CNBC Transcript: Warren Buffett on Squawk Box
BECKY: What do you think's really poisoning the atmosphere in Washington right now?
BUFFETT: Well, I— it's the desire to get elected. And each side— there's this important issue of what you do with the economy, and each side is worried about getting tagged with the unpopular side of two sides that are both going to be unpopular.
BECKY: Right. When we have— the end of this year, we're facing a pretty big fiscal cliff, some people are calling this, where the Bush tax cuts are set to expire. A lot of the one-time tax pullbacks have been set to expire, too. What do you think should happen?
BUFFETT: Well, what should happen is we should be working right now on something, and you could take Simpson-Bowles as the starting point, and we should be working on something that gets us to where the gap between spending and expenditures is in the 2 to 2 1/2 percent area and that— and that there's certainty that we will get to that within a reasonably short period of time, and that will require people bending on both sides. And everybody knows that, and nobody wants to bend first.
BECKY: You said earlier in the program that we are nearing that point where we shouldn't have any more stimulus that's coming through. But if all those tax cuts expire at the same time in January, is that going to be a huge hit for the economy?
BUFFETT: Well, we always have some stimulus if we're operating at a deficit, so I really— I really advocate a position of 2 or 2-1/2 percent deficits averaged over time. And that's stimulative. I mean that— it isn't wildly stimulative, like our present situation. But we will need more revenue, and we will need less in expenditures. And I know it and you know it and the American public knows it, and it may be that this cliff that we're facing at the end of the year will produce action. I mean, you— like I said— going back to Simpson-Bowles, those are two high class people, they got people as far apart as Durbin and— to agree. We need to do something like that. And it isn't— it isn't because we don't have the resources, and it isn't because we don't have intelligent people...
BUFFETT: ...it's because we got two parties that want to win an election.
BECKY: But I guess what I'm trying to get at is from the investors' perspective, if we do hit this fiscal cliff and we plunge right off of it because we can't find some sort of agreement in the, you know, 90 days or something from the election— or from November, December...
BECKY: ...until we get back into January, is that a big problem for— from the market's perspective?
BUFFETT: It's a— well, I'm not sure whether it's a problem from the markets— it's a big problem.
BUFFETT: But there's always a big problem and lots of big problems. And the— I would— I do not give that a 1 percent— make that a 1 percent factor in determining what I'm doing today in investing.
BUFFETT: We're always going to— things are going to come out of, you know, right field. You're going to have 9/11s. You're going to have October 19th, 1987s. You're going to have flash crises...
BUFFETT: ...all kinds of things are going to happen. I'm not trying to sit around and predict which of those are going to happen, I'm trying to figure where businesses will be five or 10 years from now. And whenever we buy a stock I say am I happy owning that stock if the stock market closes for a couple of years? You know, if I've got a good business here and the stock market closes for a couple of years, I'm fine. And if I own part of a good business I do not need the stock market to be open for the next couple of years to do fine in investing.
BECKY: That was one of the questions that came up quite a bit this weekend was the valuation of Berkshire shares right now. Some people think it's severely undervalued, in fact you yourself— you and Charlie have decided to go ahead and start buying back shares, which was a pretty unusual move.
BUFFETT: Unusual. Mm-hmm.
BECKY: What do you think it is that's holding back Berkshire shares?
BUFFETT: Berkshire has been underpriced sometimes during its— the 45-plus years I've been there— has been overpriced. Most of the time it's been in with the range of value. In the next 50 years it'll be overpriced, sometimes it'll be underpriced, it's the nature of stocks. That's what makes stock investing so wonderful. I mean, if everything was perfectly priced all the time there would be no money in the game.
BUFFETT: I love the fact that Coca-Cola gets underpriced or overpriced sometimes, I love the fact that Wells-Fargo gets underpriced or overpriced. It's fine with me, you know, if that happens with Berkshire, it will always happen with Berkshire, I will guarantee you that in the next 10 or 20 years you're going to see times when Berkshire's overpriced or underpriced.
BECKY: You think the stock market has more opportunities where there are significant mispricings right now?
