CNBC Transcript: Warren Buffett on 'Slowing' Global Economy and 'Salivating' For Deals

JOE: Warren, you like to buy. You just said you like to buy. Peter Sellers liked to watch, but you like to buy. I remember that.

BUFFETT: Yeah, yeah. Well, buying doesn't —buying doesn't preclude watching.

JOE: No. No, I know. Not with you, I'm sure. But —so that —I figure anything that moves the market higher, you know, you're not going to —it's like, you know, better than a sharp stick in the eye. So QE3 is great; market's been going up. But if you were a voting member and their —I don't know, they got another one of their meetings today, two-day —their —yes —I don't know. They come so quickly, I don't even remember. But I know I've been reading something about that. If you were there when they voted for QE3, would you have voted yes for QE3 if you were a voting member?

BUFFETT: No, I haven't thought about that, but I would say this: I would listen very carefully to Bernanke, but my instincts would probably be to go the other direction. But I —but I would listen to his arguments. And...

BECKY: But wait a second.

BUFFETT: Yeah.

BECKY: You said with QE2 you thought maybe it was going too far at that point.

BUFFETT: Yeah. That's why...

BECKY: So QE3 is doubling down on that.

BUFFETT: That's why I'd listened carefully. But my instincts are to go against it. I think it's much easier if you're —if you're a central bank and you could print money. It's much easier to acquire 2.6 or 7 billion or trillion, actually, of securities than it will be to unwind that operation.

BECKY: Yeah.

BUFFETT: And you can expand it indefinitely. I mean, if you wanted QE2 to be, you know, 100 billion a month —or QE3 —100 billion, it —he's the one guy that can do it. He has unlimited buying power. Unlimited selling power could be a little different. You need some cooperation on that.

ANDREW: Warren, you're supportive of the president, though. Governor Romney suggested that he would —I wouldn't suggest he would fire Bernanke, but he wouldn't pick him up for a third term. Not clear, by the way, that Bernanke wants a third term even under Obama. But how does —how does that affect or impact your thinking in terms of politics?

BUFFETT: I think Bernanke has done an absolutely superb job. I mean, what he did in the fall of 2008 was gutty. It was —it was basically right. You know, everybody talking about tinkering at the edges. But I will say this: If Ben Bernanke hadn't been there in 2008, I'm not sure where we would be now. So I have enormous respect for him. I —he's a very, very intelligent man. I don't know if you've ever read his four lectures that were given at George Washington U about a year ago. He —you've got to respect him enormously. And, you know, he sees an economy that he's sort of fighting by himself to get started when he looks over —you look over at Congress that's more or less paralyzed. And I would never bet against him. I still would say that I get a little worried about continuously expanding the balance sheet of the Fed. You know, we now are getting 3 percent of our revenues from the profit of —that the Fed is running out as carry trade, if you look at the...

BECKY: The United States gets 3 percent of its revenue?

BUFFETT: Yeah, the United States —that 2.4 or 5 trillion of revenue, the third —the third-biggest —the fourth-biggest item. The first item is personal income taxes and then payroll taxes, then corporate income taxes. The fourth is dividend from the Fed.

BECKY: Wow.

BUFFETT: Yeah, he made 70 or 80 billion last year. This is —this is unheard of, you know, if you go back a few years. So he's got the perfect carry trade. I mean, when he —when he —when he borrows —he's got a trillion and a half borrowed from the banks, which he pays them a quarter of a percent for. Then he's got a trillion in money in circulation, which he doesn't pay anything for, except the cost of the paper.

BECKY: But do you worry about inflation down the road? Is this something that we'll see coming? Will we be able to put the brakes on in time and try and get some of that liquidity back out of the system?

BUFFETT: Well, I —there's nobody that understands that problem better than Bernanke.

BECKY: Yeah.

BUFFETT: But that doesn't mean that I necessarily think that the solution is going to be perfect. I'd rather have him thinking about it and trying to modify the impact of...(unintelligible).

BECKY: But to Andrew's point, if he doesn't have another term, or if he chooses not to stand for another term and there's someone else there, that person's going to have a pretty difficult job.

BUFFETT: Yeah, it depends who it is, but I would vote for Bernanke again. I'd —you know, and I'd get my kids out and everybody else to vote for him.

BECKY: But if Bernanke says that he's not even interested in staying —because they're —the people...

BUFFETT: Well, then you get worried because —maybe that he knows what he's leaving behind.

BECKY: Yeah. People like (former Fed governor) Kevin Warsh, who knows him closely, has said that, you know, he may have done enough time there.

BUFFETT: Yeah, well, I think he feels that way, particularly after his congressional testimony. But I do think if the president of the United States asks somebody like Ben Bernanke to stay on, I think he will stay on. I think he's —I think he's that devoted to the country.

BECKY: Hm.

JOE: All right...

BUFFETT: And I would rather have him there than anybody else.

BECKY: Mm-hmm.

JOE: Warren, do you...

