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

Warren Buffett appeared live on CNBC's Squawk Box for a two-hour interview with Becky Quick. During their conversation, Buffett said there's "no question" the global economy is slowing and he's "salivating" for Berkshire Hathaway to make a "big acquisition."

He also offered some timeless advice on investing in stocks.

In addition, they covered many other topics, including the "fiscal cliff," adding to Berkshire's Wells Fargo stake, and his prostate cancer treatments this summer.

Here's a transcript of their complete conversation, along with video clips.

The transcript is also available as a PDF for downloading.

ANNOUNCER: "Squawk Box" is on Buffett watch. The "Oracle of Omaha" joins Becky Quick to talk about the issues that matter most to your money —earnings, the economy, and the election. It's a special two-hour event with Warren Buffett as the second hour of "Squawk Box" begins right now.

ANDREW ROSS SORKIN, co-host: Good morning and welcome to "Squawk Box" here on CNBC. I'm Andrew Ross Sorkin along with Joe Kernen. We're going to be getting to Becky and Warren Buffett in just a moment, but first let's get a quick check on the markets.

* * *

ANDREW: Mr. Kernen.

JOE KERNEN, co-host: Thanks, Andrew. Let's get to Becky, who is in Columbus, Ohio, this morning with Berkshire Hathaway chairman and CEO Warren Buffett. Is he there, Becky? I saw him. I heard him.

BECKY QUICK, co-host: He is here.

JOE: Good, with the …

BECKY: He is, he's ready to go.

JOE: … with the … a spanking new NetJets tie on, I see, huh?

ANDREW: Is that what that is?

JOE: Yeah.

BECKY: He does. You like that?

JOE: You said he had a nice...

BECKY: Yeah.

JOE:...NetJets tie, and I asked you did he also bring a nice NetJets card, and I'm sure he didn't.

BECKY: And what did I tell you? What did I tell you?

JOE: That I can ask him myself.

BECKY: I said you'd have to ask him. Yes.

JOE: Yeah, and did you bring one, Warren, or am I getting another brick?

WARREN BUFFETT (Berkshire Hathaway Chairman and CEO): Just beg a little, Joe. We'll get to it later.

BECKY: He wants to hear you beg for two hours first, Joe.

JOE: I know, and then he doesn't do anything. And I'll —you know, I'm going to try.

BUFFETT: Oh no, I got —I'll come up with something for you.

JOE: I'm going to try.

BECKY: All right, well, you know, Joe, we are very fortunate to have Warren with us here this morning. And, Warren, this is the first time we've gotten a chance to sit down and talk with you since the prostate cancer treatment.

BUFFETT: Right.

BECKY: How are you feeling?

BUFFETT: I feel fine. I feel great. I —you know, they gave me some hormones, too, so occasionally I get some hot flashes, which I —we males call those power surges actually. And —no, it was —it got tiring after a while. The radiation does. You don't feel anything, but...

BECKY: Of course.

BUFFETT:...I felt it was time to quit when I started getting the urge to pee sitting down.

BECKY: But you're feeling good.

BUFFETT: I feel great.

BECKY: Well, you look great, and we are very happy to have you with us today. Thank you for joining us. You know, this is one of the best times that we've gotten to talk to you because there have been so many questions lately about what's happening in the economy. We've heard from major companies like 3M, Caterpillar, DuPont, all of these companies, UPS, who have all come out and said that the global economy is very uncertain, it's slowing down a little bit. They're not sure about what they see in the future. And it's raised a lot of questions in the market, too. The market's been selling off over the last week or so. Real concerns. People sitting up and saying, `Oh oh, maybe there's something really happening here.' Do you think the market's overselling the situation, or do you think it's catching up with reality? What do you see?

BUFFETT: Well, I think —I think the stock market generally is the best place to have money, and —but I think that there's no question that worldwide there is some slowing down going on. And in the United States, actually, residential housing is picking up, and we've been waiting for that a long time, and that will have a significant impact. It hasn't gotten to any big level yet, but our carpet businesses and brick businesses and all of that will come on with residential construction, and that has turned. But the general economy, I think it's a little bit better in the U.S., certainly better in the U.S. than it is in Europe. And in terms of the rate of decline in Asia, it's reasonably steep and we're still inching ahead. But it's inching.

