CNBC Transcript: Warren Buffett on Squawk Box
This is a transcript of Warren Buffett's live appearance on CNBC's Squawk Box on Monday, May 7, 2012.
Announcer: This weekend Warren Buffett faced tens of thousands of Berkshire Hathaway shareholders. Today he faces SQUAWK BOX. Plus, in depth conversations with Berkshire board members Charlie Munger and Bill Gates. This is a special presentation of SQUAWK BOX live from the Hollywood Diner just outside Omaha.
BECKY QUICK: Good morning, everyone. Welcome to "Squawk Box" here on CNBC. I'm Becky Quick along with Joe Kernen and Andrew Ross Sorkin. And today we have a very special Squawk newsmaker with us, Warren Buffett. He is the Berkshire Hathaway chairman and CEO, and he's going to be joining us for the next three hours. He is ready to offer his take on the US markets, European elections, the global economy, and much more.
But first, before we get to all that, let's bring you up to speed on the overnight market headlines, and for that we get over to Andrew.
Andrew, good morning.
ANDREW ROSS SORKIN: Hey, Becky, good morning.
BECKY: All right, Andrew, thank you very much. By the way, congratulations on making it back last night. I know that wasn't easy.
ANDREW: It was a tough flight. It was a tough flight. But it's good to be back, and it was good to be with you and Warren over the weekend.
BECKY: It was. It was great seeing you here. We're going to talk about a lot of things this morning, but obviously with so much of the global market turmoil, there couldn't be a better day to be joined for three hours by the world's most successful investor. Warren Buffett is here, got up extra early with us because, of course, out here it's only 5 AM.
Warren, thanks for getting up early, first of all.
BUFFETT: We've got to start this earlier.
BECKY: You saw what happened overnight.
BECKY: Based on the elections in Europe over the weekend, what do you think about what's happening right now with the global market sell-off?
BUFFETT: Well, it really doesn't make any difference to us. We were buying stocks on Friday, and we'll buy the same stocks today, and we'll buy them a little cheaper. So I never complain about buying things cheaper.
BECKY: You were buying stocks on Friday. You said stocks, multiple. This is not just one issue that you're in to?
BUFFETT: Well, just two.
BECKY: There's two stocks that you're buying?
BECKY: Are these U.S. stocks?
BECKY: Are these— a little— a little bit further.
BUFFETT: I think you've exhausted your...
BECKY: What I'm going to get out of you on this? But you had two stocks that you were buying. Are these issues you've been looking at for a long time?
BUFFETT: It's issues, issues we already own.
BECKY: OK. So you're adding to your positions.
BECKY: And you'll buy more today based on this sell-off?
BUFFETT: Yeah. We— the lower they go, the more we like it.
BECKY: Obviously, though, what's happening right now in Europe is something that people have been looking at for a long time.
BECKY: You've been worried about the Euro for a long time as a result. And when you see this shift away from austerity and the pushback that's coming from the voters, what do you think it means for the future of Europe?
BUFFETT: It's going to be very, very difficult to resolve their problems. I mean, not only are there problems of having 17 countries, but you've got problems with getting the constituencies in those countries behind and coordinating in some way. So it's a really tough problem.
BECKY: Did you anticipate, just kind of as you thought things through, that the voters might swing this direction over time?
BUFFETT: I don't— it's not surprising. I mean, you tell people to tighten their belts and then you give them a chance to vote on it.
BUFFETT: It's the real problem of dealing with 17 countries, though, because even if you managed to sell the people on one or two or three countries on the fact that it's an advisable course of action, you really need 17 going in the same general direction. And if you're going to have a common monetary unit, you're going to have to have somewhat common fiscal policies as you go along.
BUFFETT: And it's difficult.
BECKY: So right now we see what's happening and— we see what's happening and we get the fact that this is a bit of a sell-off, this is some trouble that comes along the way. I know it's really difficult to predict what happens, but if you look a little farther, if you try and look two, three years down the road, where do you think we wind up with Europe?
BUFFETT: Well, I really don't know the answer, but there's going to be— there'll be a lot more episodes. On the other hand, 10 or 20 years from now, Europe will be producing more goods per capita. I mean, Europe is not going to go away. It's a huge market, people have lots of skills, you've got lots of— you've got factories, you've got wonderful companies over there. So it isn't like it's the end of the world, but it can be one very messy process in getting from here to there. We will get to there.
