WHEN: Today, Monday, May 6th
WHERE: CNBC's "Squawk Box"
Following is the full unofficial transcript of a CNBC interview with Berkshire Hathaway Chairman & CEO Warren Buffett, Microsoft Founder & Co-Chair of the Bill & Melinda Gates Foundation Bill Gates and Vice Chairman of Berkshire Hathaway Charlie Munger, on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Monday, May 6th. Video clips from the interview are available on CNBC.com and the full interview will be available on the Warren Buffett Archive.
All references must be sourced the CNBC.
BECKY QUICK: Andrew, thank you. Thank you very much. This was the 54th annual shareholder meeting for Berkshire Hathaway. And while shareholder meetings are known for being lightly attended, stayed and downright boring this was anything but. More than 40,000 people attended here including business leaders like Activision Blizzard CEO Bobby Kotick, Quicken Loans founder Dan Gilbert and Spanx founder Sara Blakely. And for the first time Apple CEO Tim Cook was in attendance. Apple is now Berkshire's largest equity holding and Berkshire is Apple's third largest shareholder. We caught up with Cook this weekend and asked him what he thought about it all.
TIM COOK: I think it's incredible. I've never been to an annual meeting like this before. You know, I thought ours was-- it's lively but there's 40 plus thousand people here. And I love the fact that-- Warren and Charlie take every question. And of course-- through all of it, not just the wisdom the exude but you can feel the integrity and the humility-- coming out. And I think it's a great learning experience for me and for everybody in the audience I'm sure.
BECKY QUICK: Joining us now is Berkshire's chairman and CEO Warren Buffett. And-- Warren, what's it mean to you to have gone through this weekend?
WARREN BUFFETT: It's a lotta fun. I mean, you see who you're working for and they see you and you interact with 'em. And-- they come in sort of a Mardi Gras spirit. I would say in the last ten years was-- maybe 40-- well, from out of town not 40,000. But--- a great many from around the world. I just never get a letter of complaint. I mean, I know that somebody missed his plane or has a car rental- that isn't available or hotel room. But they just come in the spirit of enjoying it. And-- the people in Omaha welcome them that way. So people go around with smiles on their faces. I mean, we have 600 of our own people that come in from our various subsidiaries. And I think we work-- after a couple of days and-- I never see anything but smiles on their faces.
BECKY QUICK: But there-- unfortunately we're not gonna allow you to rest on your laurels this week because we have some major news that's breaking this morning. You see the markets already down by almost 500 points. The future's here for the DOW. What do you think about the potential for trade tariffs coming back on and what that might mean for the trade talk?
WARREN BUFFETT: Well, II can't gauge how both sides will play the game and they're always-- some people negotiate different ways. And-- if we actually have a trade war it will be bad for the whole world-- and-- could be very bad depending on the extent of the war. But there's times in negotiations when you talk tough. The one thing you can't do though is you can't-- you can't shake your fist first and then shake your finger later on. I mean, that-- it-- is not a technique that works well. So when you do push ahead-- you don't know exactly what the outcome's gonna be.
BECKY QUICK: What-- you can't shake your fist first and then shake which finger later? What are you talking about--
WARREN BUFFETT: You're-- more advanced on this than I am actually. But the-- well, that-- that's what you're worried about is you get the other finger back. And-- you have to mean it after a while otherwise it doesn't mean anything obviously when you do that. And you're gauging a response from someone else that also has their own calculus and has their own--internal political considerations and so and so. It's-- dangerous game. Doesn't mean it's a game that shouldn't be engaged in. But it's a dangerous game.
BECKY QUICK: You negotiate a lotta deals too. Would this be your tactic?
WARREN BUFFETT: Well, it-- isn't mine at all. But-- you know, we can talk about the Occidental deal later on but--I've got a consistent way of negotiating and that has its advantages. Probably has its disadvantage too. But---- I just say what I'll do. And---- I don't do anything else. So-- people really know that's what I mean and-- they can decide whether what I've said is acceptable or not. But they know that I don't go through it-- a game now they are lots of people in acquisitions that really like to play games. And-- they're used to it in their own business. And-- and it-- it's their way of doing it. And-- that's fine. But it doesn't work with me. And I don't wanna-- I can't afford to spend the time on it. I mean, it, you know, you don't know whether you're ever gonna get there. And you spend weeks and months and-- it-- it's just-- it would be a huge time waster if we didn't.
BECKY QUICK: You know, I don't know that this is bluster coming from President Trump though. He's already put the tariffs on. And-- you know, I-- don't know that I would take this lightly and think that we're not going to be seeing--
WARREN BUFFETT: No, I--
BECKY QUICK: --25% tariffs on Friday.
WARREN BUFFETT: --you can't because you're playing-- playing the game you have to sound that way. I mean, it-- if you-- it-- with some people in negotiations-- the best technique is to act half crazy. I mean, that-- with your kids you see how it works. Even negotiating techniques with-- your children all the time. You count to three if you don't do this then that there-- they know you're not gonna shoot 'em in the end they've really got the edge. And- that goes on all the time. And-- it's interesting kinda with the reputation in industry, we bought a very large-- auto dealership operation a few years ago. And-- we did make more or less our kind of deal, winning the price. And-- probably 20 times since then people come out, they say, "We wanna do something." And they just-- we've never once thought we-- could do it the same way. I mean, it used-- it's just part of our lives to negotiate and it's part of my life not to negotiate, so.
BECKY QUICK: You need to come in with a high offer and expect--
WARREN BUFFETT: Oh sure.
BECKY QUICK: --that you're going to negotiate--
WARREN BUFFETT: Yeah, anything you say. They-- and-- I understand that. I mean, that's the way a lot of things take place. But-- probably a majority of transactions-- and-- but it's nice to have a reputation for not doing it 'cause it makes it a lot easier. You save a lotta time
BECKY QUICK: Well, let's talk about what it would mean if tariffs on Chinese goods rose to 25% from 10% on that $200 billion worth of goods at the end of the week. How significant is that? What would it mean for Berkshire's businesses?
WARREN BUFFETT: Well, it would mean a lot to the world. It-- isn't just a country is involved because, you know, they take the dollars they receive from us and that-- and they buy goods in other places. I mean, their trade surplus is considerably-- less overall than their trade surplus with us. So everything is-- everything intersects in the world. And-- it depends on who gets retaliatory with us or with them. And -- it's easier to start it than it is to stop it. And-- the effects would be huge if conducted on a major scale over time. Just-- imagine, Becky, that our constitution was set up differently and that states could erect tariffs. And Michigan would put a tariff in on-- you know, that-- on cars and there-- we would run accord and that-- you'd agree to which trade would contract in this country. But mislocated plans, they-- the migration of workers that would, I mean, it would be, well, it-- sounds ridiculous to talk about it 'cause it is ridiculous. But you've got countries where-- you would have similar effects if you-- if you get country after country after country. 'Cause you can't just have it between two countries. It-- will-- it will spread. The very fact that it's sort of a nuclear threat is what brings people to the table. So I mean, that-- that's the way to-- many play the game. But you don't wanna have too many-- nuclear threats out there because some day somebody may feel they have to fulfill one.
BECKY QUICK: Right. I-- obviously that's why the global markets are under pressure. Not just Chinese markets that are down. You saw that Korea Kospi-- was down by about 3%. Markets down-- just about everywhere at--
WARREN BUFFETT: It--
BECKY QUICK: --this point.
WARREN BUFFETT: --affects everything.
BECKY QUICK: So that's-- you're-- saying the market's reaction is the right one. It's not an overreaction.
WARREN BUFFETT: It's-- rational. And-- then we'll see what happens next. But obviously if-- you went to bed a week ago and you thought there was a 1% chance of a trade war. And--subsequent events makes you think there's a 10%. Markets reflect that very quickly.
BECKY QUICK: What would you put in terms of, I mean, you're an actuarial mind, in terms of these things. What kind of odds would you put on it?
WARREN BUFFETT: Well, you talk about two leaders of the two major economic powers in the world-- that's not the sort of thing I can lay odds on. I mean, you were talking about two personalities who are very much used to getting their way and in politics. And you're talking about-- how they would be perceived in their own country-- in terms of their behavior. And it gets very complicated. It-- there's no way I know how to predict that.
BECKY QUICK: Although you've written insurance contracts on weirder things than this. What-- would you-- what would it take for you to ensure that there was a deal done at the end of this?
WARREN BUFFETT: It--would take a big premium. Yeah. This would not be the kinda thing I would look to ensure, frankly.
BECKY QUICK: Because it's so unknowable?
WARREN BUFFETT: It-- yeah. And--you would-- you-- would have a hard time the-- planning the risk precisely because if they lasted for a month then they'd-- so you-- get into the duration of how long it-- you'd have a lot of trouble writing the contract. And-- but it is the sorta thing-- not-- not precisely identical but we do take on unusual risk. But this is a very big one.
BECKY QUICK: What-- will it mean for Berkshire businesses specifically? And I just think on Friday we spoke with Jim Weber who's the head of Brooks Running. They've already relocated and moved a lot their operations to Vietnam because of this concern. They've been in the process of doing that since these trade talks first kind of appeared.
WARREN BUFFETT: Well, we've seen it in the-- in our rail—cargo intermodal that arrives on the west coast. I mean, everybody stocks up ahead of time. And it-- distorts things just thinking about it. You can imagine the distortion if you get into it. And you really can't predict the speed or the degree of effect because it spreads. You-- can't do something between U.S. and China in a big way without it affecting all the major markets that they go around. And--- you're starting a game that you don't know the ending of but you know it isn't a good game.
BECKY QUICK: You said--
WARREN BUFFETT: Like I say, it may be necessary to play another game to avoid that sort of thing. I mean, that-- it's-- that's what mutually assured destruction was. I mean, you felt as long as you had mutually assured destruction nobody would actually launch it-- a missile. And-- this is a similar-- can be a similar type game. A little bit of chicken at--
BECKY QUICK: You say that intermodal rail loadings-- were affected by it. Meaning that you saw an increase in-- in rail car loadings--
WARREN BUFFETT: Months ago.
BECKY QUICK: Months ago because people were trying to stock up--
WARREN BUFFETT: Yeah, people loaded up on inventory that they thought might, I mean, you thought there's a good 25%, I mean, if I thought there was a good 25% tax on Coca-Cola next week I would have my house filled with Coca-Cola. It would look very good. Sales would look terrific. And guys who transported to my house would be doing great and everything, boom, it'll all end.
BECKY QUICK: Well, that's a big concern, I mean, if we've been looking at this great economy and thinking things are wonderful but it was really just pulling things forward. And then you get into a situation where it stops down, does that concern you just about--
WARREN BUFFETT: Yeah, and it pulls things forward I think. And in the GDP figures there was-- a big inventory adjustment. And-- - no, you-- if you think the flow of something is going to either stop or get more expensive and you need it you're gonna load up ahead of time.
BECKY QUICK: Well, the-- will this change your behavior in any way when it comes to purchasing securities or making deals?
WARREN BUFFETT: No we will buy the same stocks today we were buying last week. It's just I won't tell you their names.
BECKY QUICK: But would you buy more if you get 'em down—500 points
WARREN BUFFETT: --the cheaper they get the more I buy.
BECKY QUICK: But it doesn't mean that you don't think markets could go down further--
WARREN BUFFETT: No I'm not buying them 'cause I think they're gonna go up the next day or the next week.
BECKY QUICK: Yeah so it's something you're watching very closely?
WARREN BUFFETT: Yeah. Oh-- yeah. But we watch the prices of things we do more than current events. Because in the end-- we aren't buyin' 'em because what's gonna happen next month or next quarter. You know,we're really buying 'em because we think they'll be good businesses ten years from now. If somebody came to us with a good business today, we'd buy it. And we'd buy it regardless of what's going on in the tariff situation. We might this wouldn't be the case. But you might-- we're more likely perhaps to get something when other people are-- fearful. You see that in a big way instantly in the market, you know, in the market for businesses. It's-- but it's--still there in people's minds.
BECKY QUICK: We-- have much more to talk about this morning including the Occidental deal that you already referred to. But if you don't mind we'll slip in a quick commercial break first and come back and talk more about that?
WARREN BUFFETT: Gotta pay the bills.
BECKY QUICK: We do. All right, Joe and Andrew, I'll send it back to you in New York.
ANDREW: Thank you, Becky. We'll be back to you in just a moment. We are all over this morning's big market move. But when we come back we're gonna take a closer look at some stocks with China exposure getting hit hard this morning. Meantime, as we head into a break, here's a look at the biggest pre-market winners and losers in the DOW. Back in a moment with Mr. Buffett.
BECKY QUICK: All right, welcome back, everybody. We are here and news is breaking. There's an SEC filing that came out from Kraft Heinz. That's obviously a big Berkshire Hathaway holding. Kraft Heinz says that it will restate earnings for 2016 and 2017 due to misstatements in the original filings. It does not, however, believe that the misstatements are what they call quantitatively material to any individual reporting period. It says that the impact on adjusting earnings is expected to be less than 2% for each year. Kraft Heinz says that it has now completed an investigation that shows several employees in its procurement operation engaged in misconduct. But none of those were members of senior management. Our guest today, again, is Warren Buffett. He's the chairman of Berkshire Hathaway which owns a major portion of Kraft Heinz. And-- Warren, what do you think of this? This news just hitting while we're sitting here.
WARREN BUFFETT: Well, that's more or less what I've heard. I'm-- not the board anymore. But-- Greg-- Abel and Tracy Britt Cool are on and so I've heard from them. And--this is an update that I heard last night-- that-- and they can't-- issue the-- first quarter reports until the 10K is filed. And they can't file the 10K 'till Price Waterhouse-- signs off on it. And-- that apparently is going to require a restatement of a few years. And we could not report any earnings from Kraft Heinz in the first quarter because if we get a dividend from-- Bank of America that dividend goes into earnings. But because we have over 20% of Kraft Heinz we don't report the dividends. We report the earnings. So we received a dividend of about $130 million in the first quarter. But that-- we don't report that. And-- we expected to get the earnings before we issued our own report. But when the time came to issue our report and we didn't have anything we just-- we put a zero in there and explained it in our release last Saturday. And-- this is just a further-- indication of the facts, as they stand now. At some point-- Price Waterhouse-- will need to be happy with the figures they're-- reporting. And that evidently involves restatement. And-- at that time I guess that the quarterly figures become quite current and that we keep picking up our share of the earnings.