BECKY: When did you first start to notice this global decline, this global slowdown?

BUFFETT: Well, we've got a couple of companies that really are kind of real time as to what's going on. The number one would be Iscar because they sell these little tiny punching tools or cutting tools, and they fit in these huge machine tools that cost millions of dollars. So anybody that's turning out anything big are buying these little, call them razor blade type items, from us. And they don't need a big inventory. They can —we can deliver very quickly. So their purchases reflect usage, and there our strongest market is in the United States, but Europe and Asia have fallen off some. And we're gaining market shares. So there's a decided decline in activity in all that manufacturing where you're stamping metal and doing that sort of thing.

BECKY: Oh, we heard from (CEO) Doug Oberhelman from Caterpillar the other day, and he says that he looks around the globe and he doesn't expect to see a recession anywhere in 2013, but Europe is the biggest problem spot. Would you agree with that assessment?

BUFFETT: Well, it is at present. Its rate of decline —I mean, it's way off a lower base —its rate of decline is not greater, in my view, than the regular decline in Asia. It's just that Asia was doing much better. The United States actually has got the steadiest trajectory, and I don't see any change in that. I mean, you know, we got the freight car rollings, and that —we got a big energy pick up in the United States, we're getting a housing pickup. Those are pretty big —pretty big industries.

BECKY: Well, let's talk about some of those numbers because housing is a huge key. You had told us before that we are not going to see a turn in the unemployment picture until we see a turn in the housing.

BUFFETT: Right.

BECKY: And Doug Oberhelman had told us the reverse of that the other day. He said you're not going to see a turn in the unemployment picture until you see the turn in housing, and he kind of set the thing on its head and said it's the other way around. Which comes first?

BUFFETT: Yeah. Well, demand I think comes first.

BECKY: Yeah.

BUFFETT: I mean, you hire people when you start seeing demand, and you are seeing more demand. You're seeing —you're seeing greater purchases of lots. I was with a guy last night at the GE dinner that is in the business of selling lots, and the —and the builders are starting to clamor more for those. We have the largest housing manufacturing company in the country at Clayton Homes, it's manufactured homes.

BECKY: Right.

BUFFETT: But those —that business is up in the area of 10 to 15 percent. We see it in our...

BECKY: In terms of volume? In terms of...

BUFFETT: In terms of units, yeah.

BECKY: Right.

BUFFETT: In terms of units. Real estate brokerage, we not only see about a 15 percent increase in transactions, but we also see a small increase in the median price. And this —and this comes from all over the country. I mean, we're in California, we're in Nebraska, Minnesota, Florida, you know, you name it. So that's changed. Our —you know, we're going to make a lot more money in carpet this year than we made last year. You know, more than double probably, and we hire people when that happens.

BECKY: Mm-hmm.

BUFFETT: So the United States economy is not tanking. Asia from a higher level, I wouldn't necessarily call it tanking, but it's heading down, and Europe has been having its troubles for some time and they haven't ended.

BECKY: Does that —does that catch up with us? Does that affect us at some point, too?

BUFFETT: Well, what we really hope is we affect them over time. And no, I don't —I don't necessarily think so unless there gets to be chaos someplace. We've already adapted to what's going on around the world.

BECKY: Tell me what you see in terms of the rail cars. You were saying you were watching loadings on those, Burlington Northern obviously moving a lot of materials. And natural gas is big for them, too, correct?

BUFFETT: Yeah. Well, at Burlington coal is down, as it is with the other railroads. Oil is up, and when you're fracking you bring in lots of sand. So sand would be up, for example. And the UP just reported, and they're seeing small gains in things other than —they're seeing it in lumber. You know, they're seeing it in cars. We're seeing it intermodal. They do —we're the biggest in intermodal. We carry 15 percent of all the freight measured by tonnage in miles in the United States. I mean, it's —just the Burlington Northern carries almost half as much as all the trucks in the United States in terms of ton miles.

BECKY: And you're not seeing any downturn? You're seeing actually numbers go up on those?

BUFFETT: We're seeing numbers go up. Now, that was a little deceptive a month or two ago because we had these floods last year and so the figures were very easy there for July and August. But we are seeing small gains, but they're small.

BECKY: And in terms of what you see at Mid-American, you talked about some energy demand. That had been weak for quite a while because companies weren't using as much energy. How's the —how's the picture on that?