BECKY: Joe:

JOE: Do you think that where the bond market is right now, given the extraordinary action by the Fed, do you think it's not that far from where it would be if they hadn't been as active? And then I guess it's OK. But if it be a long way from where it is without them, doesn't that sort of cause some dislocations that eventually are going to come back to haunt us? I like when stocks go up, too. And I can see it in your eye, you like it when the market's going up. But I'm just wondering, is it —is it worth it with...

BUFFETT: No, no, no.

JOE: Huh? You do. And who doesn't like when the market goes up for whatever reason?

BECKY: (As Buffett raises his hand) You.

JOE: But if it gets to a point where it's not up —where it's not up based on the underlying fundamentals, it seems like sooner or later something has to happen. No?

BUFFETT: Interest rates are to the prices of all assets, you know, like gravity is to the function of the Earth. I mean, everything is based off interest rates. It may not seem obvious, you know, and —that the value of some, you know, plantation in Brazil or something is geared off it, but everything relates to interest rates. I mean, you start with what you can get from a risk-free interest rate.

JOE: Right.

BUFFETT: And so there —it has a huge, huge, huge gravitational pull. It affects what I'm doing, you know? It affects —it affects what everybody's doing. So...

BECKY: It affects what you're doing at Berkshire?

BUFFETT: Oh, yeah. I mean, if I'm —if I'm getting zero percent on money, I am going to look at other assets somewhat differently, whether it's buying a farm or an apartment house or anything else. And, of course, the people who will lend money to me to buy the apartment house are going to lend it to me cheaper. It's one of the reasons I recommended housing six months ago, because the low interest rates had caused low mortgage rates, and low mortgage rates, when you can sign up for 30 years off a policy that may be —only be in effect for another year or two...

BECKY: Mm-hmm.

BUFFETT:...you're getting a tremendous deal. But no, Joe, the Fed has had an enormous effect on interest rates.

JOE: Is it —but it's OK?

BUFFETT: Now —well, I don't know if it's OK or not, but I know that...

JOE: You like the prices going up.

BUFFETT: I know that it's being —well, I would say that it's marvelously OK if you're buying a house or something like that now. But in terms of policy —in terms of policy, the chairman of the Fed and the members of the Fed made a decision that this economy needed enough of a jolt and it wasn't going to get it through enlightened fiscal policy and that they were going to basically carry the whole load themselves. I don't —I don't think they enjoy it...

JOE: Right.

BUFFETT:...but I think that Bernanke —I think he's a very responsible guy. Now, it doesn't mean he calls them all right, but I think he's a very responsible guy and a very smart guy.

ANDREW: OK, Warren.

BECKY: Andrew ...

ANDREW:...we're going to slip in a quick break, try to make some money ourselves during the commercial. We're going to have a lot more to come from Becky and, of course, Warren Buffett. Plus, we've got earnings from aircraft giant Boeing ahead. The numbers and market reaction. We'll talk to Warren about that, as well. And then at the top of the hour, GE Chairman and CEO Jeff Immelt's going to join the conversation. "Squawk's" back in two minutes.

ANDREW: Welcome back to "Squawk Box" this morning.

(Headlines and earnings news)

ANDREW: But as I was making my way to the AT&T news, that popped off the screen.

JOE: Are you avoiding AT&T?

ANDREW: I'm not avoiding AT&T.

JOE: OK. Would you like to take a shot at that? Or —I'm going to look at it right —no. You —OK, Becky, good, save it.

BECKY: I have it. AT&T earnings. They came in with an adjusted 63 cents. That was 3 cents ahead of consensus. Consolidated revenue up 2.6 percent when you exclude —or the divested Advanced Solutions***(as spoken)***unit. That was the Yellow Pages one. Company had record cash flow, cash from operations of 11 1/2 billion, free cash flow of 6 1/2 billion in the third quarter. And it's increasing its full year of free cash flow guidance by more than $2 billion. IPhone is always a big deal when it comes to AT&T. They had 4.7 million activations in the third quarter. I'm not sure what the analysts were looking for. But they also are saying that they had the best ever third quarter churn, postpaid churn of 1.08 percent. So again, a beat by 3 cents, and it looks like some pretty strong numbers also increasing their free cash flow guidance by more than $2 billion.

JOE: Yeah. So the lowest churn, is what you mean, not the —yeah, so the...(unintelligible).

ANDREW: The lowest churn...(unintelligible)...right.

JOE: Yeah, churn.

BECKY: Yeah, best ever, lowest —best ever meaning lowest churn.

JOE: Yeah. Yeah, with...

BECKY: Postpaid churn of 1.08 percent.

JOE: At this point, with AT&T, people just look at how they do in terms of wireless and wireless ads...

BECKY: Yeah.

JOE:...and how much people are spending for...

BECKY: And iPhone.

JOE: Yeah. And then, of course, you know, you watch —what unbelievable yield, 5 percent yield. I don't know why Buffett doesn't put all his money in Verizon and AT&T. I'd get —I mean, when you're getting...

BECKY: Warren, you want to answer that? Verizon and AT&T, you ever look at those companies?

BUFFETT: I don't know what it'll look like five or 10 years from now.

BECKY: All right...(unintelligible).

JOE: There he goes again.

ANDREW: (Unintelligible)

JOE: Wow. You get a hundred years from now, five or 10.