BUFFETT: Sure. Sure. I would love it if they only allowed me and a whole bunch of psychotic drunks to trade in stocks and I would get very rich.
BECKY: I don't expect to see rules like that put in any time soon but...
BECKY: ...there have been a lot of talk when you start looking at some new regulations that have been proposed for some of the futures markets, particularly if you look at commodities and some of the things. We've talked with Bart Chilton recently and one of the ideas that they've put forth with the CFTC is that nobody should be allowed to own more than 10 percent of, let's say, the oil market, or something along those lines.
BECKY: Is that a good idea? Do you need rules like that?
BUFFETT: Well, the— you do need some rules to prevent cornering. I mean, you know, that goes back 100 years when people tried to corner, weed, or do that sort of thing. But in stocks, it's not— it's basically not a problem. The real problem in stocks is that people are emotional about them. I mean, the problem isn't with the companies, the problem is with the people that call themselves investors. And if you look at how American business has done over history, it's done magnificently. And if you just owned a cross-section of it, you didn't— you didn't need to know how to run a— read a balance sheet or anything. But the problem is that people get excited about getting rich very quickly or they get depressed when they thought they were going to get rich very quickly and they didn't, and people beat themselves in the stock market. The stock— the companies don't beat them, the stocks don't beat them, they beat themselves.
BECKY: Joe, you have a question, too?
JOE: No, I was listening to Warren, and I saw a piece over the weekend, Warren, about volume on the New York Stock Exchange, that maybe it's finally coming home to roost, that electronic trading was, you know, was going to take over. And it was really a negative piece on the prospects for the Big Board. But to me it just looked like an incredibly positive piece for the commentary about the stock market itself.
JOE: Because I think that lack of enthusiasm for the retail investor means they're not in and when they're not in it just means they're eventually going to get in but at much higher levels. So I mean, I know you don't time the markets, but this is a really opportune time, don't you think?
BUFFETT: I certainly think that stocks are the most attractive investment aside from that exception I made for single-family homes. I think they're the most attractive investment available— generally available to the American public.
BECKY: Hey, Warren, you said that you don't think what's happening right now with social networking stocks is a bubble and that, you know, with housing that was a bubble, that was something that was out there. We're always trying to find out what the next bubble is...
BECKY: ...where the next place is, where it's inflating too much because of some policy gone wrong or some unforeseen consequences. Have you seen any arenas where it seems to you like there's a little too much helium that's starting to build in?
BUFFETT: Not really. But I'll guarantee you it will happen, there will be bubbles in the future. I mean, people get excited about things that have gone up in price, and that very excitement becomes further proof to them and the rise in prices. I mean, it becomes circular, and it keeps going until it ends, and that's when bubbles pop. But we will— we will have a lot of bubbles, and you can get very rich on bubbles if you take advantage of them rather than participate in them.
BECKY: There was— there's some talk— people think the bubble— next bubble's going to be coming from all this easy monetary policy, not only from the Fed, but from Central Banks around the world. They start looking at where you see commodities prices creeping up or oil prices or other things, because all that money has to go somewhere.
BUFFETT: Yeah. That's not a bubble, that's inflation.
BUFFETT: I mean— yeah. If you print enough money, you know, the price of everything will go up even though the value of it doesn't go up, in a sense. And if you mail out a million dollars to every American family, you know, you will— you will not have a bubble, you'll have inflation. You'll also have a lot of activity for a while. But the printing of money results in the decline in the value of money. It's very simple.
BECKY: Do we need a bubble to get us back to stronger GDP growth?
BUFFETT: No, we don't need a bubble. We're— we need— we need the housing— the excess housing supply to be sopped up, and that— and that is happening. I think, for example, in Omaha, you know, we're very close to equilibrium.
BECKY: But, I mean, that was the last bubble, you don't need that bubble to reinflate, but you need it to come back to its normal...
BUFFETT: No, you just need— you just need it at normal levels.
BECKY: But if that drove the last great...
BUFFETT: We don't want to do something like that again. What we— what we want to have is the normal growth that comes out of an economy where people are finding more and more things to do that please you and me in terms of what we buy.