BUFFETT: Yeah, well, you know, kilowatt hours we're down this year.

BECKY: Yeah.

BUFFETT: But we —well, look at it this way. Berkshire Hathaway in 2010 spent six billion on plant and equipment. That was a record.

BECKY: Mm-hmm.

BUFFETT: We spent last year eight billion on plant and equipment. Another record. This year we'll spend nine billion on plant and equipment, another record. And practically all of that's in the United States. I mean, we see lots of things to do. Now, a good bit of that is in the rail business and the energy business.

BECKY: Right.

BUFFETT: But there —there's a lot to do. And incidentally you hear a lot about infrastructure and, you know, the terrible shape it's in.

BECKY: Right.

BUFFETT: The rail industry's infrastructure's in the best shape it's ever been in.

BECKY: OK. Joe has a question for you as well. Joe:

JOE: Yeah, along the same lines, Warren. If —let's say that you were going to start a new Berkshire Hathaway, and it was just going to be based on energy. Now, only energy stock could be in it and you were trying to play whatever happens in —or trying to take advantage of what happens in this country over the next 20 years, what would —how would you do that? Would it be natural gas? Would it be coal? Would it be solar? Would it be —how do you think you would do that? All of the above or I mean are you smart enough to see how this plays itself out with fracking and natural gas?

BUFFETT: No, but I —but I, you know, I'm interested enough to follow it, but I don't —I don't think I'll be able to write the newspaper two years from now at the current time. But we are putting a lot of money into solar and wind. That's just part of what we do at Mid-American. You know, if you get into producing energy itself I'm not —you know, I would be no good at that game. I'd have to join with somebody else that I thought was terrific. But I don't know a blame thing about it. I mean, I read about it and I —and I feel very good about what I read, and we transport a lot of oil, but I don't —you know, you stick me in —next to an oil well, and I go back to thinking of some Clark Gable movie or something as to what I'm supposed to do, and I think that's a little out of date.

JOE: Becky, have you shared your thoughts about, you know, exporting natural gas?

BECKY: Oh, I know where you're going. Oh, he...

JOE: Well, I just —I just wondered whether you've talked to Warren about that. I mean, you listen in...

BECKY: I haven't. Warren, let me —let me tell you before Joe makes it even sound worse than it is. I have had some concerns about this idea of exporting natural gas because, look, this is from the Charlie Munger school of thought. If you want to be energy independent, he thinks it's a stupid idea. He thinks we should use all of their stuff. But I worry, if we really do want to get energy independent why would we ship this natural gas to other people? Why don't we build it and keep it here? Go ahead, tell me why that's wrong.

BUFFETT: I'm with —no, I'm with you. Sure.

JOE: Oh.

BECKY: You are?

JOE: Ah! See?

BUFFETT: You got to —no, no. If you —if you've got a national treasure, and we had that in oil if you go back 50 years. We're an exporter of oil. I mean, we were producing way more than OPEC. And the Texas Railroad Commission used to —used to announce every month how many days you could produce in Texas. It was an OPEC of its time. And so we took these huge prolific fields, the East Texas field and, you know, we sent that stuff abroad. We were getting three bucks a barrel for it. And, you know, and then we built a strategic oil reserve later on. Well, that's the strategic petroleum reserve. No, I believe if you're dealing with a scarce commodity, something that you know is finite...

BECKY: Ha!

BUFFETT:...over time use the other guys'.

BECKY: Ha! Joe, there, take that. I'm back on the bean wagon.

JOE: Well, I never —I never thought Warren was a protectionist. That's amazing.

BUFFETT: No, I'll protect something that we're going to need to keep this country going 50 or 100 years from now.

JOE: Right.

BUFFETT: I don't want to ship our talent overboard.

JOE: We may have enough —we may actually have enough, though, for the entire world. And that would be a great export business eventually to be in if we were self-sufficient ourselves.

BUFFETT: It would be for a while, but if you're looking out 100 or 200 years —and thank God people 200 years ago were looking out in many respects, although we weren't looking at it —we weren't looking out in the 1950s when we were —when Texas was producing.

JOE: But I love that you're worried about like 100 years from now, and it's not just for your ancestors. It's for you 100 years from now.

BUFFETT: Exactly.

JOE: Which I like. Which —I like that.