BECKY: What does it do in relationships to the United States? We talked to a lot of people this weekend, including Bill Gates, who pointed out that the United States has not fixed its deficits or its problems. You know, you look at the euro and it's now at a three-month low. I think it was dropping and testing that 130 mark earlier this morning.
BECKY: The United States looks like a stronger place, at least the Treasurys have a little safer, but how long can that continue?
BUFFETT: I think it'll continue a long time. The United States is on a different path, and we addressed the problems of our banks three years ago very decisively, and we put lots of capital in them, and they've retained lots of capital, and they've cleaned out a significant percentage of their bad loans. So we have a whole different banking system in the United States, plus we have our own currency. And being able to issue all of your debt in your own currency is just an entirely different game than having to issue it in some other currency.
BECKY: The ECB has figured out a way to extend its balance sheet, though, with the LTRO. Do you expect more fiscal easing— more monetary easing policy to come from them?
BUFFETT: Well, a trillion is not— a trillion euros isn't bad. I mean, they had a— they really had a funding scare, whatever it was, five or six months ago, and the banks there, they're in weak capital positions in many cases. They're— in many cases they're loaded with sovereign bonds that market to market don't make them look very good. And so they have— they had a big funding problem coming up, and the ECB stepped in and they stepped in in a very major way and they stepped in with three-year paper. So you have to congratulate the ECB on heading off that particular kind of a funding crisis. But the problems haven't been solved with the banks over there. The liquidity problems have been solved, the funding problems, but the— they need more capital and they've been very reluctant to raise capital. I mean, you have not since the banks over there raise capital. You had one in Italy that did it, but they've got a— they've got a lot of problems. I want to emphasize they'll solve them.
BUFFETT: But not necessarily without a lot of pain.
BECKY: Well, and that's where the politics get awfully ugly.
BUFFETT: Yeah, that's where...
BECKY: In Greece, for this election over the weekend, you actually saw 20 neo-Nazi candidates who came into power. That's the first time that's happened since 1974 when the military dictatorship fell there. And I guess you've seen a lot of things like this before. Does this worry you as you start to see this turn politically?
BUFFETT: There are a lot of things that worry me in the world, but I also believe that they get resolved. But asking people to vote for pain, you know, is not necessarily a winning political slogan. We're not going to have two candidates in this country that are going to ask people to vote for pain. And it can be done under certain circumstances. I mean, obviously, in a time like World War II, people really voted to restrict their own consumption and activities, all kinds of things. But it's not an easy job, and it's particularly not an easy job to get a number of countries to do it. And they always point at the other guy and say, `He's getting a better deal than we are,' and that sort of thing.
BECKY: Right. I know Joe and Andrew have some questions from back in the studio, too. Guys:
JOE KERNEN: Questions and comments, I guess.
BUFFETT: Not that— that's a surprise, Joe.
JOE: Yeah. It just— I guess the whole structure of the EU and the common currency without the fiscal coordination, I guess I didn't think it through enough to see how it's actually going to work when this happens. You're really talking about the southern countries that have sort of lived beyond their means, saying, `No, I won't accept— even though we're broke, I won't accept austerity, and I want Germany to keep funding my lifestyle.' And you're expecting the Germans who have, you know, they had their own trouble when they had to bring in, you know, Eastern Europe, and they went through a lot of austerity themselves. And they've worked hard, and they finally get their day in the sun where things are going well and you've got an entire southern region asking them to fund their lifestyle. What would normally happen, Warren, I think, is that you can't get people to accept austerity, so you devalue your currency, and de facto their buying power goes down, and they sort of have to accept it because that's the way it works.
JOE: And then you have better exports and seeing— and without being able to do that, I don't see how this finally works. But I don't see, you know, when France goes, `Nonny, nonny, nonny, we're going to elect a socialist and not accept austerity, and we want Germany to keep, you know, keep paying for everything,' it just— I'm watching it happen, and I'm trying to think of the— what we could— how it would work here. I know that we've got some poor states that the federal government, you know, has to subsidize more than some of the other states, but we just don't feel that way here in this country. They have not accomplished the United States of Europe, and they're nowhere near there.
BUFFETT: Well, you should've told them that 15 years ago, Joe, because you've given an analysis of the problem, and they do not have an answer for you.
JOE: I mean, I don't— I really— and we talked beforehand, Andrew says he's been worried about it for a while— but short of this just not working and just sort of accepting defeat, I don't know how this really looks. I don't see how— I don't know what the next step is in terms of whether someone— don't you think it's time for Greece, maybe, to exit the euro?
