WARREN BUFFETT ON CNBC'S "SQUAWK BOX" ON MONDAY, MAY 2ND 6AM-9AM ET
Following are excerpts from the unofficial transcript of Becky Quick's interview with Billionaire Investor Warren Buffett on CNBC's "Squawk Box." Following are links to video of the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000513793, http://video.cnbc.com/gallery/?video=3000513811 and http://video.cnbc.com/gallery/?video=3000513809.
All references must be sourced to CNBC.
**Warren Buffett will be on CNBC's "Squawk Box" on Monday, May 2nd 6AM-9AM ET. Charlie Munger, Vice-Chairman of Berkshire Hathaway, and Bill Gates, Microsoft Founder & Co-Chair of the Bill & Melinda Gates Foundation, will join from 8-9am ET.
BUFFETT ON THE MARKET AND CARL ICAHN'S COMMENTS:
BUFFETT: well there are probably this is the most wildest of guesses. There were probably 50,000 people or more today that bought stocks today and 50,000 people who sold so I don't know that I would pick out any one of them and put too much weight in what they did ah no I it ah I have no idea what the market will do day to day or why it did what it did today or yesterday or..
QUICK: do you share any of his sentiment when it comes to bubbles that could be created just by the slow interest rate environment?
BUFFETT: Well low interest rates. Interest rates act on asset values like gravity works on physical matter and ah if you had zero interest rates and you knew you were going to have them forever, stocks should sell at you know 100 times earnings or 200 times earnings if your alternative is absolutely zero and you know it will last forever. So when interest rates were 15% with Volcker you know it was an enormous gravitational pull on the value of all assets, not just stocks because an investment is something where you lay out money now to get more money later on and if you can get 15% it makes the choices way different than if you get zero so and we've had low interest rates now for longer than most people expected and to some extent its changed peoples expectancy about interest rates while the 30 year bond reflects peoples view of 30 year money.
QUICK: what about negative interest rates in places like Europe and japan, what does that do?
BUFFETT: I hope I learn to live to find out. I have no idea. You can read Adam smith you can read Keynes you can read anybody and you can't find a word to my knowledge on prolonged zero interest rates. I mean that is a phenomenon that nobody dreamed would ever happen and ah ah and I think it is unchartered territory. That doesn't mean I think it's the end of the world ..but I don't think anybody knows exactly what the full implications are of low interest rates and I certainly don't.
QUICK: one thing carl Icahn said today that I thought was pretty interesting is that he'd like to see more fiscal spending. He thinks that the republicans and in congress and he's long been a republican, but he in thinks the republicans in congress right now are almost obsessed with the deficit to a point that he called almost pathological. What do you think about the deficit, how big of a problem it is and whether we should be spending more as a nation right now?
BUFFETT: well the deficits not a big problem. The national debt which is a function of the deficits that you have over a long period of years but the national debt as a percentage of GDP is a little higher than I would like it but the main thing is not to have it galloping upward. We've had a national debt that was 120% of GDP in 1945 and 6 when we came out of world war 2 and people thought that was the end of the world and of course it didn't.it was somewhat inflationary for a while but you know we had enormous prosperity after that and there are countries around with much greater debt to GDP ratio than what we have. What we have is not dangerous. Its people talk about it in gross terms. Berkshire had no debt perhaps in 1965 when we took it over. If wed borrowed 3 million we would have been in big trouble. But we have more earning power now and this country has incredibly more earnings power than it did 30, 40 and 50 years ago. Debt can only be evaluated in relation to future income producing capabilities and the countries with income producing capabilities have never been larger and they keep growing
BUFFETT ON THE ECONOMY:
QUICK: let's talk about GDP because the first quarter numbers that came in today stunk. 0.5% - that's the weakest growth in two years. Does this feel like a 0.5% GDP economy to you?
BUFFETT: Something like that. It's not it's certainly not accelerating and it's not declining but its very slow growth and of course as you would expect when the number is very low it is irregular in various parts of the economy. The economy is not booming, on the other hand it's not falling apart in any way shape or form either.
QUICK: so economists who say that the quarter that we are in right now that its already better 1.5-2.0% you don't think so from where you stand?
BUFFETT: well I wouldn't know but they don't know either
QUICK: you might know, you have a lot of businesses that you watch
BUFFETT: well yea but I don't see them accelerating, I don't see them accelerating.
QUICK: one thing that struck me from the GDP numbers today is that the consumer really hung in there. Consumer spending was very strong and you think about that in the context of lower prices at the gas pump and as we are watching oil prices pick up should we worry that maybe that is going to hurt the consumer, that we've taken for granted all of this extra spending they've been doing because of low gas prices?
BUFFETT: well yea but they are still low. If it goes back to $100 a barrel that's a difference but not only are gas prices low but interest rates are low so people borrowing money on cars have a lower payment than they would have to make if rates were quite a bit higher and certainly on homes - you know mortgage payments have dropped dramatically so people have more money to spend on other things and employment is not bad.
QUICK: what do you see just in terms of the economy through a lot of different sectors. You have so many different businesses and so many different reads you get on this. How do you think the consumer is doing right now?
BUFFETT: well I think the consumer is doing pretty well but I can tell you as someone who owns one, the railroads aren't doing very well.
QUICK: let's talk about that - railroad shipments. part of that is coal. what else do you see?
BUFFETT: a very big part of that is coal. coal is really down. way more than people anticipated. now the winter was very mild and coal stock piles were already very large at utilities going into the winter and then having a very mild winter...there was no more electricity produced last year than the year before so the coal stockpiles remain high. the falloff in coal production has been a lot more than any of the railroads anticipated, including ours.
QUICK: if you stripped out coal would you be thinking that railroad shipments are doing pretty well or is there weakness across the board?
BUFFETT: no, no if you look at I think when I get the figures every week there are about 25 categories or something of the sort and a very significant percentage of those are disappointing.
QUICK: when you think about the industrial economy that was what we were so worried about at the beginning of the year...you've got a lot of industrial businesses too how does it look from that perspective.
BUFFETT: well they do ok but they're not accelerating no the economy is not but it's not getting worse and I don't want to give that impression in the least and as you pointed out the consumer is in better shape than before the world is not falling apart but were not seeing a lot of buoyancy either.
BUFFETT ON EARNINGS SEASON:
QUICK: earnings season has been a little disappointing. lower numbers and lower guidance from a lot of companies too
BUFFETT: well earnings have been so high. corporate earnings have never been better. as a return on tangible equity American businesses never had it so good. profits as a percentage of GDP I mean. profit margins up and down the line business has been very good. the steel business has been terrible you can pick out a few areas but its not surprising that if the economy is not galloping forward and you already have earnings at this level I don't see them jumping a lot from this level.
BUFFETT ON BREXIT:
BUFFETT: well I don't think it's a good thing but I wouldn't do a thing differently tomorrow in terms of our businesses or in terms of our stocks if Cameron told me and told me he was going to come out for it tomorrow strongly so it wouldn't change anything I did. I wouldn't sell the farm I own I wouldn't sell the real estate I own, I wouldn't sell my house I wouldn't buy a different kind of car and I certainly wouldn't change my investment in businesses but I hope they don't do it.
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