BUFFETT: Exactly. You've got —listen, I like it that you like it, Joe.

JOE: Yeah, because I do. Andrew, go ahead.

ANDREW: OK, real quick, Warren. You —I'm curious, with the market selling off $500 billion in the past three days, knowing you, I think you're probably watching this thinking, `What am I buying?' So I want to know, is there anything —have you done anything in the past three days?

BUFFETT: Maybe in the past week we've done some things. Yeah, we —but basically I like to buy and, you know, so if the market is down, you know, I'm happier buying, I like to buy. If I got to a supermarket and they reduce prices, you know, I feel better. If I got to a men's clothing shop and they've reduced prices, I feel better. So if I go to the stock exchange and they reduce prices, I still feel better.

ANDREW: You want to give us a...

BECKY: What have you been —what'd you buy in the last week?

BUFFETT: In the last week, I bought some Wells Fargo.

BECKY: You did?

BUFFETT: Yeah.

BECKY: So continue to buy.

BUFFETT: But we only have 430-something million shares, so I didn't feel we had enough.

BECKY: Do you —you look at the banking business, though, overall, is it going to be as profitable?

BUFFETT: No, it can't be as profitable. The profitability of banking is a function of two items. Return on assets and assets to equity.

BECKY: Hm.

BUFFETT: And return on assets is not going to go up particularly. USB has done the very best on that. They're at about 1.7 percent. Wells is between 1.4 and 1.5 percent. But most banks are lower. Now, if you have 20 times leverage and you're getting 1.5 percent on assets, you're making 30 percent on equity.

BECKY: Mm-hmm.

BUFFETT: And that was not lost on people a few years back. And they pushed balance sheets, and they're still pushing them in Europe. But they've cut back on that here. So they will not be having the leverage in the banking system. It'll be even more restricted among the bigger banks as part of the new rules, and you won't be able to earn more on assets than before, and so with less leverage in the same return on assets, you will have a lower return on equity. Banks were —banks were earning 25 percent on tangible equity not so many years ago. And really, that's kind of a crazy number. You know, for a basic semi-commodity business, you really don't want to allow that. But that was allowed because people felt that their bank deposits, and they were, were guaranteed by the government; and, therefore, there was no market force that would look at the —at the shape of a —condition of a bank and say, `Well, I won't put my money there because they look kind of dangerous with all this leverage.' And therefore, people got to push and push it and push it, and then the government says, `Listen, we got a vested interest in this. You're using our credit, in effect, and if you want to play, you're only going to have 10-to-1, or some number like that. So the returns on banks have come down. It's still a good business.

BECKY: But you still think it's a good business and you still buy it because you like the price.

BUFFETT: It's a good business. Wells is —Wells is very well run. And it's a good business.

BECKY: OK.

BUFFETT: But it's not like —it won't get to what it was.

BECKY: OK.

BUFFETT: The European banks still are leveraged to an extraordinary extent just because they don't know how to get out of it.

BECKY: Right.

BUFFETT: But they aren't earning 1.5 percent on deposits either.

BECKY: Right. OK, well, Warren hold with us just a moment. We're going to take a quick break. When we come back we're going to continue this conversation with Warren Buffet. By the way, if you've been looking at the futures this hour, they are pointing to a slight rebound after yesterday's sell-off. You can see right now the Dow futures up by about 13 points above fair value. As Andrew pointed out, though, stocks have lost $500 billion just in the last three trading days. We're going to see if today's earnings news and the Fed decision can spark a change in investor sentiment, and maybe Warren Buffett's words, maybe that'll spark things for the markets. We'll talk more with him right after the break. Also, coming up at the top of the next hour General Electric Chairman and CEO Jeff Immelt will talk to us about the company's latest quarter, the fiscal cliff, the global economy. "Squawk Box" is live this morning from the GE Middle Market Summit in Columbus, Ohio. We're back with Warren Buffett in two minutes.

JOE: We are speaking to Warren Buffett, and Becky is out there. Mr. Buffett just telling us that he's been buying Wells Fargo this week. That stock has now turned positive since those comments. Becky, they told me to ask a question. Is that OK? I'm not going to...

BECKY: Yeah, go ahead.

JOE: Are you sure? Hey, Warren...

BECKY: Yes, go ahead, Joe.