BECKY QUICK: I mean, this has been a long standoff period between PWC and the company if they've missed-- the deadline to get the numbers to you at that point. What--
WARREN BUFFETT: Yeah, we--didn't expect it. And-- I thought that we would have the earnings on time. And--Kraft announced their earnings for last year. But they had not been signed off on by their auditors. So while they released them publicly they couldn't file the 10K with the SEC. Subsequently. That's not unusual for companies to announce the earnings before they've actually gotten signed off. But-- in any event, it's just-- you know, we thought we were gonna get 'em this week or next week, whatever it might me and-- then last Saturday came and that's our time for releasing quarterly earnings. We did not have them. So we stuck-- nothing in there. And a footnote and we put it in our press release as well that-- we just didn't have the figures.
BECKY QUICK: If they're restating their earnings does that mean Berkshire Hathaway will also have to restate its earnings?
WARREN BUFFETT: No. it would be so immaterial by the time-- you take just our share. We're a much larger company. So-- that-- I don't know exactly what we do when we get-- if it gets into the second quarter. I don't know whether we pick up two quarters in one quarter or exactly how that works.
BECKY QUICK: They-- said that this is the-- they've wrapped up this investigation. Are you satisfied with what you've heard from that-- part of the investigation or do you know the details?
WARREN BUFFETT: I don't know about that. I do know that-- because I've been kept abreast of some of the things that-- I-- don't listen in on director's calls or anything like that. But-- Greg tells me what's the high points and what are the low points of what's happened. And-- we have a terrific head of the audit committee, Jack Pulp ( He's an independent director-- he-- knows this sort of thing. And he-- and he's put in the hours on it. And-- so I feel very good about-- the fact that Jack is-- he's really in charge of things from the standpoint of the directors.
BECKY QUICK: Does the company have your confidence?
WARREN BUFFETT: Company has my confidence.
BECKY QUICK: You have-- talked about it over the weekend where you said that what you paid for Kraft was too much in hindsight.
WARREN BUFFETT: Exactly.
BECKY QUICK: Not what you paid for Heinz.
WARREN BUFFETT: That's correct. We just bought Heinz we it'd be a better investment. And we'd own-- we'd own 50-- just over 50% of it-- of this business. We'd doing fine in relation to the-- what we paid for it.
BECKY QUICK: But in-- in a situation where you determine that you've now paid too much, what do you do?
WARREN BUFFETT: I paid too much for stocks, I paid too much for a lotta thing. Time usually works it out. But it-- means that capital could of been better deployed in other-- in other areas. You-- could always pay too much for a business. It-- and I've done it with stocks many times. I've done it with businesses. We've got-- at Berkshire we have at least a half a dozen businesses. And I can't even use a we there. I gotta say I paid too much. So-- and-- if we make the next ten deals we make and then-- there will be a couple where it turns out that I paid too much.
BECKY QUICK: This-- kicks up for-- sets us up for a much bigger discussion on where market valuations are right now, why you think you've been having-- a tough time-- finding something that you think is a fair value. And-- I'd like to talk to you about some of these purchases-- but we have to take another break. When we come back we will have much more from Warren Buffett. We're gonna talk about more of his major holdings. We're gonna talk about his new investment in Occidental Petroleum. And we will talk about all of these valuations, what it means for markets right here, what it means for business prices right here. Right now though as we head to break take a look at the U.S. Equity Futures. Again-- under pressure severely because of the announcement that-- President Trump says he's going to be putting-- or raising the tariffs on those $200 billion worth of-- Chinese goods from 10% to 25% on Friday. This is the week that it's supposed to be heavily negotiated with the Chinese. Now there are questions about whether the Chinese will even send that delegation here to continue those talks. As a result DOW Future's down by 487 points, S&P's off by over 50 points, the NASDAQ's down by 156. And Squawk Box will be right back.
JOE KERNEN: Good morning. If you're just waking up, brace yourself. U.S. stock futures indicating a pretty big sell off – sell off in points percentage-wise, it's not like we're seeing in some of the other indices around the world. But down 481 points this morning on the DOW. This comes after President Trump's tweets yesterday threatening to hike tariffs on $200 billion worth of Chinese goods that are currently at 10% to go to 25%. But then the nuclear option that we've talked about all along, he's also threatening to impose a 25% tariff on an additional $325 billion of Chinese goods shortly. I think if you add 325 to 200 that's, like, everything basically. This was the reaction in China markets overnight. So figure ours, if we're – what is ours? What is that, 1.5% or something? It's not that big a deal for us at this point. But look at that 7.3% on the Shenzhen. Figure out what that would be here. That would be a real drop in U.S. equity. And we're coming off a recent series of new highs and you saw that, all the headlines after Friday's jobs number, a 50-year low, and we're the envy of the world. And everything else. Sunday it's, like, all right, things are going pretty good. I got a little room to work with, to put some pressure on China. I mean, you can sort of see how that happened.
ANDREW ROSS SORKIN: One view of the world. In the meantime, we're gonna get back out to Omaha this morning where Becky Quick is with the one and only Warren Buffett. Becky.
BECKY QUICK: Hey, Andrew, hey, Joe. Let's get back to Warren Buffett. We've been talking with him all morning long about the news of the day, things that have been happening that affect the Berkshire portfolio as well. And Warren, there was other news to cross the wires just last night in another deal that you're involved in. That would be backing up Occidental in its bid to try and take over Anadarko which is also engaged in talks with Chevron who's also got a bid out there. Last night Occidental put out its own statement and said that it's going to be revising its proposal. It's now talking about a deal, still $76 a share offer, but 78% cash and 22% stock. By increasing that cash portion it allows what they call significant immediate value, greater closing certainty, enhanced creation because with this they no longer have their ask their shareholders for permission on this. What are your thoughts about where the deal stands and what this latest update says?
WARREN BUFFETT: Yeah, I got a call yesterday evening. First on my – I've talked to Occidental actually since a week ago yesterday, Sunday. And they told me that they were going in this direction which I like. But I have nothing to do with it. I mean, we committed $10 billion and it had nothing to do with their – how they frame their offer, how much they offered or anything else. All they knew was that they were sure they could get $10 billion from us if they complete the deal with Anadarko.
BECKY QUICK: One of the pieces of the letter that Vicki Hollub, the president and CEO of Occidental, put out in its letter back to Anadarko surprised me a little bit with just how it still seems like this was a hostile bid. There's not good faith talks that seem to be taking place between them. Based on her letter, she said this, "We remain perplexed at your apparent resistance to obtaining far more value for Anadarko shareholders which has been expressed clearly through our interactions over the last week." Sounds to me like that is still kind of a hostile bid. What—
WARREN BUFFETT: Well, it's my understanding, and bear in mind, first thing I heard about this was a week ago Friday when Brian Moynihan called and said the people at Occidental would like to talk to you. And I talked to them on Sunday a week ago yesterday. My understanding is Anadarko and Occidental had talked much earlier, well before the Chevron bid, and were talking about a transaction. And then Chevron made an offer which Anadarko accepted. But Anadarko was for sale. I mean, and so it had held talks about selling itself to Occidental. That is my understanding. And so they were talking. Maybe they were talking to more than two parties for that matter. I wouldn't know that. But they decided that they were willing to sell, I'm sure subject to price obviously, and they accepted an offer. And Occidental felt they had a better offer. And that's apparently where things still stand. But I don't know all of the details.
BECKY QUICK: Part of the idea behind it had been that, well, would Occidental be able to get approval from its shareholders because its stock was under pressure. Some of the shareholders obviously didn't like the deal. By using your cash instead of issuing as much stock as they had anticipated originally, that will keep them from having to go to their shareholders to ask permission for this and as they're saying in their own letter, that certainly increases the certainty of this deal taking place and removes some of that uncertainty.
WARREN BUFFETT: Yeah, I would also think that the shareholder – if you own Occidental, you're bullish on oil over the years. And you've probably been bullish on the Permian Basin because they have such a significant portion of their assets there. So the idea that they will reduce – use less stock and more cash as part of the deal, although they're getting the cash from us, but I would think net it if I'd been a holder of Occidental over time I probably would like that kind of a deal. At Berkshire I hate to issue stock. So generally speaking if any company we own is buying something we like it better when they buy it for cash than they do stock because we like their stock. So we'll see what the reaction is to this. But I would just imagine there'd been an all-stock offer to begin with. I would think people would net their shareholders. But their shareholders will be speaking out. But I would net their shareholders would like the shift.
BECKY QUICK: Andrew's got a question from back in studio too. Andrew?
ANDREW ROSS SORKIN: Hey, Warren, I was just curious whether you were surprised that Anadarko hadn't engaged with Occidental and this at this price. And also if there was a price at which you would think that Anadarko – or rather that Occidental shouldn't pay. Meaning, if Chevron were to come back and they're at you know, five times the size of Occidental. They could just write a check and this could be over with if they wanted to. But if the price were to go up – I know you get preferred shares ultimately – is there a price at which you wouldn't look at this favorably?
WARREN BUFFETT: Well, we committed to $10 billion. 100%. We do not have any control nor did we want any control over what Occidental did with our $10 billion and the terms and everything. There's nothing in our deal that provides that they have to come back to us and request permission really to do anything. It's a remarkable deal. But that's the way we do them in that respect. And so they get our $10 billion if and when they close the deal with Anadarko. And they don't have to consult us. They certainly don't need our go – they don't – as a matter of courtesy I got the call yesterday, but it was not a matter of necessity on their part. And that's one of the advantages of dealing with Berkshire. I mean, we can do things that other people don't like to do or their lawyers don't like them to do. And this is not a deal that our lawyers would've written.
BECKY QUICK: Is this deal a bet on the Permian Basin and on oil prices or is this just a bet on hey, it's great to have an 8% preferred?
WARREN BUFFETT: Well it's great to have an 8% preferred if there's any oil there. No it's a bet on oil prices over the long term more than anything else. It's also a bet on the fact that the Permian Basin is what it's cracked up to be and all that sort of thing. But oil prices will determine whether almost any oil stock is a good investment over time, whether it's Exxon or some wild cat grower. If oil goes way down, you don't solve that by hardly anything. If it goes way up, you make a lot of money. And it's not what it does next week or next month or next year. You're buying reserves that go far out into the future. So you have to have a view on oil over time. And Charlie and I have got some views on that, not too specific because they are not that well-informed. But they are – we feel good about doing the financing.
BECKY QUICK: Why don't you just buy it yourself? It's only a $35 billion deal and you've got $110 billion in cash sitting around.
WARREN BUFFETT: Well, that might've happened if Anadarko had come to us, but we wouldn't jump into some other deal that we just heard about through somebody coming down sort of seeking financing. No we hope people come to us on businesses. But I have no idea that this transaction was going to happen. I mean, a week ago Friday when I got the call from Brain Moynihan, well, I had read in the paper about the deal. But I've never had any contact with Anadarko of any sort.
BECKY QUICK: David Faber reported last week that you had said you would offer up to $20 billion, double the $10 billion that you did do on this deal. Is that the case?
WARREN BUFFETT: If they needed it. But I think they, I mean, they have an arrangement obviously with the Bank of America who called us. I don't know anything about that deal. I just know that BofA has arranged that financing. If there were a different sort of thing – what I meant to some extent with that was I'd be very happy if somebody calls tomorrow and needs $20 billion. Occidental just needed the $10 billion.
BECKY QUICK: Okay, but you like doing these deals of bigger sizes, not smaller sizes?
WARREN BUFFETT: Exactly.
BECKY QUICK: Okay. Back to Andrew's point, this is there for forever. Doesn't matter if the bids go up, doesn't matter what happens along the way. Your $10 billion is in this deal for whatever happens?
WARREN BUFFETT: Yeah, there is. The lawyers don't like deals like this. But we tell them to. There's no material adverse change. There's no – if the stock market closes, but this deal closes, we're there. We're there under all circumstances. And we don't—we have not written any outs into it. But that's part of the attraction of doing business with Berkshire. And besides that, we do it all ourselves. So it isn't something that's parceled out among ten parties and each one comes in and has to get their permission to make changes and all that. When they came to my office at 10:00 on Sunday –
BECKY QUICK: Occidental, right.
WARREN BUFFETT: A week ago Sunday, they knew that if we agreed, which we did by 11:00, they knew Berkshire was 100% in. Now they had their own board of directors meeting the following evening. But they could say to their board, "You're going to get $10 billion from Berkshire when this closes." You don't need to give a thought to it.
BECKY QUICK: Okay, when we come back we're going to talk more about the prices you see in the markets and whether you think prices are fair at these levels, whether you think they're too much. But again, our guest is Warren Buffett. And Andrew, I'll send it back to you.
ANDREW ROSS SORKIN: Hey, thank you, Becky. When we come back we're going to talk a lot more to Warren Buffett this morning about the big market sell off. We're gonna wrap up all the big headlines from the Berkshire Hathaway annual meeting. We'll be back in a moment.
ANDREW ROSS SORKIN: Welcome back to "Squawk Box." take a look at U.S. equity futures this hour. DOW off almost 500 points, NASDAQ down 167 points, S&P 500 off 50 points. All of this on the back of some news that the China trade negotiations may not be solidifying as quickly as we thought. Right now, let's get back to Omaha where Becky Quick is with Warren Buffett. Becky.
BECKY QUICK: Hey, Andrew, thank you very much. Obviously many stocks are under some pressure from what they were seeing from these Chinese trade talks, what the implications are from all of that. One share – one stock that is under pressure today shares of Apple. If you want to take a look at the chart, closed on Friday at 211.75. This morning the bid's at 204.91. The ask is at 205.10. And that's because China has been such a huge component for Apple. Tim Cook talked in the last earnings last week about how things seem to be really improving there. Tim Cook also traveled to Omaha this weekend. He was here for the Berkshire Hathaway annual meeting. It's his first time coming here. But for Berkshire, Apple is now the biggest investment that they have in their equity portfolio. Berkshire's also the third largest investor in shares of Apple. So when we sat down with Tim Cook this weekend I got the chance to ask him what he thought and how he found out that Berkshire was first buying into shares of Apple. Listen in.