ANDREW: They might have to ultimately exit the euro.
JOE: Well, everybody might have to ultimately exit.
ANDREW: Well, look, that's what I've been saying. I said the second you get Hollande in there, the relationship with Merkel, it's going to be very difficult. My question for you, Warren, this morning is, is there any company that you've been keeping an eye on in Europe or anything in Europe that you would actually invest in today given what's happening?
BUFFETT: Well, we bought outright a Dutch company late last week, so you know, Europe isn't going away. But everything that Joe said is 100 percent correct, and no one knows the answer to the points that he— that he laid out. But that doesn't stop us from buying a good business over there. I— if I got a call today on some major company in Europe that I understood and that I knew had good products and a good future, we'd buy it. Now, we don't— we take into account what's going on over there, but we buy it.
ANDREW: I mean, I...
BECKY: What would happen, though? Oh, go ahead, Andrew.
JOE: No, I'd just be embarrassed if I were the French, you know. It would be like going back to my parents again and again and again and asking for money. Eventually my pride would stop me from— you know, the proud French— but they can't live the way they've been living, and yet they're still straight-faced going back to the Germans, saying, `We're not— we're not going to cut. We're going to continue...' Because there's not enough millionaires, are there, Warren, to tax at 75 percent to pay for the 56 percent of GDP that goes for the government? There's not enough people there to do that.
BUFFETT: But, Joe, if you were an impecunious nephew and you had a rich uncle and he doled some things out to you before, I'm not sure you'd be too embarrassed to go back to him...
BUFFETT: ...if you thought you could get a little more.
JOE: You just— you would just— Warren, we had a 2.2 percent GDP, too, which was slowing and— for whatever reason. Then we had the employment report where I think over the weekend it looked more negative to me. The more I read, the more negative it looked as people gave up on looking for the— there's no way that what's happening over there can possibly be seen as anything but a negative for our numbers. Maybe it doesn't take— maybe it doesn't take a material amount off the GDP, but it's certainly not going to add to GDP by force here, will it?
BUFFETT: Well, I think you're probably right on that. But we don't buy stocks or businesses based on the outlook for the next three months or six months.
BUFFETT: I bought my first stock in the— in the spring of 1942 when I was 11 years old. And, at that point, we were losing the war of the Pacific to the Japanese. And, I mean, if you read the headlines every day, it would be kind of fun to go back and look at the headlines on the day I bought my first stock because, you know, things were looking terrible until the battle of Midway, and I bought in a few months before that. So I think it's a terrible mistake. I think the worst mistake you can make in stocks is to— is to buy based on— to buy or sell based on current headlines.
ANDREW: Hey, Warren, in the great debate between austerity and stimulus, and it may be almost unfair to frame it that way because we probably need a combination of both, how do you think about this issue when you look at what's happening in Europe and you look at this debate, which by the way, is a debate that's happening here?
BUFFETT: Yeah. I think actually, you know, nobody knows because you can't run controlled experiments, but actually I think we've handled it pretty well here and much better, I might say, than the Europeans, but we've had an easier way to handle it than the Europeans. So if we'd had their structure, who knows what would happen. But because we've had a structure where if the Fed and the Treasury and the government basically said, `We've got the will and the ability to give this country a jolt on the way back,' we can follow the policies we set out to follow. And we have had stimulus from the word go in the fall of 2008. We only call that particular bill, in fact, we didn't even call that a stimulus bill because the term got unpopular. But we've had continued stimulus. Anytime you're spending 7 or 8 or 9 percent more of GDP than you're taking in as a government, that is huge stimulus by any Keynesian definition. I don't care whether you call it stimulus or you call it anti-stimulus, it's stimulus when the government is spending way more than it's taking in. And we have stimulus right today. I mean, we are— we are running on at whatever it may be 8 percent of GDP as a deficit and Keynes is probably cheering up in heaven.
BECKY: Yeah, but the other side is saying it's too much.
BUFFETT: Well, we're going to have an argument about it, and we'll have a lot of argument about it between now and Election Day. But I would say overall that the policies we've followed since really the great crash of 2008 have been pretty darn good. I mean, I— you know, it'd be nicer if GDP were galloping maybe at 4 percent or 5 percent, but we have had a— we have had a, completely, a resuscitation of the buyability of the— of the banking system. We've had, all cases except residential construction, we have had the economy come back in a very significant way. And month by month, it gets better and we've got all these businesses. And again, with the exception of residential construction, most of them are having record earnings. The big ones are all having record earnings. We're employing more people, but not at any galloping pace.
