WHEN: Today, Monday, May 4th
WHERE: CNBC's "Squawk Box"
Following are excerpts from the unofficial transcript of a CNBC interview with billionaire investor Warren Buffett live on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) from the Berkshire Hathaway Annual Shareholders Meeting. Video from the interview is available at CNBC.com.
All references must be sourced to CNBC.
More excerpts to come.
BUFFETT ON FORECLOSURES
If a loan went bad it cost us money and it cost the borrower money. So we had strong motivation to make good loans. Now, we were lending the people – 70% of the houses that were sold – less than $150,000 last year were manufactured homes, and we sold half of them. And there is no question that you're dealing with people with lower FICO scores, people whose jobs aren't as secure. So you expect some foreclosures in a situation like that.
BUFFETT ON CLAYTON HOMES
300,000 loans were made. In the last three years, people frequently write me and complain about an insurance settlement some place or they bought a TV set some place, from one of our stores or something. I have not received one letter – and all the letters get to me – I have not received one letter from Clayton Homes and we have sold in that period maybe 75,000 homes.
BUFFETT ON LOANS
I don't know the individual cases, but we've got 300,000 loans and I don't doubt that some people didn't, wouldn't understand making a loan. I mean I'm sure that if 300,000 people make a margin loan, and buying stocks, and some of them don't understand what they're doing. But I don't see how you could have anything written more clearly than the loan application or the lender board that describes the terms from every lender that wants to be out there for our loans. And there are many cases where if they get in trouble on their loan, we give them modifications or something of the sort.
BUFFETT ON FORECLOSURES AND LOANS
Everybody has foreclosures. If you just help the people that absolutely are certain pay, like me, you wouldn't sell many homes. And a lot of people would be denied the chance to get homes. Some people take some risk in putting down a 5% down payment. The average payment on our loan is under $600 per month for principle and interest.
BUFFETT ON BAD LOANS
We lose money, we lose significant money. Well, I can tell you what we lose, because the average loan when we take it over is only $40,000 – that is another reason interest rates have to be higher. These are much smaller loans that you're servicing. And our loss runs about 40% of the mortgage balance, so if we repossess a loan of $40,000, we probably lose maybe $16,000.
BUFFETT ON IBM
IBM earns infinite returns on tangible common equity. I mean, those are very good businesses. Not just IBM, you can take the others. But those are basically very good businesses. And we earn a lot of money at Burlington Northern, but we have a huge tangible investment. There's no net tangible investment. They are earning infinite returns on net tangible equity at IBM.
BUFFETT ON MARKETS
The market against normal interest rates is on the high side of valuation – not dangerously high, but on the high side of valuation. On the other hand, if these interest rates were to continue for 10 years, stocks would be extremely cheap now and the one thing you can say is stocks are cheaper than bonds. Very definitely. What we've seen low interest rates now for 6 years or so. Rates that we really wouldn't have thought possible particularly in Europe where they've gone negative. That's continued a long time. And of course we saw them continue for decades in Japan. We own stocks, we're happy owning stocks, we look at stocks as parts of businesses, we don't try to guess which way the market is – we have no idea what the markets are going to do next year.
BUFFETT ON LOW INTEREST RATES
I would've thought by now you would have seen much higher rates than we have now which is essentially nothing. It looks to me like they will stay – they are certainly going to stay low as long as Europe keeps following the present policies and Europe will probably keep following those policies till they see their European economy come back fairly strong.
BUFFETT ON INTEREST RATES BEHAVIOR
I'm sitting with a lot of money in Euros that has to be in Euros at our insurance company in Germany. I'm getting a minus rate on that. Well that gets your attention. If you were sitting with some money in your billfold and everyday a little bit of it got clipped away, you'd start wondering why is this in my billfold. It pushes behavior. Interest rates push behavior incredibly.
BUFFETT ON INTEREST RATES CONSEQUENCES
Historically, I would've thought the consequences would be significant inflation at some point and that has not happened. We've kept rates low here now for 6 years and now you're seeing something even more extreme. And you even have the central bank saying we want 2% inflation. It's very interesting and undoubtedly we'll look back 5 or 10 years from now and something will have happened and we'll say well that's the obvious consequence, but I can't tell you what the obvious consequence is.
BUFFETT ON ACTIVISTS
When we have close to 15% of American Express or when we have 9% of Coke or almost 10% of Wells Fargo, I think it'd be very silly for an activist to come in and say double your dividend today or buy in a whole lot more stock or whatever it might be they would be proposing. I think the companies are well run and I think their financial policies are sound. And if you have some financial policies in a well-run company, the best thing to do is just to sit back and enjoy it.
BUFFETT ON BEING HOSTILE
I did some semi hostile things very early on and it wasn't much fun. It just isn't the way to go through life. Why not find a wonderful company and join them rather than find a so-so company and get into a fight?
BUFFETT ON JANET YELLEN
I think that Janet Yellen's hands are somewhat tied by what Draghi is doing. I think it would be very hard to raise rates dramatically or significantly and have Europe to continue to do what it's doing. Every person in the world with money would be thinking about, "Do I move it from x to y?" And those flows could become very uncontrollable and they could create their own momentum.
BUFFETT ON MINIMUM WAGE
I do want to see people have more money in their pocket, low-income people, and I think the earned income tax credit is a far superior way. It rewards work and it does not destroy the normal demand supply curve so that you keep people employed. In fact, you even induce them to become employed. And you put more money in their pocket. I happen to think that is the superior way.
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