TIM COOK: I found out probably like you did, which is the 13F gets filed and somebody tells me about it. And then, "oh this is really cool. Warren Buffett is investing in Apple." You know, we welcome all shareholders. But we run the company for the long-term. And so the fact that we've got the ultimate long-term investor in the stock is incredible because our interests are aligned. And then, but I knew Warren before then. But we had no idea they were looking at the company. They deal with that obviously secretly and have their own method of doing that. And it's been a privilege. And I'm super happy they've been accumulating.
BECKY QUICK: What happened when you found out? Was there talk around the office? Were there any high-fives or was it a oh boy, now what? What—
TIM COOK: It seemed like – it seemed like recognition in a way. And like an honor and a privilege. And I don't mean that in a light-hearted kind of way. I mean, wow, it's Warren Buffett is investing in the company. And yeah, and so it felt great. And I think for the whole company because we knew that he didn't – he's been very clear. He didn't invest in technology companies and companies he didn't understand. He's been totally clear with that. And so he obviously views Apple as a consumer company. And in a different kind of way. I think that's really special.
BECKY QUICK: Warren, what did you think hearing this? Because when I told you we were going to tell how he found out you said, "Oh good I'd like to hear the story." You never talked to him about that?
WARREN BUFFETT: I didn't. Not about that specifically. No. I've known Tim a little over the years. And seen him maybe at least once a year. Maybe twice a year. And I've talked to him on the phone a few times. And sent him a letter. I sent him a Martin Luther King speech some years ago that was kind of lost to history that was terrific and I thought he'd enjoy it. But no I didn't call him up while we were buying. I try to keep as quiet as I can when we're buying anything.
BECKY QUICK: China though is a huge issue for Apple. It's why the stock had been under pressure earlier this – or at the end of last year. Last week on the earnings call it certainly sounded like they thought China and the situation there was improving. What does this news today mean for you?
WARREN BUFFETT: Well, the important thing is really that the relationship is with China three years, five years, ten years, 20 years from now. I mean, this all enters in and certainly it's hard for me to imagine that the two most important countries in the world would do dumb things over a long period of time. But they could. I mean, the possibility always exists that you get miscalculations or egos or national pride or whatever it may be. And that things do escalate. I don't think that'll happen. Well, I know it shouldn't happen. I think it's a low probability. But that would be bad, it would be bad for everything Berkshire owns. I mean, it isn't a question of Apple or – it would have a very negative effect on our economy, on the world economies and there's a chain reaction of sorts, that type of thing. So I don't think it'll happen. But I don't it's zero, the probability.
BECKY QUICK: You say it would be bad for virtually all of the businesses that Berkshire owns, but Apple's in a pretty unique position, because it is so front and center, because it's already come up as a potential target for some of these things. Do you think Apple runs a special risk or not?
WARREN BUFFETT: Well, it would have -- I mean, obviously in terms of our electric utility in Iowa, it's going to -- it would have a very minor effect relative to other types of businesses. But the ripple effect -- if you're in a recession and -- it hits everything, almost, eventually, so I think it's very unwise. It's kind of like having – if you have a nuclear war, you don't want to say, "Ha, ha, ha," you know, if you're in Canada, because they're only attacking the United States or something. It's impossible to contain it if you have two superpowers and trade involved. And you can't predict exactly how it spreads.
BECKY QUICK: Apple shares are down 3% this morning, just looking at the chart.
WARREN BUFFETT: That's good. Yeah.
BECKY QUICK: That's good, why?
WARREN BUFFETT: Well, because they're repurchasing shares, and when they are repurchase shares, our interest goes up and we don't lay out a dime. I love it, you know. And obviously, it's better to buy it at x than 2x.
BECKY QUICK: They say they've reauthorized up to $75 billion in additional shares. You are behind that? You're in favor of that, I should say.
WARREN BUFFETT: Wildly in favor of it.
BECKY QUICK: We're going to talk a little bit more about share repurchases, not just with Apple, but more broadly, because it is a question that came up pretty frequently this weekend at the Annual Meeting, too.
WARREN BUFFETT: Repurchases can be the dumbest thing in the world or the smartest thing in the world. and I've seen both but they're just -- repurchases by the company are just like purchases to us, they're dumb a one price and smart at another price. And I like it when companies -- I like it when we're invested in companies where they understand that. Many companies just repurchase and repurchase, you know, it's the thing to do, and they're encouraged to by some shareholders and by their brokers. Repurchases can be dumb. They can be smart. At Apple, they've been smart.
BECKY QUICK: We will talk more about this and much more with Warren Buffett when we come back after a quick break. Then at 8:00 a.m. Eastern Time, we will be convening our summit with Warren Buffett, Charlie Munger and Bill Gates. We'll be joined by Berkshire Vice Chairman Charlie Munger, Microsoft Founder Bill Gates. All of that coming up later this morning. "Squawk Box" will be right back.
JOE KERNEN: Good morning, and welcome back to "Squawk Box" here on CNBC. I'm Joe Kernen along with Andrew Ross Sorkin. We're back in New Jersey. Becky, though, is in Omaha this morning with a very special guest: Warren Buffett joins us fresh off the Berkshire Hathaway Annual Meeting. We're going to hear from Becky in just a minute, but first, take a look at the futures. Big move this morning in U.S. equity futures at this hour, tumbling after President Trump threatened China with some new tariffs. We have the perfect guest this morning for the market move. Let's get right to Becky Quick and Warren Buffett. Hey, Becks.
BECKY QUICK: Hey, Joe. Thank you very much. Again, picking up with Warren Buffett where we left off. Warren, we did talk at the top of last hour about what the China tariffs potentially mean for business and what they mean for Berkshire. But you're looking at the market's down almost 500 points this morning. And for people who are just waking up and just kind of trying to figure out what this means for them, for their portfolios, for their businesses today, I'm sure they've got some questions. What can you tell them? What do you say when you look at the markets, I guess down 460 points right now for the Dow?
WARREN BUFFETT: Well, I'm saying, if you own a farm and you're worried about selling your farm because you read the newspaper this morning, or you own a perfectly decent business in your town, and you're worried about selling you -- think you should worry about selling your business today because of -- then you should think about -- worry about thinking about selling stocks. But if you look at stocks as businesses that you own little pieces of, why in the world should you sell it based on headlines of any sort? I mean, if you expect a business-- if you expect a farm to be a good investment over ten years, if you expect an apartment house to be a good investment over ten years, and if you own a marketable security, which is an interest in a business, and you expect that business to be a good business over ten years, it's nonsense to get feeling good or bad about what stock prices do in a day, unless you have extra money and they go down and then you feel better because you can buy more of them cheaper. Just like if you could buy the farm right next to you cheaper, you'd love that if you were a farmer.
BECKY QUICK: You know, usually that's an analogy that I understand and agree with, but this time around, a farm in particular, I would be pretty worried if I was a farmer, trying to figure out if I should be planting soybeans or if I think I'm going to be able to make enough money to get things back this time around. Tariffs have hit the farmers particularly hard, and a lot of them have said they're behind the President, they want to see us get to a better situation, but many of them are also in a position where, look, they've already been asked to give a lot. They thought we were about to reach a deal, and they're hoping that when they're making decisions for this planting season, they have some clarity.
WARREN BUFFETT: Well, it is true that business generally has improved, markets have improved and everything, and the farmer has not participated in that. So, this has been a very good economy, for a long time I mean, we've been coming back for eight or nine years, and businesses kept getting better. Interest rates have been low for business. Stocks have gone up. And the farmer has not participated-- the same way. So maybe I shouldn't have used that example. But they-- if you have a decent business, I mean, you-- you buy into a business. You don't buy a stock that wiggles around, you know? And people understand that. But then they behave as if it's bad news when the business-- the price goes down. If you had a half-interest in a wonderful business and then the person that owned the other half came in, and they were depressed by these headlines today, and they said, 'I'll sell to you my-- my share of the business a lot cheaper than yesterday because I think this whole thing is going to just end the world," you just say, 'Hey, I wish you weren't so depressed. But if you're selling it to me cheaper—' you know, the business is going to be here five years from now and ten years from now. And all headlines-- you don't know what the world's going to look like in three years, or five years, or ten years. What you do know is that the United States is going to grow over time and that businesses are going to generally do well. And if you own decent businesses, you'll make money.
BECKY QUICK: That's a great long-term perspective. But for the shorter term, not just for stock prices, even for companies that are trying to think about their quarterly earnings, or trying to figure out how they're going to be able to pay for some items, or figuring out how the relationship with the supplier is going to work at this point, it could be an impact-- pretty-- that's fairly large in the short to midterm.
WARREN BUFFETT: Well you have to remember, I mean -- our own subsidiaries, obviously, where they thought that tariffs could be increased, they've loaded up more on inventory. I mean-- you-- you-- you make business decisions, but you don't make a decision about whether to buy or sell the business if you've got a good business. And you've got to-- if you're going to own a business for ten years, you're going to see a lot of terrible headlines. You know, I bought into my first business in 1942 and you know, they didn't notice that I did, but just imagine all those headlines at that time. And the world-- you know, the-- the Philippines were falling. I mean, we were losing the war. And-- but the United States is going-- your kids are going to live better than you did. And your grandchildren are going to live better than they do. And generally speaking, productive assets are going to be worth more in this country. And if you own a diversified group of productive assets, you'll do fine as long as you don't read the papers.
BECKY QUICK: Although you did say an hour ago that the sell-off when the Dow was down by about 500 points was not an undue sell-off, was not overdone at that point if we actually get into raising tariffs by 12%--
WARREN BUFFETT: Well, it may be-- it may not be undue. I mean, it-- in the day or the week-- but-- shouldn't-- I don't have the faintest idea how to buy and sell stocks for a day, or a week, or a month. I know how to buy businesses for a long period of time. I'll be wrong on some of them. You won't be wrong on America.
BECKY QUICK: In terms of that, when you look at the markets today, if you see cheaper prices, would that mean that you would buy more of a stock that you might have bought last week?
WARREN BUFFETT: Yeah, some of them will hit levels that-- might have been below. I will always react well do declining prices. That-- that-- if I like-- if I like to buy a business, you know, if I could buy this hotel we're in and they dropped the price, is that good news or bad news for me? I mean, if I like to buy hotels. So, but the fundamental point, and some people get it, some don't, but when you are buying a stock, you're not buying something that wiggles around, or is on a chart, or has a target price, you're buying part of a business. If you're right about the business, you don't pay a crazy price, you could be right about the stock, as long as you don't do dumb things yourself.
BECKY QUICK: Over the weekend though, a lot of questions came up about share buybacks. People were asking specifically about Berkshire. Why don't you buy back more shares of Berkshire, especially when you have $110 billion in cash on hand? What's your answer to that?
WARREN BUFFETT: Well, we want to buy-- we will only buy Berkshire if we think that the shareholder the next day is-- or that same day-- is wealthier after we bought the stock. In other words, we bought it for a shade less or maybe a lot less, but at least a shade less than it's actually worth. And we don't set out to buy any given amount. We set out to buy stock at prices below intrinsic value per share. Now, intrinsic value per share is not something that is precise to the penny or anything. It's probably a band of 10% or something like that. And my partner, Charlie Munger, if you asked us to give you a slip of paper with intrinsic value per share on it, it would not be the same figure. But it'd be close. And we both would-- have a band or something of the sort. If you're buying at below that figure-- you know, if we've each got a dollar you'll sell me and we put it on the table -- and you can't reach for it a while, you say, "Well, I can't reach it. So, I'll sell you my share for 95 cents," I'll give you 95 cents, you know. You know? No dice. So, it's not complicated. Maybe-- it may be beyond my ability to figure out the intrinsic value of certain kinds of businesses. But with Berkshire, I've got a reasonable idea. And I try to give the shareholders the same information that I regard as important in calculating that. Now, it can change. Presumably, you want it to change up and over time because we retain earnings and we should be building more value. But that's the equation. First of all, you have to have the cash you need to run the business. I mean, that's-- Steve Jobs called me one time. I mean, he called me I don't know how many years ago. But-- he was thinking about repurchasing shares. And I said, 'Steve, there's just two questions.' I said, you know, 'A) Do you have all the business-- all the money that you need to develop the kind of business that you've got in your head for the next five to ten years?' And, "Oh," he says, 'We've got plenty of money.' And then I said, 'Then the second question is: Is your stock selling for less than it's worth?' And he said, 'It's, oh yeah, selling for a lot less than it's worth.' And I said, 'Well, you've answered your own question.' And-- but if we answered, we need-- we need the money we've got here actually before we develop our business. And we've got opportunities to do it. I'd say forget about it, you know? Build the new plants, and do that, and maybe the cash will come in later where you can buy stock. And secondly, if he said the stock isn't really cheap, what's the reason for buying it in?
BECKY QUICK: Did he buy back shares after that?
WARREN BUFFETT: He didn't like buying back shares. He-- I think he was hoping I was going to give him a different answer. He didn't argue with the logic of it. But, I think maybe-- I think he was hoping for a different answer.
BECKY QUICK: It's interesting that you say that because Tim Cook, the current CEO of Apple, was here this weekend. And we got the chance to ask him about share buybacks, too, because share buybacks have been such a big deal for Apple. They've deployed so much cash doing that and just announced last week at the earnings that they'd be buying back an additional $75 billion worth of Apple shares or least they've authorized the repurchase of that much. Again, we sat down with Tim Cook this weekend. And here's what he had to say about that, too. Listen in, Warren.