BECKY: Maybe we can talk a little bit more about that after this quick break, but maybe this idea of how to you get back to 4 to 5 percent growth, and can the U.S. do it?
BECKY: OK. Joe, we'll send it back over to you, but that's something we can get to right after this.
JOE: All right. I like— does Warren think civilized people don't invest in gold?
BECKY: Ah, Charlie's...
JOE: Charlie thinks that.
BECKY: Yeah, Charlie Munger's comments over the weekend.
JOE: I know.
JOE: Does Warren think it, too? I mean, I just— it's such a great quote, and I love when the— I mean, the gold bugs. We usually dance around the whole discussion about— and Warren in the past has talked— he'd rather own all the farmland or whatever than gold, but that was a real— that was throwing down the gauntlet after all the gold bugs. Classic. I love arguing and I love, you know, stirring things up. And that must've really gotten him. No one wants to be called the boorish...
BUFFETT: Charlie makes me look mealy...
BUFFETT: Charlie makes me look mealy-mouthed.
JOE: I know. Civilized people don't buy gold. Anyway, coming up, gold is traditionally a safe haven investment in times of geopolitical uncertainty. So why does Berkshire Hathaway director and Microsoft chairman Bill Gates shy away from it? Maybe he thinks it's uncivilized, too. We're going to find out when SQUAWK BOX returns live from the Hollywood Diner, which is just outside, it says here, I'm not going to read that, but it's somewhere out there. Anyway, we'll be back in a second.
WHY BUFFETT DOESN'T LIKE GOLD
BECKY: Yeah, you were talking a little bit about gold prices, obviously. That's something— yeah, OK, it's down about four bucks, 1641. Obviously, it's a huge question people have asked as we've seen a big, big run-up in gold over the last four years or so. And that's something that was definitely talked about this weekend here at Berkshire. Joe just talked about Charlie Munger's comments that civilized people don't buy gold.
This weekend I also got the chance to sit down with Berkshire board member and Microsoft Chairman Bill Gates, and he's not a huge gold fan either. Listen in.
(Clip from Bill Gates interview)
BECKY: Gold today was something that both Charlie and Warren made pretty clear they're not a big fan of. What about you?
BILL GATES (Microsoft Chairman): Well, I'm certainly in that camp. The— historically, I did have some silver investments that— at a time Warren actually had some silver investments. He got out fairly quickly. You know, I stayed in and did very well on silver. But, you know, gold is a very tough one because it's so psychological, and if central banks or the IMF ever decided to take advantage— and I think countries need liquidity...
GATES: ...you know, hey, there's an asset that's not doing anything for the citizens and then you— you know, because it's purely psychological it's not like people would say, `Oh, well, when it gets to $800 an ounce people will buy four times as much jewelry.' There's no— nothing that steps in as a buyer at any price. It's just purely `Oh, other people think it's— other people in the future will think it's worth more than it's worth today,' which, you know, if you think the world is scary and people are going to panic, I'm not saying that theory doesn't exist, but there is no floor if ever people got a view.
And you do— we had a invention session with some people recently— as this price gets high and you look at a 10-, 20-year time frame, the supply equation will change. And so the bulls have to offset the fact that they'll be quite a bit— not in the near term, but over a period of time— and these people are claiming that they can predict, you know, gold prices out into the future, which certainly with equities you can feel like you can. Well, there you have to understand the innovations in digital mining techniques or some new extraction techniques, which actually, I think, are pretty interesting and I doubt many people factor that in.
(End of clip)
BECKY: All right, we've never even talked about the supply picture, but he's talking about eventually being able to increase the supply of gold.
BECKY: You had a shareholder who asked you a question about gold over the weekend and your response was pretty interesting. Berkshire vs. gold. You want to talk about how that's performed over the years?
BUFFETT: Yeah, but we can go beyond that. But— certainly, when we took over Berkshire, Berkshire was selling at $15 a share and gold was selling at $20 an ounce. And then gold is now 1600 and Berkshire's 120,000. But you can take a broader example of that. If you— if you buy an ounce of gold today and you hold it 100 years, you can go to it every day and you could— you could coo to it and you can caress it and you can fondle it and 100 years from now you'll have one ounce of gold and it won't have done anything for you in between.