold or, you know, anything else, but it does mean that we felt very strongly that the B of A was going to do get rid of its legacy problems over time and it'll take plenty of time and that the underlying deposit franchise and business they have is a terrific business.
BUFFETT: And that the right fellow is running it to get that job done.
ANDREW: Thanks, Warren. We are going to slip in another break. As we head into the final hour of SQUAWK for this Monday morning, a lot more with Warren Buffett. That's coming up after the break.
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