TIM COOK: This is a funny story a bit, is back in 2012-- I-- I'd been in the CEO spot maybe a year or so. We w-- we had-- a growing-- amount of cash. I think we had just crossed the $100 billion kind of mark if my memory is correct. And I was -- and I was getting lots of input from a lot of different people, as you can guess. And-- when I-- don't have experience in something, I always make a list of the people that I think are the smartest people that I can contact to talk to them and get advice. And, Warren was on the top of the list, as you can imagine. I had never met Warren before. And so. I get his number. I call out in-- to Omaha. And I'm -- I wasn't sure he'd take the call. You know, I'm sort of calling out of the blue. He doesn't know me from Adam. And-- but he took the call, and I had a great conversation with him. And that was the first time that I'd met Warren. And he was very clear to me. I still remember. He said-- he goes, 'Let me just cut through it. If you believe your stock is undervalued, you should buy your stock.' And I thought that was just the simplest way of looking at it. So, here's what we do, is we first and foremost take care of our people and we take care of the company and the future of the company. And we've been investing a ton in both this country and some others. We're going to spend $350 billion in the United States in building new sites. And we just announced a new expansion in Austin, and so forth. So, all of that is number one, right? And then if we had money left over, we'd look to see what else we'd do.
BECKY QUICK: Part of what else they'd do, he said, is to make acquisitions. And what I didn't realize is he said they're-- they're making an acquisition every week or two.
WARREN BUFFETT: Yeah, they-- they make a lot of small acquisitions.
BECKY QUICK: He said they've made 20-30 acquisitions over the last six months. Small acquisitions that they don't really talk about and don't tell people things about—
WARREN BUFFETT: Yeah, yeah.
BECKY QUICK: You knew that?
WARREN BUFFETT: If-- if you look at the 10-Q, and-- you know, you can see it. But they-- they-- they-- they make a lot of acquisitions. Yeah. And-- I hope Berkshire makes a lot of acquisitions. And I'd rather buy an attractive business than buy our own stock at its intrinsic business value. If our stock gets well below that, I've still got this strong-- and I could do both fortunately. But-- but why-- how an executive-- can pay-- say we're going to spend $10 billion buying stock and then not pay any attention to the price at which they buy it. They wouldn't buy any other business that way. And-- and so we're price sensitive on it. On the other hand, when the price is right, there's no easier way to make money for your shareholders.
BECKY QUICK: You say you like Apple buying back shares. So, you think the price is right there.
WARREN BUFFETT: They've done a terrific job of it. They've done a terrific job. They've made their shareholders a lot wealthier because Tim has done that aggressively when the price is right.
BECKY QUICK: What-- I mean, how do you know in hindsight-- do you know in-- how can you tell when a company's doing a bad job repurchasing? You have to be able to figure out how to value the business properly. It's-- it's easier than you're making it sound.
WARREN BUFFETT: Yeah. The t-- the truth is if you look back-- and I was director of the company, but Coca-Cola kept repurchasing their shares at a time when it didn't make sense if you look at it, in the years here. They just-- they had a terrifically good idea of repurchasing when the company only had a market value of-- you know, in the-- in-- less than $10 billion. And-- and they bought a lot of stock. And they were aggressive about it. And-- but-- they fell in love with the idea. And-- and I was-- a director-- at the time. And-- but they're one of many. I mean, you know, same thing happened to Gillette, to a degree. It-- it's interesting. Sometimes it's difficult for CEOs to be objective about their own stock price. And they think the -- they think the higher it sells, the better, you know? And it's a fine way to feel except if you're repurchasing and you purchase at a price that's up to the sky.
BECKY QUICK: When Coca-Cola was buying back shares, and it turned out it was at too high of a price, and you were a director, did you know that at the time?
WARREN BUFFETT: I had a pretty good idea.
BECKY QUICK: Why didn't you say something?
WARREN BUFFETT: Well, I may-- I may have made some comments. But the-- the management had done a sensational job. I mean, that's one of the reasons it got so high. They'd done a terrific job. They made me as ton of money. And-- and-- if you belch too often at the dinner table, you don't get invited to parties anymore.
BECKY QUICK: Which is the difficulty I think with probably any board.
WARREN BUFFETT: It-- it just-- you don't get to be a director if you-- unless maybe you're an activist or something. But, you know, people don't like it if you speak -- and some-- some CEOs like it a whole lot less than others. Some CEOs actually encourage a fair amount of dialogue. And others, you know, make sure that all the important stuff comes at five of 12:00 when you have to leave at 12:00 to catch your plane and the next plane is sitting six hours later.
BECKY QUICK: Huh, that's interesting.
WARREN BUFFETT: Boards are managed in different ways.
BECKY QUICK: Have you known every board you've been on which has been managed well and which has not?
WARREN BUFFETT: Well, some were managed well in some respects and they could be dumb financially. I mean-- you have some-- some managements that really have a money sense. And then you've got others that they're very good managers but-- but they're not good at-- I always love it when I hear a management, you know, and I ask a guy what he's doing with his own money, and he says, 'Oh, I couldn't possibly, you know, evaluate stocks and everything. I turn that over to somebody else.' And-- and then he goes out and makes a $5 billion acquisition of something he doesn't really know anything about where he's just buying a whole lot of stock. Some are good at it. Some aren't. That's true of our managers. We have terrific managers. Some of them are good at bolt-on acquisitions, and some of them-- would be terrible.
BECKY QUICK: Do you let the ones who would be terrible at it go ahead and make a bolt-on acquisition?
WARREN BUFFETT: Not very often. Yeah, some of them-- some of them don't have-- they have great operational sense. They don't have a money sense exactly. They-- you know, they-- a lot of -- you talk to a lot of managers, CEOs, and-- they don't want to run their own stock portfolio. Well, those are-- those are decisions and those are capital allocation decisions. And they know a lot-- they know a lot about businesses and they know how to value things. You'd think they'd be good investors, but-- I used-- we had one fellow who was a big partner -- back when I was running a partnership a long, long time ago. And he had stock options in this place. And he would regularly exercise, and take the money, and buy Berkshire. Well, he actually wasn't so dumb, but it wasn't exactly what the options were supposed to incent.
BECKY QUICK: Yeah, but-- but that's unique, to have somebody who understands both operations and the money side of things—
WARREN BUFFETT: Yeah, some-- some-- some really do. And--
BECKY QUICK: I'm thinking—
WARREN BUFFETT: I would-- I would say Tim Cook, for example, does. He has a real grasp-- of-- I mean, he has-- he has a operational mind, and he has a money mind as well.
BECKY QUICK: What about Greg Abel and Ajit Jain?
WARREN BUFFETT: Well, I don't want to get into going through the alphabet on this.
BECKY QUICK: No, I ask it because-- you know, Berkshire's in a unique position. And you have people who are doing all kinds of things. Some who are managing money, some who are managing operations.
WARREN BUFFETT: Yeah.
BECKY QUICK: Can somebody—
WARREN BUFFETT: Well, both of—
BECKY QUICK: --do all of it?
WARREN BUFFETT: --both of those guys have to have extreme m-- money sense. But I don't want to get started going through the list.
BECKY QUICK: Understood. Understood. Can't help but try.
WARREN BUFFETT: Yeah. Well, you got-- you got the answer for the two important ones.
BECKY QUICK: Warren Buffett is our guest. When we come back, we're going to talk a lot more, Joe, about the economy and what he sees after those great jobs numbers that we got on Friday, the-- stronger-than-expected GDP numbers that we've gotten recently, too. We'll talk about what that means, especially with China and all the things we're hearing today.
JOE KERNEN: Great. All right. Thanks, Becky. Coming up, much more from Warren Buffett. Then at the top of the 8:00 hour, a billionaire roundtable right here on Squawk Box. Berkshire Hathaway Vice Chairman Charlie Munger, Microsoft co-founder Bill Gates are going to join Warren. We're not in that roundtable, I guess, are we?
ANDREW ROSS SORKIN: I mean, we don't have the money for it.
JOE KERNEN: What if we--
ANDREW ROSS SORKIN: But hopefully, we might have a question or two.
JOE KERNEN: We'll pool our resources. Maybe still.
ANDREW ROSS SORKIN: Even with a credit cards. Even with a credit cards. If we get a loan. If we get a loan, does that count?
JOE KERNEN: Tap them out. Big hour coming up, only on Squawk Box.
JOE KERNEN: Welcome back to Squawk Box. President Trump tweeting just minutes ago, "The United States has been losing for many years, 600-800 billion dollars a year on trade. With China we lose 500 billion dollars. Sorry, we're not going to be doing that anymore." Take a quick look at the futures: continue to be down, close to 500 points. 471 points -- 472. NASDAQ down 161. S&P down 50. I guess, Becky, if I were to pose a question to Warren, it would just be that those trade deficit numbers you can-- you know, we get bogged down in talking about whether they're good or bad or how to fix them. And it's a symptom of really what-- it's a symptom more than a cause of what happens with China. I'm just wondering, Warren, you've done great over the years with the status quo, with how the United States has approached China and China trade. Berkshire's done great. We've all done great. Everything's fine. Do you wish that Trump hadn't confronted China at all and we just said-- aren't addressing any of these long-term problems with intellectual property or-- you know, take your pick of which issue we're trying to solve. But do you just wish he had left it alone and-- and just let Berkshire-- do its business the way it's been doing? Or do you think there's some rationale to confronting China?
WARREN BUFFETT: China and the United States for the next hundred years, I can tell you two facts about it. They'll be the two superpowers of the world. And we'll always have some tensions with them. And, it can well be about intellectual property. It certainly has over the last, you know, 20 years or thereabouts. Thirty years. And it will be about trade. It will be about policies that they're carrying out, you know, in terms of their neighbors or we're-- there's no way you can have two countries so dominant in the world without them having conflicts. You-- you just don't-- you know, you-- there can be tensions. There can be negotiations. And sometimes we'll both come away thinking we lost. But it's inevitable. So, I-- I-- and how you play the game if you're negotiating with some people that are tough negotiators on the other side-- I mean, it's not-- those are not easy decisions to make. I mean, if you're dealing with a labor union-- nobody really wants to strike. It's bad for both sides. But it's-- sometimes things develop to that point. So, I think-- I think you should get very used to the fact that if you're a young person, you're going to see a lot-- a lot of different tensions over time. And it will depend on the individuals involved. It will depend on the specifics of the situation. But every time we sit down, you know, it won't be like a garden party.
BECKY QUICK: Warren, you-- you mentioned that there are going to be times where both sides walk away and feel like they lose. Are there times that both sides could walk away and feel like they win? Because that's usually the sign of a successful—
WARREN BUFFETT: You want to—
BECKY QUICK: --negotiation.
WARREN BUFFETT: You want both sides to feel like they've won at the end. And, you know, the idea of a negotiation is to take something that you have the other person needs and-- in a sense trade that for something that they have that you need. And, it's-- it's going to be constant. And there's time when it's going to be tense. It's just the nature of things. You have that-- you have that on a much different level when you're n-- when you're negotiating nuclear arms reductions or something of the sort. I mean, we know it's in the interest to get the nuclear stockpiles down and all of that. But that doesn't mean it's easy. And you try to come up with deals that are good for both sides, but that's not always easy.
BECKY QUICK: I mean, I try and think about that in this scenario. And-- it may be particularly differ-- difficult in this scenario because, for a long time we've been dealing with China as if they were still not a superpower, as if they were still-- and so we've been giving them better sides of deals. It's really hard to all of a sudden say, "We're taking some of that back." What-- what do they get out of this deal when we are trying to change a negotiation that we think has been unfair to this—
WARREN BUFFETT: Well, it's difficult for us to accept the fact. And it was difficult for us to accept the fact after World War II that-- that Soviet was a superpower in terms of military power. And they were-- I mean, you know obviously-- there were all kinds of tensions involved in that. And negotiations. And it's still a worry that you have two-- we have the two big nuclear stockpiles in the world. And you worry in terms of mistakes being made. I mean, it-- it-- it's a big game. And with China, it's overwhelmingly an economic game. And it's an economic game we-- game we didn't think we'd be in 40 or 50 years ago. I mean, the Chinese, the rise of their economy has been extraordinary. And they do some things we don't like in connection with that. And, sometimes you have to get tough to make changes. And we do some things they don't like. But it-- but it's a reality now. And it's going to be a bigger reality as the years go buy. And it-- it's very easy for it to become a huge political issue. I mean, it-- so you'll have people fanning the flames for their own pers-- interest in politics or their own interest in-- in business. And it-- it's not easy to navigate. But leadership has-- that's the job of leadership, is to take on the tough problems.
BECKY QUICK: Having said that-- the economy has held up very well in the face of any tensions that we've seen to this point. Jobs report, incredibly strong on Friday. The last GDP report was very strong, too. So--
WARREN BUFFETT: Sure. Yeah. You can't stop America. You can't stop China though either. But you can't stop America. I mean, we're-- we live as a country-- it's extraordinary what we have compared to 30 or 40 years ago. It-- even in agriculture. It makes it tough to make it tough in agriculture because we get more productive all the time. And-- and-- and that-- that-- that tends to depress prices. But this-- this country is going to move forward. I mean, there's no question about that. But China's going to move forward. And the way to try to do it is to do it that maximizes what both countries can do well. And more trade is better. But trade in specific industries can hurt specific industries here. And that-- that's a huge problem that the-- the president-- the heads of both countries have to be the educators in chief. And they have to explain why trade is good for the populace as a whole and it can be terrible for people in certain industries and that a rich country takes care of those people that become road kill in the process of producing a better life for 330 million Americans.
BECKY QUICK: Lots of people on Wall Street are not going to be as sanguine about this news today. I've been reading some reports last night. Goldman Sachs saying that this is-- not only rapidly increases the odds that we don't get a trade pact with China but also increases the odds that you could see Trump announce that he's going to pull out of NAFTA or that he's going to put auto tariffs on European imports. What do you think of that? And what would that mean?
WARREN BUFFETT: It's the problem of escalation in-- in anything. We had the problem of that with-- with nuclear weapons. I mean the escalation. And it gets more and more dangerous as people become feeling more and more threatened and their own local political situation demands more and more action. I mean, that-- that's the dynamic that you are facing anytime you get to these major problems between countries. And that requires the wisdom of the leaders. But to some extent it requires-- requires the wisdom of the people and how the leaders convey it and how they conduct themselves. But we will have this sort of thing happen. We've had it happen obviously, and it occasionally would turn into wars in the past. We can't do that anymore. In a nuclear world-- you can't get to that point. And-- and any sane person realizes it, but you don't want to -- you don't want to get too close to that tinderbox.