ANDREW: Hundred years from now, right.

JOE: So 5 percent in the meantime. You know, that's true, though, Warren. People would say, 'Wow, you got a 5 percent yield.' Doesn't take much for stock to go down 5 percent, does it? I mean, that yield doesn't necessarily hold up if the markets had its...

ANDREW: But these things are like tollbooths, so...

JOE: Yeah.

ANDREW: Right?

JOE: Yeah.

BUFFETT: Yeah. Yeah, we mostly buy stocks for future earnings. And if they use the money to —if you used all the money to repurchase shares like Henry Singleton did with Teledyne years ago, that could be even more advantageous.

JOE: Yeah.

BECKY: Because you end up owning a bigger and bigger chunk of the company.

BUFFETT: Bigger, bigger. IBM spent 3 billion in each quarter this year, almost to the dollar, buying in stock. The cheaper they buy it, the more our interest goes up.

BECKY: You still like IBM even after all the troubles technology companies have seen?

BUFFETT: Well, they're struggling a little, and it was kind of interesting, in the —we owned —we own a little more than we owned at year-end, and we got great confidence in that over the years. But in the third quarter, they had a sale of a subsidiary, RSS, that produced about 288 million, I think, after tax, which was all the gain. And to my knowledge, The New York Times did not have a line on it, The Wall Street Journal did not have a line on it, the FT did not have a line on it. Didn't get discussed. It was one line in the report and it accounted for all the gain and earnings, and it was a sale of a part of a business.

BECKY: Hm.

BUFFETT: You know, I think the reporting missed the boat on that one.

ANDREW: Yeah.

BECKY: OK, we're going to talk more about IBM and some of your other investments when we come back. And, Andrew, we'll send it back over to you guys.

ANDREW: OK, thanks, Becky. Still to come from GE's Middle Market Summit in Columbus, Ohio, we've got more of Warren Buffett. And then later, General Electric chairman and CEO Jeff Immelt on business conditions, avoiding the fiscal cliff and much, much more. You don't want to go anywhere. We've got a big show ahead.

JOE: We got a new —there's a new picture.

ANDREW: And we got a new picture.

BECKY: Welcome back, everybody. We are with Warren Buffett this morning in Columbus, Ohio, at the National Middle Market Summit, which is sponsored by General Electric and Ohio State University's business school here. You know, Warren, we've talked an awful lot about businesses. I want to get back to IBM in a little bit. But the reason we're here today is because of this focus on midsized businesses. There's been an awful lot of questions about jobs and the jobs picture out there. Midsized companies account for a lot of the job growth that we have seen over the last several years. They've been net adders of jobs. Can you talk to us a little bit about what Berkshire's been doing in terms of jobs?

BUFFETT: Well, yeah. Berkshire probably has at least 50 of its 75 companies that would fit the —fit the middle market 10 million to 1 billion of sales category. It looks to me —there's a few months left —but it looks to me like we'll add at Berkshire, on a base of 270,000, we'll probably add about maybe 8,000 jobs organically, and then we'll probably add another 10 or 15,000 on acquisition, so...

BECKY: For this year that we're in right now?

BUFFETT: This year, yeah, yeah, yeah. Certain businesses like GEICO and Burlington Northern add people and then we bought —we bought a fair number of what we call bolt-on acquisitions, not big deals but they bring with them a thousand or 2,000 people sometimes.

BECKY: In terms of the jobs growth, what about the companies that are related to housing? You've been talking about how you've seen a turn there. Has that translated into any jobs growth and...

BUFFETT: There's some jobs growth. I mean, you know, our Clayton Homes is going to produce maybe 15 percent more homes or something like that this year, and that takes more people. And GEICO is going to sell more insurance policies and that takes more people. And the —our furniture businesses are doing very well. We're selling a lot of carpet and furniture. And so we add people, but we've also going to add quite —we've made more bolt-on acquisitions this year than ever before in our history by some margin. And they bring with them thousands and thousands of people.

BECKY: How much cash do you have on hand right now?

BUFFETT: We probably have at least 40 billion.

BECKY: Are you in the hunt —on the hunt for another big acquisition?

BUFFETT: I'm salivating, yeah. A fellow handed me a card last night and he said, `This will cost you 6 billion.' And he didn't give me the financials, but I'm going to call him when I get —I know the company so when I get home I'll call him and I'll ask him for the financials and...

BECKY: What —have you looked at any other big acquisitions?

BUFFETT: We had two acquisitions this year, possibilities, that were plus and minus 20 billion and where the CEO wanted to do it but it didn't get done. Prices are tough.

BECKY: Prices are tough right now.

BUFFETT: Yeah.

BECKY: All right. We're going to...

BUFFETT: And cheap money makes that —that's a factor in there.

BECKY: We're going to talk more about that in just a moment. We're going to slip in a very quick break right now. When we come back, we'll talk a little bit more about the market for acquisitions and why there's so much money around out there. By the way, tomorrow is a big day for Joe. He's going to be hosting "Office Hours" after the show. You can like our Facebook page, you can send him comments and questions, and he'll be responding starting at about 9 AM Eastern time. "Squawk" with Warren Buffett back after this quick break.