BECKY: Mm-hmm. You know, Warren, we have not gotten the chance to talk to you about this live. It was discussed this weekend at the shareholders' meeting, but how are you feeling?
BUFFETT: Oh, I feel terrific.
BUFFETT: I mean, I'm here with my strawberry shake, and I'm enjoying life and— there is absolutely no change in my life, I— my energy level is 100 percent. I have no symptoms of any kind, I mean...
BUFFETT: No, I— nothing has changed.
BECKY: Well, guys, this is your last chance to jump in with a last-minute question. I know we're just about out of time.
ANDREW: Hey, Becks, I got a question— it's actually from Doug Cass, Beck, you and I talked about it over the weekend, actually, it's an interesting one. Doug says that, for many years, Warren, you referred to Henry Singleton, the founder of Teledyne, the big conglomerate, as one of the brightest CEOs in corporate America. Henry ended up breaking up Teledyne into four companies before he died to enable his managements to focus on what they knew and put in an options program. So Doug asks, "What's the rationale for having this business as a diverse and— as an— as unconnected as Berkshire?" And have you ever really thought hard about doing something like Henry?
BUFFETT: Yeah. It's interesting, Henry did incredibly well. He repurchased an astounding percentage of his stock over the years, and he ran the business as well. And then after he did what you just got through talking about, it didn't work so well. So you're— that was in his later years, and apparently, you know, he wasn't functioning as well then. His record was made not by what happened when what you described took place, it was— all happened prior to that while he was following exactly the kind of policies that I advocate.
ANDREW: OK. Good answer.
BECKY: Yeah. So...
ANDREW: Before you guys go, I should mention, and maybe you can do a little mentioning yourself, Warren, there, that Becky got a star on the Hollywood Diner's walk of fame over the weekend.
ANDREW: Along with Jay-Z. You can see Steve Forbes there. CNBC. Who else is on the list there? Warren Buffett, of course.
BECKY: I think Bill Gates has been here.
BUFFETT: Yeah, Bill's been here. Jimmy Buffett's been here.
ANDREW: And now— and now the Becky Quick. So you're in good company, Becky. They did a nice job there.
BECKY: Well, Andrew, you...
BUFFETT: And you're the first female, you're the first female, I believe.
BECKY: Ah. Well, Andrew, here's something to do. Next time you're here you got to make sure you come here, too.
ANDREW: Well, I'll have to work on that. I don't— I don't know if I— if I'll qualify. But you're the first female, so they're doing better than Augusta at the moment.
ANDREW: That was a bad joke.
BECKY: Warren, we want to thank you very much for joining us for these three hours. I know it's been a very busy weekend, but we love having these chats with you, so.
BUFFETT: I had a lot of fun. Thank you.
BECKY: Thank you for taking the time, we really appreciate it. And, guys, we'll send it back over to you.
JOE: Excellent. Thank you, Becky. You know, you could hear— he talks all weekend long, and then— and then he— those three hours...
ANDREW: And he's got more— I got to tell you, he has more energy than just— than I do, I can tell you that, and it's just a remarkable thing to see at any age.
JOE: I even noticed when I asked him that question about, you know, the— obviously, there's not a whole lot of retail excitement at this point, I think we're all— maybe a lot of people are gun-shy.
JOE: And he wants to say, yeah, this is a great time, but he doesn't say it that, you know, that stridently because I think he doesn't want everyone to know. I think he's going to do a lot of buying and position himself. But I think he has that same feeling that when you see the public...
ANDREW: Well, look, he's...
JOE: ...as unexcited as they are right now, that's got to be it.
ANDREW: Well, you just heard him— you heard him say it. He...
ANDREW: He was buying on Friday.
ANDREW: He's going to be buying today. That $22 billion acquisition I'm going to— I'm going to be wondering what that is for a very long time, but it's an interesting...
JOE: That would— that narrows it down to like— I mean the S&P 500 is mostly...
ANDREW: There's not a lot...
JOE: No, there's a lot of $22 billion companies.
ANDREW: We could figure it out if we— if we get our way.
JOE: All right, you go ahead. Get to work.
ANDREW: Our very special thanks, of course, to Warren Buffett for a great three hours.
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