BECKY QUICK: USMCA, also-- better known as "New NAFTA," that deal-- is out there. But now I think Pelosi is saying that they're not going to bring it for a vote at this point. What-- are you in favor of the New NAFTA deal?
WARREN BUFFETT: Well, I was in favor of the original one. I-- we-- we are very, very lucky to have Canada and Mexico bordering us. I mean, it-- and then oceans on the other side. I mean, it geographically is-- a very attractive position compared to how countries are situated around the world. And we've got lots, and lots, and lots of common interests. And, we are the big guy in the game. And as the big guy in the game, we should-- we should do more than our share of making sure that our neighbors are growing and prospering at a rate that's consistent with our-- doesn't mean they're equal but that the-- when we live better, they live better. And trade with Mexico and Canada is enormously important. And-- we should treat them as neighbors and not-- not adversaries.
BECKY QUICK: Warren Buffett is our guest again this morning. The Chairman and CEO of Berkshire Hathaway. We've spent the last hour and a half speaking with him. And we've got more to come. When we return, we've got other issues to talk about with Warren. We still haven't gotten to Wells Fargo. And Charlie Munger is here, too. He-- he's here early, so we may put him on set early.
WARREN BUFFETT: Good. Good. Give him the Wells Fargo questions.
BECKY QUICK: Andrew, we'll send it back over to you.
ANDREW ROSS SORKIN: Okay. Thank you, Becky. And thank you, Warren. Coming up, a lot more from Warren Buffett on this morning's market sell-off, which has people concerned. As we head to break, take a look at how concerned folks are right now. The Dow looks like it would open down 452 points. NASDAQ looking to open off about 150 points. And the S&P 500 looking to open down about 47 points. We're back with Becky in Omaha with Warren Buffett in just a moment.
ANDREW ROSS SORKIN: Still to come on Squawk Box this morning, a very big morning. We are counting down to a huge hour. A billionaire's roundtable. You can't afford to miss it. Berkshire Hathaway Vice Chairman Charlie Munger, Microsoft co-founder Bill Gates, and Warren Buffett all joining Becky Quick live from Omaha fresh off the Berkshire Hathaway Annual Shareholder Meeting. And so much to discuss with them. This morning, the futures are plunging as President Trump threatens new China tariffs. We're going to get their thoughts on trade, the markets, and the state of the global economy. Your European markets right now. We want to show them to you. Squawk Box returns with all that and more in just a moment.
ANDREW ROSS SORKIN: Welcome back to Squawk Box this morning. We are looking at a lot of red arrows, after the news overnight that-- President Trump is threatening to reapply tariffs as the negotiations seem to have stalled. Or, at least, they're now being renegotiated. Take a look at the Dow right now. Looks like we would open off about 452 points. Nasdaq off about 150 points. And the S&P 500 off about 47 points. We'll also show you what's going on in Europe. We're looking at red arrows there across the board with the-- CAC and the-- the FTSE in Italy-- off close 2%. DAX as well. Spain as well. And then, let's also show you what's going on in Asia, because that's getting hit in a very big way. These tweets-- roiling these markets. Shanghai Composite down over 5%. The Shenzhen Composite over-- down over 7%. Then let's also take a quick look at oil right now because WTI crude is trading at $61.56. In the meantime, we want to get back to Becky Quick, who's in Omaha with some very special people who, I imagine, have some opinions on what's going on right now in these markets. Becky.
BECKY QUICK: Andrew, they do. Thank you very much. Again, we are live in Omaha where we've been talking for the last hour and a half plus with Warren Buffett, who's the chairman and CEO of Berkshire Hathaway. Right now, we're joined by Charlie Munger, who's the Vice Chairman of Berkshire Hathaway. He is also the Chairman of the Good Samaritan Hospital in Los Angeles, Chairman of The Daily Journal, and he's on the board at Costco. And, Charlie, thank you very much for being here with us this morning.
CHARLIE MUNGER: Glad to be here.
BECKY QUICK: It's great to see you. We are coming off of the Annual Shareholders Meeting. And-- obviously we're going to talk to you guys about the news of the day. But first, I'd like to take the opportunity, while I have the two of you here together, just to talk a little bit about-- what your partnership has meant to each other. How many years, Warren, have you been partners with Charlie?
WARREN BUFFETT: I met him in 1959. And we instantly became partners in thinking. And then over the years we developed all these financial relationships. But, I knew immediately upon meeting Charlie that we were going to be-- we were in sync. And we've lasted a lot longer than I thought we would, but—
CHARLIE MUNGER: Yeah.
WARREN BUFFETT: But, we have had incredible fun together. We've done all kinds of things. Some have worked. Some haven't worked. And we've never had an argument. We disagree on things sometimes, but we've never -- we've never had an argument. And—he's never second guessed me. I try not to second guess him. But, it's a great relationship.
BECKY QUICK: Charlie, 60 years. Did you know at that first meeting, that you'd have a partnership with him?
CHARLIE MUNGER: Well, I knew that we were on the same page. But it's been very lucky that our little company became as big as it did and that we've had the run we've had.
BECKY QUICK: What's it like—
CHARLIE MUNGER: I think we're very talented and all that. But we've also had a tailwind of good luck.
BECKY QUICK: What's it like in terms of-- how-- how you all kind of use each other as sounding boards? How does that work?
CHARLIE MUNGER: Well, I think it-- if two people collaborate in their own way, they're better off. Einstein would not have been able to do what he did if he didn't have various people to talk to.
WARREN BUFFETT: It's more fun, too.
CHARLIE MUNGER: Yeah.
WARREN BUFFETT: The ideas are better net, but it's also more fun. And when we disagree, Charlie says, "Well, you'll end up agreeing with me because you're smart and I'm right." Very simple. And he is right. That's the hell of it.
CHARLIE MUNGER: Not always.
BECKY QUICK: You're both pretty-- you both act pretty unilaterally though. You both kind of do your own things and then come each other after the fact a lot of time.
WARREN BUFFETT: Sure. Sure. He knows what I'm thinking. I know what he's thinking. And neither one of us would ever do anything we really felt the other was opposed to. We might-- we might feel we have a little selling to do. But we are in sync.
BECKY QUICK: Well, let's about a deal you did recently. Occidental.
WARREN BUFFETT: Right.
BECKY QUICK: Where you agreed to back them up. You cut that deal, and then you called Charlie. But you knew what he was thinking already?
WARREN BUFFETT: I didn't want to wake him up. I didn't want to wake him up. He's -- I'm Pacific Coast Time. I thought it would be very unfair if I –
CHARLIE MUNGER: Warren knew I'd be for that deal.
WARREN BUFFETT: Sure. I knew it.
BECKY QUICK: How did you know that? How do you know so much about each other and how you think?
CHARLIE MUNGER: Well, Occidental's in my part of the world, and of course, I've followed to some extent the developments that are interesting.
BECKY QUICK: And what do you think of the Occidental deal? Why do you like it?
CHARLIE MUNGER: I like it.
BECKY QUICK: Why?
CHARLIE MUNGER: I think it's got potential.
BECKY QUICK: Because?
CHARLIE MUNGER: Well, because I think that Occidental is right to want to do it.
BECKY QUICK: To buy into the Permian Basin, to get more assets?
CHARLIE MUNGER: Absolutely.
BECKY QUICK: And what is it about the Permian Basin that you like?
CHARLIE MUNGER: it's got a lot of oil in it, and gas. I don't like a desert just for its own sake.
BECKY QUICK: I asked Warren this earlier today -- if it's such a great deal, the Permian Basin is such a great deal, why didn't you just buy Anadarko?
CHARLIE MUNGER: Nobody asked us to.
WARREN BUFFETT: Yeah. Well, and that may sound strange, but who knows if they'd come to us. We knew -- we do usually wait until people come to us. So, it isn't like we -- if we wanted to buy in the field, we necessarily then, you know, would start dialing and flying around and everything that –
CHARLIE MUNGER: Occidental knows a lot about the Basin, and we don't. Of course, we like having somebody with us that knows something about it.
WARREN BUFFETT: Yeah, when we were at Solomon, we had something called Anglo American that some promotional --
CHARLIE MUNGER: Anglo Persian.
WARREN BUFFETT: What?
CHARLIE MUNGER: Isn't it Anglo Persian?
WARREN BUFFETT: Something like that. Anyway –
CHARLIE MUNGER: Yeah, Anglo-British or something. Whatever it was, it was neither.
WARREN BUFFETT: It was neither. Yeah. Anglo Swiss, actually.
CHARLIE MUNGER: Anglo Swiss. That was it.
WARREN BUFFETT: They came to the directors and had a big plan for drilling in Russia and we were going to put up a lot of money and send it to Siberia and hope that we got oil back. And Charlie said, you 'You know, who's Anglo and –
CHARLIE MUNGER: Who's Swiss?
WARREN BUFFETT: '--who's Swiss?' And of course, none of these people were -- I mean, so, they were lying in the name of the company, and that did not go over so well with the Solomon Board when Charlie pointed it out. But we sent a lot of money to Siberia, and –
CHARLIE MUNGER: We never got it back, either.
WARREN BUFFETT: We got one little vial of oil. The guy came to see me one time after I had become Chairman and he showed me this magnificent, you know, exactly the kind of oil they wanted, and that's the only oil we ever saw. And it was producing 50,000 barrels a day towards the end. They just kept it all.
CHARLIE MUNGER: Yeah, Anglo Swiss.
WARREN BUFFETT: Anglo Swiss.
CHARLIE MUNGER: No Anglos and no Swiss. Just lies all the way down.
BECKY QUICK: Let me ask you, though, about Occidental and this deal in particular. If you like the Permian Basin but you've also both commented on times when you think you've paid too much in the past, is there a number that would hit that you would think, 'Okay, this is paying too much for the Permian Basin, too.' Charlie?
CHARLIE MUNGER: Well, of course.
WARREN BUFFETT: All the time.
CHARLIE MUNGER: We always think that way.
WARREN BUFFETT: Yep.
BECKY QUICK: But it's not anywhere near at the price that they're paying right now? You think it's going
CHARLIE MUNGER: well, we don't know.
WARREN BUFFETT: We don't know.
CHARLIE MUNGER: Maybe the last dollar. All we know is we're willing to do it.
BECKY QUICK: You both have made some comments about, recently, to us about you think prices are very high in terms of what you have to pay for a premium for buying a company outright. Is that still the case?
WARREN BUFFETT: Yeah, there's probably more competition for buying companies by people who are using other people's money, and therefore, have less sensitivity to price and who are willing to borrow a whole lot more and are being offered the ability to borrow a whole lot more, with less in the way of covenants. So, the competition is tough on it.
CHARLIE MUNGER: And they get part of the up side and none of the down side.
WARREN BUFFETT: In fact, they make money on the down side.
CHARLIE MUNGER: Yeah, so, that is really terrible competition for us. And it gets worse every year.
BECKY QUICK: Is that why you're sitting on such a big pile of cash at this point?
CHARLIE MUNGER: Part of the reason, of course.
WARREN BUFFETT: It's the residual. On the other hand, you know, I would much rather own many common stocks than bonds, and of course, that's -- I think stocks compared to bonds -- and you have to compare -- they are the ultimate, and we talked about bond yields and effecting gravity, and when they're very low, there's little gravity to pull down stocks. And that exists today, you know. We'd so much rather own the business of America than get a 3% for 30 years in the government. And people were making those choices all the time in the investment world, but stocks actually, in many cases – it looked like perfectly intelligent investments.
BECKY QUICK: Charlie, do you agree with that?
CHARLIE MUNGER: Sure.
BECKY QUICK: Let's talk about some of the IPOs that have been coming to market recently, because there has been a bit of a fervor. Many of these IPOs have done well, although not all of them Lyft shares are under pressure, Uber comes to market this week. And Warren, you mentioned this weekend, you talked once again about how you had looked at Uber about 18 months ago and passed on that. What do you think about Uber coming to market now?
WARREN BUFFETT: Well, because I looked at it, I really don't want to discuss Uber. And I don't have any special feelings about it than any other coming to market. But I would say that in 54 years -- well, I don't think Berkshire's ever going to – I mean, the idea of saying the best place in the world I can put my money is something where all of the selling incentives are there, commissions are higher, you know, the animal spirits are rising. I mean, that's going to be better than 1,000 other things I can buy where there is no similar selling enthusiasm and the desire to get the deal done on extra commissions. That's the single best thing to buy on a given day. I mean, it's –
CHARLIE MUNGER: And I can't think of a time we've ever done it.
WARREN BUFFETT: Yeah.
BECKY QUICK: Ever bought an IPO.
CHARLIE MUNGER: Yeah. Never will.
BECKY QUICK: So –
WARREN BUFFETT: How can it be--
CHARLIE MUNGER: They don't even call us.
WARREN BUFFETT: Yep. But how can it be -- the best single thing to use your money for in a given day is something that they've got everyone in the world out pushing it. It just doesn't make any sense. I mean, I'm not saying that necessarily what we're buying is going to work out better, but there have to always be better things than one single issue. If you make one decision on investing, if you can't find something among all the choices that we see that is better than something that -- and like I say, the commissions used -- they've come down now I think now on this, but I mean, the highest commission, thing that a stock salesman can sell was the new issue. So, you have all this push behind it-- we like to buy things where nobody's making a dime selling them to us.
BECKY QUICK: Charlie, specifically on some of these companies, and I won't talk about Uber versus any of the others, but a lot of these companies are coming very late in the cycle. They've had massive private capital that's been put to work to this point. And they still have massive losses and the need for more capital.
CHARLIE MUNGER: It's even worse than that. Some of them have preference for each round and so the rounds aren't really fair rounds. There's a lot of lying in modern finance.
BECKY QUICK: So you're not in favor of any of these big --
CHARLIE MUNGER: I don't like lying.
BECKY QUICK: What do you think of these – I ask this because we have a lot of retail investors who watch and who are looking at this and they feel the excitement behind it.
CHARLIE MUNGER: Well, you're not got any wonderful advice about it--
WARREN BUFFETT: Whenever you buy a stock -- let's say you're buying General Motors, 1.4 billion -- let's say the stock's value is a little below that. You should be able to take out a one-page sheet of paper and say, 'I am buying the General Motors company at $56 billion because…' And if you can't answer that question, if you can't write that out, then you'll go on to something else and if you're buying Berkshire, you have to say, 'I am buying Berkshire Hathaway at $500 billion because…' -- and the answer isn't something you can write. You can't say, 'I'm buying it because my neighbor thinks it's going to go up,' or because, you know, 'Everybody's talking about it on CNBC this morning,' or whatever it may be.
CHARLIE MUNGER: Or you like to ride around in an Uber.
WARREN BUFFETT: Yep. You have -- That's the question you answer. Now, when you buy groceries, you buy everything else, you can answer that question. But if you can't answer it on something that you're involving your savings of many years for, why in the world should you -- why should you be doing it?
BECKY QUICK: Let me ask you gentlemen about a topic that came up over the weekend at the Annual Shareholders Meeting. And that's shares of Wells Fargo and just the company to this point. I got a lot of questions that were sent to me by shareholders questioning why you all have been standing behind Wells Fargo without saying more about what went on there? Charlie, what do you think?
CHARLIE MUNGER: Well, I think it's a fine company. So, they made one bad decision about an incentive plan. I regard it as an honest mistake. Not as some big moral failure. Nobody was being malevolent in the high ranks of Wells Fargo. They just had a blind spot.
BECKY QUICK: They had a blind spot that didn't get cleared up very quickly, though.
WARREN BUFFETT: That's the problem, yeah.
CHARLIE MUNGER: Yeah, but you don't – they lost their jobs over a blind spot, and, but I don't think Tim Sloan had a blind spot. I think he just lost his job because life is hard.
BECKY QUICK: You thought Dick --
CHARLIE MUNGER: I don't like it.
BECKY QUICK: You thought Dick Kovacevich had a blind spot.
CHARLIE MUNGER: Yeah, sure.
BECKY QUICK: And--
CHARLIE MUNGER: And the following guy --
BECKY QUICK: John Stumpf.
CHARLIE MUNGER: Yeah.
BECKY QUICK: But you don't think there was criminal activity.
CHARLIE MUNGER: Of course not. Well, the criminal activity was people below, and that was forgivable. They were under a crazy incentive system.
BECKY QUICK: Is the problem fixed now?
CHARLIE MUNGER: I think so.
WARREN BUFFETT: I think a very, very high percentage of it would be. Certainly, the intent is to correct it. It's cost the shareholders, you know, a lot of money and they want to correct it. When I went into Solomon, I wanted to correct it, too. I could never quite say it was over, though. People kept asking me if it was over. I don't know. I want it to be over and I hope it's over and I'm trying to make it over and I'm looking for things, but when you have 200 -- well, they have 260,000 or so people -- it's a scary job to be running a city of 260,000 people with no cops. And we have something -- we have some things wrong at Berkshire now that I don't know about. Charlie beats this into me all the time. That, you know, as soon as you find a mistake, do something about it. And sometimes that's unpleasant. But, I've got to do it. I mean, I may have people that are deputized to do it, but it's my ultimate responsibility.
CHARLIE MUNGER: Yeah, and you do do it, too, fast.
BECKY QUICK: Is Wells Fargo different because it's a shareholding and not an actual Berkshire company that you own outright?
CHARLIE MUNGER: Well, of course we don't have any control over, you know, what they do.
BECKY QUICK: Who should be the new CEO? Charlie?
CHARLIE MUNGER: If I had been picking it, it would have been Tim Sloan. But now they're going to get somebody. Sometimes a new person is better and sometimes worse. I think it's about half and half.
WARREN BUFFETT: Yeah. That's something – yeah. I met two weeks ago or thereabouts with four people, including Betsy Duke, the Chairman, and the first time I met her in my life or talked to her. But, we talked about it. And it's a tough position to fill.
BECKY QUICK: What did you tell -- you talked to the Chairman -- Chairwoman of Wells Fargo and told her that you think what about?
WARREN BUFFETT: No, they called me. I didn't call them. I mean, so, I didn't jump into it. But they just asked what I thought. That was the first time they had asked what I thought about it. And I gave them a suggestion or two --
BECKY QUICK: What was your suggestion?
WARREN BUFFETT: Well -- do these people have names? But I've suggested -- well, I suggested publicly that it not be somebody from Wall Street. Not because there aren't plenty of good people on Wall Street. I just think that politicians are looking for the next one to beat up on. And it's good television. And it plays right into the campaign. And you need somebody running that does not bear the extra baggage of having a label on their forehead that says Wall Street, which will cause half the viewers to cheer for whoever's doing the beating up of.
BECKY QUICK: All right. We will continue this conversation. We're coming back at the top of the hour, and Joe, we'll be joined by another special guest then.
JOE KERNEN: Yeah. I've heard of this guy. Microsoft Co-Founder Bill Gates. Pretty good, Becky.
BECKY QUICK: That's right.
JOE KERNEN: Coming -- joining the conversation. It will be a big hour coming up. It's only on Squawk Box. there is the -- that's it, right there. Check it out. And check out the futures. We're going to -- I really think we should start doing percentages, too. It is a big sell-off, obviously, but let's keep it in perspective. 7% in Shenzhen is not what we're looking at here. We're looking less than 2% on the Dow. We'll be back.
JOE KERNEN: Good morning, and welcome back to "Squawk Box," here on CNBC, live from the Nasdaq Market Site in Times Square. I'm Joe Kernen along with Andrew Ross Sorkin. Andrew wrote a great column today about the weekend and about capitalism and everything else, and I mean, it's –
ANDREW ROSS SORKIN: Wow, I'm getting a compliment.
JOE KERNEN: It's in "The New York Times."
ANDREW ROSS SORKIN: Unbelievable.
JOE KERNEN: And I mean, I could have written part of that. I mean, it's all -- I was – you told me to read it, and I said, no, I'm not going to. I'm not going to ruin my Monday –
ANDREW ROSS SORKIN: Warren defended capitalism.
JOE KERNEN: I know, but you had to write in your -- I mean –
ANDREW ROSS SORKIN: And I praised him. I praised him for –
JOE KERNEN: Did you get some pushback from your editors?
ANDREW ROSS SORKIN: I did not get any pushback –
JOE KERNEN: At "The New York Times." You did not?
ANDREW ROSS SORKIN: No, no, no.
JOE KERNEN: Okay.
ANDREW ROSS SORKIN: They're very happy.
JOE KERNEN: Okay. Becky Quick is live in Omaha with some very special guests that we'll get to in just a moment, Andrew.
ANDREW ROSS SORKIN: Okay, but first, we want to show you the futures right now, because they are tumbling at the start of this week following a pair of Tweets from the President. President Trump last night threatening to amp up economic pressure on China. Trump said, "For 10 months, China has been paying tariffs to the USA of 25% on 50 billion dollars of high tech and 10% on 200 billion dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Frida. 325 billion dollars of additional goods sent to the USA by China remain untaxed, but will be shortly, at a rate of 25%. The tariffs paid to the USA have little impact on product costs, mostly borne by China. The Trade Deal with China continues, but too slowly as they attempt to renegotiate. No!" This all coming ahead of a planned visit to the U.S. this week by China Trade Delegation. There was speculation after Trump's Tweets that the Chinese team might cancel its trip, but earlier today a spokesman for China's Foreign Ministry said that the country still plans to send the delegation. Markets have been spooked by the tension. We want to show you US equity future right now. The Dow off about 164 points, S&P 500 off about 47 points, we've got the Nasdaq off about 151 points. Also show you treasuries real quick, as well. The ten-year note looking right now at 2.485%. And if you look at what's happening in Asia overnight, that's where you really had the percentage losses. The Shanghai Composite off over 5.5%, the Shenzhen composite off over 7%. And finally, we'll show you European trading right now. You're looking at red arrows again across the board, mostly in and around off about 2%. Joe
JOE KERNEN: I mean, I wait for Tuesdays for your column, typically this is –
ANDREW ROSS SORKIN: Well, you know, the news happens. Warren speaks over the weekend, we like to –
JOE KERNEN: It's a DealBook -- it's "Buffett Still Champions Capitalism" if you want to look it up, folks, at home. And it reminds me of Amazon Day. Remember when you were woke to the woke that -- when that happened. And you Tweeted something? You got like 32,000 likes? You were channeling the --
ANDREW ROSS SORKIN: Yep, you know --
JOE KERNEN: It reminds me -- it's like happening –
ANDREW ROSS SORKIN: Warren did not equivocate, and I –
JOE KERNEN: So, it takes Warren. You've got to hear from him before you think capitalism – I can until I'm blue in the face, but once he hears from you, Warren, well, all right. Let's get back out to Omaha. I'm just going to start talking, just give Warren -- I'm going to give up, really. I mean, I spin my wheels Warren Buffett says one thing, and he gets a column. Anyway, Warren Buffett, Berkshire Vice Chair Charlie Munger, and another special guest. Has he arrived, too, Becky? That's so exciting.
BECKY QUICK: He has. Bill Gates is here, and obviously, you all know that he is the founder and the current technology advisor at Microsoft. He's also the cofounder and-- or the founder and the co-chair of the Bill and Melinda Gates Foundation. And gentlemen, I want to welcome all three of you this morning and really thank you for being here. We've heard at the top, all of this concern about China. This is spooking the markets a little bit today. Joe's right. It's a decline of under 2% for the Dow, but still, down 460 points is a number that catches your attention. And we look at China's markets, down 5.5% and down 7%. This is certainly something-- that is catching their attention today too. I can't think of three better people to talk about this, this morning. Bill, you've spent so much time going back and forth with China. You know-- the Chinese leadership very well and can understand maybe what they're thinking on some of these things. Charlie, you've spent so much time-- getting excited about investing there, and Bill, you've invested there as well. Warren, same thing. All three of you have traveled there and spent this time. I just wonder what you're thinking about this morning as you hear these headlines. And Bill, you're the new one at the table today, so I'll ask you to start off with this. What are your thoughts on what you hear with this tweet and the potential for-- a real trade war?
BILL GATES: Well, I think good trade relations are incredible win-win-- for both countries. And it's dangerous that people think this is-- a zero-sum game. And so I'm hopeful-- that despite-- the latest announcement, there is a trade agreement. And the-- two countries can find ways-- to work together. It's the most important relationship in the world. Both sides bring a lot of strengths. So it's-- I--understand why markets are a little bit worried-- that the-- these tariffs are gonna get higher and higher.
BECKY QUICK: When we first got the tweet-- there had been some initial reports that Liu He and the delegation from China might not be coming here. That's what we were hearing last night. This is the first I've heard, just a moment ago, that the Chinese have confirmed that they will be sending that delegation this week. That itself-- is good news, but-- how do the Chinese kinda deal with this when they're faced with real force-- like I think that tweet yesterday was?
BILL GATES: Well, I'm not an expert on negotiation-- but it creates-- a dynamic where both sides could start-- escalating against each other-- which would be-- a lose for both sides. So, you know, the, you know, this week will be, it'll be interesting. You know, they-- the-- even though China's not a democracy-- the political dynamics don't allow them-- to look like they're caving in-- to a unilateral position.
BECKY QUICK: And Charlie, you are an expert in negotiation. What do you think?
CHARLIE MUNGER: Well, hardly, but-- well, if you go back, we put a tariff on trucks to wherein the Japanese were totally squelching the old American auto industry, and that lasted a long time. It wasn't the end of the world. So if we end up with some trade settlement that involves some tariffs on both sides, I don't get excited about it at all. I read it as part of normal life. Generally speaking, I think a good settlement is better than a lovely world war.
BECKY QUICK: Some tariffs are one thing. It's 10%, but we seem like our economy has gone along just fine, even with the 10% tariff that existed on those $200 billion to date. It's 25% tariffs on potentially all $500 billion plus of the imports coming in. Would that concern you about the American economy?
CHARLIE MUNGER: Well, I don't think we want a full-scale tariff war that's just as high as both sides can make it. That would be massively stupid. And if both of them are a little disappointed with the negotiations and feel a little roughed up, it's what they should feel.
BECKY QUICK: What do you mean, they should feel roughed up?
CHARLIE MUNGER: Well, if both sides-- since a settlement is so much better than a war, trade war, for both sides, they oughta just get used to having a little loss of face, and make some kind of a settlement. And I think they will.
BECKY QUICK: What do you think about us taking a stance, us being America, taking a stance with China to this point?
CHARLIE MUNGER: Well, I don't think Trump is totally crazy to say that on some occasions, you put a tariff on to save some industry.
BECKY QUICK: Is he right that we have been on the losing side of the deal for some time? There's a lot of Americans that feel that--
CHARLIE MUNGER: Well, I--think he thinks of it more as a loss that we've got a trade deficit, and I-- don't think that's at all automatic. So I don't totally agree with him, but I agree with Trump in part.
BECKY QUICK: Warren, what do you think, in terms of who pays the tarrifs? I mean, it has boosted the US Treasury, but a lotta those-- tarrifs are being paid by the companies that import the goods and then passed on to consumers.
WARREN BUFFETT: Yeah, the-- they're a tax on consumers. And-- you know, as such, it--changes what people buy. It changes where things are produced. I mean, it-- readjusts, you can readjust the world-- in-- through tariffs-- and-- generally speaking, I mean, there's obviously exceptions for key equipment, military equipment or, you know. But I generally think that a world that adjusts to something very close to free trade, that more people will live better than in a world with significant tariffs and shifting tariffs over time. It was the subject of constant negotiation that sort of thing.
CHARLIE MUNGER: there's probably a less chances of war too, if it's heavy trade on both sides, yeah.
BECKY QUICK: Not-- a trade war, you mean a real war--
CHARLIE MUNGER: A real war, yes. You-- but you gotta remember that-- that our country, the United States ran on tariffs for the first 150 years. That was all we had. This is not like some novel new thing is coming in. This is an old subject.
BECKY QUICK: Is it a good thing or a bad thing?
CHARLIE MUNGER: Well, of course, I'd rather have total good will and everybody getting along. But I don't think it's the end of the world that there's some little tension on the subject. There has been since the start of the country.
BECKY QUICK: Bill just now said he's not surprised by the market's reaction. Warren said the same thing earlier this morning. What about you?
CHARLIE MUNGER: Well, what do I care about a brief, temporary reaction over-- some-- over trade negotiations?
BECKY QUICK: Does that mean--
CHARLIE MUNGER: They're all-- so many little ripples to me.
BECKY QUICK: Look, if you look at Chinese stocks in one market down 5.5% and the other in the Shenzhen market down by over 7%, our futures are down. But that's still a decline of less than 2% this morning. Does that mean it's more painful to China than to us?
CHARLIE MUNGER: Well, I don't think China likes its market going down as a consequence of trade-- uproar. I think the people are more likely to settle the thing because they had this uproar today.
BECKY QUICK: Settling is-- -- sounds like-- a great alternative. But--
CHARLIE MUNGER: It certainly does.
BECKY QUICK: --there has been a lotta friction along the way. The biggest one may be just how do you enforce it? And the feeling at least among many of the trade negotiators in the United States that when we've cut deals with China in the past they say things and then don't follow through on it. How do you make sure that if we have a deal it's actually enforceable?
CHARLIE MUNGER: I think China the-- by and large is--a pretty good place. It certainly worked well for the Chinese. And I think it's desirable. It works well.
WARREN BUFFETT: We want China to prosper.
CHARLIE MUNGER: Yeah, we do.
WARREN BUFFETT: If you postulate a world where in the next 50 years China or-- for that matter, the United States, but-- feel like they're being abused and the word isn't being kept and you ask for one thing and then you wanna ask for one thing more, I mean, you're gonna have-- always have tension between the two countries. You'll always have disagreements but you can't really turn it where it gets-- into something where it gets out of control and things can get out of control.
BECKY QUICK: But I guess I'm going back to trying to figure out which side do you think is right? Nobody wants to say that. Anybody have a feeling--
CHARLIE MUNGER: Well, they're both right to be as concerned as they are. And I predict they'll settle it.
BECKY QUICK: Would you all agree with that same prediction? Bill, what do you think?
BILL GATES: You know, the-- it's a dilemma-- when it appears you're reacting to-- an ultimatum. You know, in the Chinese case there's no election scheduled. So their leader-- won't be un elected-- simply because they'd have to take a tough stance on trade negotiations. You know, I-- markets up until recently were assuming this deal would get closed. So that's a little bit why you see the Delta-- the rational thing would be for a deal to get closed. And I, you know, I'd still rate that as likely--
CHARLIE MUNGER: I agree with Bill.
WARREN BUFFETT: Deadlines are tricky things. So, I mean, they produce reactions. And people—and they can-- particularly if you're responding to public opinion they can-- they can inflame people and then they start reacting their own-- they're tricky things. Now-- then-- then—on the other hand sometimes it's the best way to get things done--
BECKY QUICK: And good sign though maybe that the-- they just said that the Chinese delegation will continue to come. 'Cause I had real questions about that or doubts about that myself after seeing that yesterday.
WARREN BUFFETT: You wanna conduct negotiations so it doesn't look like the other guy has to cave or something like that. The ideal thing is to make a hero out of 'em and still get the deal you want.
BECKY QUICK: Over the weekend at the annual meeting you two had an aside on stage that-- a lotta people kinda picked up on. You didn't follow up on it. I thought we could do that here. You were talking about Dairy Queen and how your presence in China is not large but you do have a presence in China.
CHARLIE MUNGER: Yeah, we're all over China.
BECKY QUICK: For Dairy Queen it is a very large presence. But not for Berkshire Hathaway. But you made the comment, Warren, that-- you would've been a much larger presence had a big deal gone through. You made it as an aside to Charlie but it was over the mics.
WARREN BUFFETT: Well, we looked at, I mean, it had nothing to do with Dairy Queen.
BECKY QUICK: No, no, I figured not.
WARREN BUFFETT: We're not turning-- Dairy Queen into some global giant or-- we've looked at good size things in China. And we, you know, we've done a couple things in China. And Charlie's done more individually. And-- -- it's logical, I mean, with the kind of capital we have, that big markets-- outside the United States are gonna be the place where we're most likely to do something. And certainly China's gonna be the biggest market and-- outside the United States. And-- there should be opportunities there. But-- and I think we are someone-- at Berkshire I think-- that if they're looking for capital around the world-- we're a very logical prospect.
BECKY QUICK: Why did that deal not work out? Was it because of the trade tension?
WARREN BUFFETT: There's-- I can't go into any details on that.
BECKY QUICK: Thought I'd try.
WARREN BUFFETT: You'll be the first to know.
BECKY QUICK: In-- terms of what you do with your businesses, do these trade talks have any impact on you, on your investments-- even your own personal ones? Because you all have-- a large individual portfolio that you do. And Charlie, I know you focus a lot--
WARREN BUFFETT: some are Larger than others.
BECKY QUICK: --Charlie, I know you focus a lot on China. Does this diminish your enthusiasm for Chinese investments in any way?
CHARLIE MUNGER: No.
WARREN BUFFETT: No it doesn't really-- if-- we got a call today from some business we understood and liked from China and they were looking for a lot-- it's big, you know, we would be delighted to get that call. And we would follow through and see whether something happened. But that's-- that would be-- that would be very interesting to us.
BECKY QUICK: Bill, how 'bout you?
BILL GATES: Well, certainly-- you know, there is in parallel with the trade talks, talks about-- what the technology expert regime will look like-- in terms of things like artificial intelligence. And so I have some concerns about whether that will try and partition, you know, Chinese students from American students. The general sentiment towards China right now has gone down a bit. And so there are businesses or business deals that have to go through-- a new process and they're talking about even making that tighter. So I, you know, I'm-- worried about-- even the sort of intellectual cooperation-- being slowed down. We'll-- see where that goes. But-- it's a concern.
WARREN BUFFETT: If-- they take our intellectual property at Dairy Queen-- we can handle it.
BECKY QUICK: Gentlemen, we're-- gonna take a break right now but when we come back-- I thought we could dig into a little bit of what Joe and Andrew had been talking about before, just the idea of capitalism-- it does seem to be under attack in some quarters these days. But maybe we can dig into that a little bit deeper when we return. Andrew, I'll send it back over to you.
ANDREW: Thank you. When we return we will have a lot more of Warren Buffett, Bill Gates and Charlie Munger all in Omaha this morning with Becky. And got you covered on the markets-- action as well. The future's down sharply after President Trump's new threat to raise tariffs on Chinese goods. We're looking at red arrows at the DOW, off about 437 points right now. Stay tuned, you're watching Squawk Box on CNBC. We are back in a moment.
BECKY QUICK: Welcome back to a special edition of Squawk Box. We are live in Omaha, Nebraska with Warren Buffett who is Berkshire Hathaway's chairman and CEO. Bill Gates who's the cofounder of Microsoft and co-chair of the Bill and Melinda Gates Foundation and Charlie Munger who is Berkshire's vice chairman. And gentlemen, we've-- talked an awful lot on our air recently about socialism versus capitalism, defending capitalism. All of the different political pressures that are kinda being brought as we get into another election year. And I thought maybe we could talk about that this morning too. Over the weekend several questions came up about defending capitalism. And Warren, you did step out and say that you're a card-carrying member-- a card-carrying capitalist in front of everyone. What do you think about the attacks that we've seen to this point on capitalism?
WARREN BUFFETT: Well, I don't think people exactly even know what they're talking about. It isn't that capitalism is perfect. But if you look at what was there in 1776 and what is here now, this country has done an incredible job in terms of the deployment of resources and-- human ingenuity. And it-- and that is a-- product of the system. Now-- does that mean that every decision should be made simply by open market-- determinance? No, there's need for regulation obviously and there are things that have long-term costs and might not get built in. But the idea of people unleashing their potential using the resources they have to create what we have now from what was there 240 something years ago, it's absolutely a miracle. And all three of us have seen during our lifetime. And-- if you compare that with any centralized plan economy I-- you know, I think we win hands down. And I think we've just started with what capitalism could produce in the United States. But I do think that obviously it needs certain rules and regulations.
BECKY QUICK: Bill, you did an interview in Davos with someone. And I-- you made a pretty innocuous statement that you looked around and you thought capitalism was the best system. And you got attacked online from all these people who came up with these crazy statements about how could you say things like that? I mean, what do you think about the climate when you see things like that?
BILL GATES: Well, the-- some people think when you defend capitalism you're defending the tax rates we have today and saying that higher absolute tax rates or more progressive tax rates, that you're disagreeing with them. And I don't think-- Warren and I are disagreeing that you could make the taxes more progressive. In fact, we've been very explicit in some areas like the estate tax and saying we think that would be a good thing. Socialism--
CHARLIE MUNGER: you got your wish it came back.
BILL GATES: Socialism used to mean that the state controlled the means of production. And a lotta people who are promoting socialism actually aren't using that classic definition. So what we're gonna have is capitalism with some level of taxation-- most people really aren't arguing against capitalism. There may be a few. But most people are-- just saying that the taxes should-- change.
BECKY QUICK: Although you do have someone who I think is pulling the second highest in the Democratic Party who was a socialist until very recently, Bernie Sanders.
BILL GATES: Well, whether or not he was a socialist by the full term of that, now there is some muddy areas. When you start to say there shouldn't be any billionaires, that you have some cap on wealth or something like that, that goes-- beyond what I think-- and you could say I'm self-interested. But--
CHARLIE MUNGER: Really?
WARREN BUFFETT: We-- will accept the…Government needs to reallocate some resources. I mean, extreme cases in World War II, I mean, that's the closest we've come to socialism. You had an office and price administration, you had a war production board. That, I mean, but during peace time-- you're always prepared for war and you have to do that through government. Government needs to reallocate some resources. But the-- market system which exists under capitalism is an extraordinarily effective way and has proven it of-- using resources-- human and other kinds-- to produce incredible goods. And Henry Ford could learn-- devise a system that could turn out a couple million cars a year. But he could only use half a dozen himself or his whole family could use 50. I mean, he had to turn out-- a couple million cars that other people got to use. And that-- would not have, in my view, I think if you'd set up a government bureau in 1850 and given him 100 years to develop a car I'm not so sure that he'd've ever come up with anything like this-- the assembly lines of Ford and all the things that have happened. Human ingenuity is incredible. And you want something that maximizes its use as-- and then curbs a few of the ideas that some of those people may have this or that for themselves.
BECKY QUICK: Charlie, you've made the same point.
CHARLIE MUNGER: The great proof of how capitalism works is China. When China copied Singapore and let the farmers own their own plots and let the manufacturers own their own businesses and so forth, China's productivity increased many times. And they went from rural poverty to modern extreme wealth. And they did it by adopting a fair amount of capitalism. Now if a Democratic politician doesn't understand that, he's nuts.
BECKY QUICK: You've made the same point though, Charlie, that you think private sector does it much better than the government sector. However, a lot of these people who are running also want to make government much bigger. Do you have a quarrel with that or no?
CHARLIE MUNGER: Well as they say, if you love your post office you're going to love socialism.
WARREN BUFFETT: And they don't necessarily want to make it bigger in terms of redistributing. They may want – the market system is brutal. And it leaves behind people who are perfectly wonderful people who don't have market related talents.
CHARLIE MUNGER: Who are just unlucky.
WARREN BUFFETT: Yeah, just plain unlucky. And in a rich society, believe me, if we have a war or something like that, we call on those people and, you know, pay them practically nothing to go fight for us. And we want goods flowing but it's going to displace the textile worker that we used to have and so on. So the function of government is not necessarily get bigger. It maybe in an important way to take care of people who for one reason or another get left behind in a market system that you also regarded as essentially this huge source of wealth and goods and services.
BECKY QUICK: So how do you fix the problems or at least the perception of problems which there's a huge perception out there in the American voting public.
CHARLIE MUNGER: Well obviously, with the help of our government we're wiser. And it would be wiser if the two sides didn't hate each so much. Anger drives out reason. And there is absolute cold fury between politicians on one side and politicians on the other. It's quite counterproductive. For that reason I don't allow myself to get angry at politicians.
BECKY QUICK: How would you fix it?
CHARLIE MUNGER: Well, I just don't let myself get that angry politicians. I don't expect them to be perfect.
WARREN BUFFETT: Berkshire has worked better because Charlie and I have never been mad at each other.
CHARLIE MUNGER: Yeah.
WARREN BUFFETT: It just does. I mean, way better. If we got mad at each other, you know, I'd try and kill his deals, he'd try and kill my deals all the time – it just doesn't work that way.
CHARLIE MUNGER: A couple of alpha males blustering at one another over this stuff. They ought to just cool it and take a little reputational hit and get the feathers being ruffled down.
WARREN BUFFETT: We ought to worry about the people that don't fit into the system. We want the system. And a lot of people are getting left further and further behind because as capitalism gets more advanced it gets more specialized. And there actually is greater difference between the haves and the haves nots. And the haves can take care of the have nots. Interesting thing is both parties basically agree on that. They just—
BECKY QUICK: Yes, it is the 'how you get there' that gets complicated.
WARREN BUFFETT: I think the income tax credit can make a huge jump in that direction. I mean, in the social security, we've done various things. Over the years we have improved. We've improved the public school systems. We've improved things that do give people more of an equal chance and take care of people who fall by the wayside. We just got to keep doing it.
BECKY QUICK: Bill, you've spent a lot of time on education in this country, trying to figure out how to fix it and how to make things work. What's the answer? If that's one of the problems that we're not getting people the advantages they need before they get into that system, how do we fix that aspect of it?
BILL GATES: Yeah, I think better education is so key to the United States living up to the dream of equal opportunity. And particularly as more and more of our students are in the inner city, coming from low-income households, we really have to take the best teachers, understand what they do and spread that further. That is the best path to a stronger form of equality. The progress has been pretty modest. But there's a lot of, you know, smart people. It's not just technology, it's helping the teachers, finding out the ones who are doing things super well and spreading that around. Even at the college system, we still have very high drop out levels. And the way you catch kids early when they get off track, some use of online – I'm hopeful in the education area. Although progress has been slow.
BECKY QUICK: Surprisingly slow?
BILL GATES: Yes. When we compare the improvements in global health, which is the other big area for the Gates Foundation, to the improvement in education, education's proven to be tougher to make big gains over the last decade.
BECKY QUICK: Was that what you expected when you got started?
BILL GATES: No it's actually the opposite. Because global health involved going out to poor countries whose governments are really weak and there's not even stability, there's some corruption. We thought that would be the slow area to work in. But very important. That we've been surprised by how much progress there's been in the overall statistics like cutting childhood death in half. In education, although there's some points of light, some great schools, some are charter school, some are using new curriculum, the overall figures, U.S. math scores, dropout rates, have moved only slightly.
BECKY QUICK: Charlie, just getting back to your idea of people not hating each other so much and getting along, how do we make that happen? How do you try and push towards that? Because it seems like things have gotten worse and worse.
CHARLIE MUNGER: Well, I think you have to do it one relationship at a time. And, of course, I think it would help if both parties did not commit suicide in the primaries. If we get these extremists on both sides and they take over each party it's just awful. The California legislature has two kinds of people, rightist nutcase and leftist nutcase. They kicked everybody else out. This is not a good system.
BECKY QUICK: Why did it wind up like that particularly in California?
CHARLIE MUNGER: Hatred. Lots of hatred.
BECKY QUICK: Was it redistrict, I mean, how would you—
CHARLIE MUNGER: There's redistrict – redistricting as part of it. But mostly, it is just the wonderful product of hatred.
BECKY QUICK: Are you hopeful when you look at some of the campaign slogans or campaign thoughts that you hear in the early days of 2020 campaigns?
CHARLIE MUNGER: Well, I'm not hopeful over the short-term. I have the feeling that over the long-term there has been progress. And I don't think it's over.
BECKY QUICK: All right gentlemen, thank you for this portion of the conversation. We're going to continue with much more when we come back. Andrew, I'll send it back to you in the meantime.
ANDREW ROSS SORKIN: Okay, we're going to come back in just a moment to Omaha with much more from Warren Buffett, Charlie Munger and Bill Gates. As we head to a break though we're going to check on U.S. equity futures. Been under a lot of pressure this morning, in large part because there's some new questions about whether there will be a trade deal with China given some of the comments the President has made overnight. Dow Jones looks like it would open off about 435 points down, NASDAQ down 140 points, S&P 500 down about 44 points. And we're also going to check out what's happening in Europe as well right across the board with most of those markets down about 2%. And finally we'll show you what's going on in Asia where the hits have been a lot bigger. Shanghai composite off 5.5%, Shenzhen composite off over 7%. We're gonna have a lot more on this breaking story. Stay tuned. "Squawk Box" returns in just a moment.
JOE KERNEN: Welcome back to "Squawk Box" on CNBC. Live from the NASDAQ Marketsite in Times Square. The futures right now, not as bad as they were but not much better. Down 457 on the DOW, the S&P is down about 46 and NASDAQ 146 right now. Let's get back to Omaha with Becky Quick and her three very special guests. Becky?
BECKY QUICK: Hey, Joe, thank you very much. Again, we are joined this morning by Warren Buffett, the chairman and CEO of Berkshire Hathaway, Bill Gates who's the cofounder of Microsoft and the cochair of the Bill and Melinda Gates Foundation, and Charlie Munger who is Berkshire's vice chairman. And gentlemen, just taking a look at what we've been watching with the markets today. Obviously things are under a little of pressure today. But we have been looking at much higher markets if you go back to the Christmas Eve low. And the concern about what would the Fed might or might not be doing. Since that time the Fed has sounded much more dovish. And I just wonder if you can talk a little bit about your own take on the markets. And Bill, again, I've spoken with Warren and Charlie earlier about this a little bit. So how about your take? When you hear that the Federal Reserve is probably not gonna be raising interest rates any time soon, how does that change your outlook on equities or equities versus treasuries?
BILL GATES: Well, the interest rate is like gravity and all these valuations are dramatically affected by it. At the start of the year people didn't think the ten-year bond would be where it is today. And that's provided a lot of lift. So it was a big first quarter for U.S. equities. We still, if you look forward, are at these very high valuation levels. And so it's hard to see that the market will be gaining a lot over the next few years. I think people should have fairly modest expectations on what their portfolios will make in the years in front of us.
BECKY QUICK: Have you changed your positions, I mean, your own portfolio as a result of this? Have you done any major—
BILL GATES: No, it's a very equity-oriented portfolio. It's overweight in the U.S. even though it's got a lot of overseas exposure. You know, it's a bullish portfolio that the American economy over time will do well. You know, fortunately, even if we have a few years here where markets aren't doing that well, you know, we've been lucky we have a cushion the foundation can continue to spend generously. But I'm amazed at how high the valuations are if you look broadly.
BECKY QUICK: Charlie, do you think that?
CHARLIE MUNGER: Well, sure. I think that if you drive indices down to zero and all the countries print money like crazy, it's lifted the asset boat for everybody. And I think it really is – they didn't have anything else to do in the great recession. And so they took the only weapon they had and used it aggressively. I don't think we should quarrel with that. It did cause the people who are already rich to get richer. But that wasn't done on purpose or anything like that. And I think that will correct automatically.
BECKY QUICK: Do you think we should still be using that weapon aggressively which is what President Trump would like to see happen. He wants them to cut interest rates again. I think he said by 1%. And also push up quantitative easing once again, build up the balance sheet.
CHARLIE MUNGER: I am so afraid of a democracy getting the idea that you can just print money to solve all problems. And eventually I know that will fail. Singapore which has a marvelous economy has zero debt. If I were running the world I would like the United States to be in that position. That is not the typical. That's nobody's position. No, all these politicians here in America have learned to print money.
BECKY QUICK: And if we keep at these extraordinary measures for the Fed – I guess not just the Fed here, but central banks around the globe.
CHARLIE MUNGER: Yes, but who knows when money finally runs out of control? And at the end, if you print too much you end up with something like Venezuela.
BECKY QUICK: You're not suggesting that happens any time soon?
CHARLIE MUNGER: No, but I don't like the idea. And both parties, you have politicians that say, "what we've learned is we can print all the money we want. We don't have to raise taxes. We just print."
BECKY QUICK: Warren, you share those concerns?
WARREN BUFFETT: Yeah. It probably could not have conceived the world as recently as ten years ago – I learned I would not have conceived of a world where you would have full employment, five percent budget deficits, with actually the probability of those rising from that level, and at the same time have the long bond at 3%. I would've said that couldn't happen. And then people now, you have this modern monetary – there's no question you should borrow – any country should borrow money in its own currency. I mean, that is not like it is some great discovery. Some things have been announced but
CHARLIE MUNGER: No, but it can be overdone.
WARREN BUFFETT: Yeah and that's the point. I mean, that doesn't solve anything just to save – it is much safer to borrow money in your own currency. But the convergence of these factors would've seemed impossible to me. And generally if I feel something is impossible it's going to change. Over time, I don't know in what way, but I don't think we can continue to have these variables in this relationship. Now if we can, then stocks are ridiculously cheap.
BECKY QUICK: The one thing I will say though is this is a conversation I feel like we've had for at least four or five years.
WARREN BUFFETT: Right.
BECKY QUICK: Where you're watching and continuing to wait for these interest rates, the yields to rise. We're still sitting at 2.5% on the ten-year, which is shocking.
WARREN BUFFETT: And we're sitting with very, very little inflation, with a Federal Reserve that put a target for 2% on it not that long ago. And it looks like nirvana. It looks like we found the promised land where we just essentially money doesn't cost anything and you can print lots of money and have full employment and no inflation. And I would've thought that something would've happened before now. I don't know what would've happened. But I wouldn't think you could have these things at these levels – the long-term rates, inflation rates, budget deficits – and have that be a stable situation for a long period of time. And I still believe that. But so far I am wrong.
BECKY QUICK: So in the meantime you haven't really changed how you—
WARREN BUFFETT: I think stocks are ridiculously cheap compared – if you believe that you're going to have 3% interest, well, 30-year bonds make sense.
BECKY QUICK: That's a big if though.
WARREN BUFFETT: That's what makes going to work interesting.
CHARLIE MUNGER: This threesome is comfortable if everything goes down that way 90%. So we're now a fair cross section.
BECKY QUICK: I'm sorry, Charlie, what was that?
CHARLIE MUNGER: I say this threesome is comfortable if everything goes down by 90%.
BECKY QUICK: Oh stock prices. Equities know the rest.
CHARLIE MUNGER: It doesn't really hurt us. Yeah, but we wouldn't want that kind of a world, I mean, everybody else.
BECKY QUICK: Right. Can we talk a little bit about health care. Because you all have spent plenty of time focusing on health care in the United States and abroad. Bill, you're probably the foremost authority on global health care. Your foundation has spent billions and billions of dollars on it. I think more than $13 billion just from inception through 2017 on global health care initiatives. What's the progress? You touched on it a little bit earlier that you've seen more progress here than in the education front in the United States. How's that kind of shown up?
BILL GATES: Well, it's phenomenal that by taking the new vaccines and getting them out to more kids and a few other tools like malaria bed nets that we've gone from over ten million children dying every year to now less than five million. Now five million's still a lot. We need a few more tools. But actually the pipeline of innovation looks very good. So, you know, this is a phenomenally positive story that those deaths are way down and that that'll continue.
BECKY QUICK: What's the thing that brings you the most hope or gives you the most hope about advancements that you've made or research that you've found?
BILL GATES: Well, one that we're working on is to reduce malnutrition because if a kid is growing well, their ability not only to avoid these diseases like diarrhea killing them, but also the degree to which they'll develop their full mental and physical capacities and therefore contribute for their own life for their country's well-being, dramatic reduction in malnutrition would be a huge thing. And we're now gaining understanding that we think that that will be possible. It's been a long scientific journey, having to do with the gut and inflammation and the microbiome. But now we see that we'll get more of those kids on their growth path. And so I'm super excited about that.
BECKY QUICK: But malnutrition is not just them not having the food to eat. Even in cases where they do have the food to eat, there's a problem with their –
BILL GATES: That's right. What happens is that because their diet doesn't have much protein in it, their gut, their intestines get into an inflamed state. And that means you get a set of bacteria in there that don't let them absorb nutrition. And so that's a downward path. And you can see in two twins, one will get that and not be growing and the other one will achieve normal growth. And so an intervention that stops the inflammation, shifts the microbiome to a more healthy mix, that would get rid of malnutrition for that child. So what is a really cheap intervention where you can see the problem and stop it.
BECKY QUICK: With probiotics or something? Take a pill –
BILL GATES: Yes, that's the kind of thing. Although those tend to be broad spectrum. Here we're going to be – to make it, scale it up and have it be cheap, probably a pill, it'll probably be a couple of vitamins and drugs.
BECKY QUICK: Does that translate to things that could be useful here in the United States and other developed nations?
BILL GATES: Well, the basic understanding of your gut and will finally lead us to understand not just malnutrition but over nutrition. Why is it so hard to control people's hunger. Over time people have tried to have pills to control hunger. I'd say over the next decade that will finally succeed. So even though that's not the foundation side, we're focused on malnutrition, the science of the gut and the microbiome has a lot of companies working on things that will reduce over nutrition.
BECKY QUICK: Warren, back here in the United States one of the big problems is trying to figure out how to pay for health care and stop some of the costs. That's a problem you've been focused on at Berkshire along with JPMorgan and Amazon. What have you found? We haven't gotten any updates recently other than the name of this new organization's going to be Haven. Where are you on that process?
WARREN BUFFETT We are taking the first step on what is bound to be a very long journey. I mean, I would say it's not more difficult than I expected. But I expected it to be ungodly difficult. And you have an industry which basically is about the same size as the U.S. government's receipts. And everybody always says every dollar in the budget, you know, has a constituency. And every dollar in the industry expenditure has a constituency. And we've got the right person. We've got the right partners. Capital isn't the key part to it, but we've got people who are willing to spend some money. But we'll spend whatever money it takes if we're making progress. And it is going to be a long, tough pull to make major journey, to make major changes. And it, you know, it has no guarantee of success at all. But there's nobody, I think, that's in a better position in terms of number of employees and ability of the people that are partnering to get along and all kinds of things, to perhaps, come up with something that makes the system more efficient. And you know, we'll try. But nothing will happen quicker. So there's no revolutionary move or anything of the sort. And there will be lots of opposition to any change. And interviewing people to run the place, well, we interviewed people of all aspects of the medical profession or activity. And they all agree 100%, you know, the system needs to change. But, of course, not my part. And that's very understandable. We expect that. And we'll find out what happens. But I know this, I would rather have the private sector come up with a solution, throw it all to the government and if the private sector doesn't come up with some solution to the increase in cost, quality, you know, many ways is unbelievable. You just hearing Bill talk about the advances that can be made. But it costs five percent of GDP and in my lifetime or even my adulthood up to 18%. The federal budget is staying kind of constant around 17%. Everybody thinks it's out of control and all of these terrible things and here – federal receipts I should say – and now this is gone from five to 18 and nobody really thinks it's going to stop.
BECKY QUICK: Charlie, you've been – go ahead, you've been at Good Samaritan, the chairman there for how many years?
CHARLIE MUNGER: Long, 40 years. If you take Singapore, which tends to have an intelligent government and do things right, they spend about 20% of what we spend on health care. And they're healthier. And there're all kinds of abuse and counterproductive activity they don't have in Singapore that we do have. And Warren is right, we're going to have a hell of a time getting into Singapore's direction because human beings are profiting over the existing system. You know, it may look like an unnecessary operation to me – in fact, it does – but to them it looks like God's work.
BECKY QUICK: Where would you suggest after your years at Good Samaritan, where would you say focus here first?
CHARLIE MUNGER: I think we – this system is out of control. The deductibles in ordinary corporate health insurance are ridiculous. If you're a poor family and you got a $5,000 bill for a baby, that you don't have medical insurance. They just change the system. And then if you take the utterly unnecessary treatment where people find a way to tap into these governments streams of money and do a lot of unnecessary work like prolonging inevitable death and all kinds of ghastly things they do, I would say we have a pretty disgusting system. On the other hand, it's the best in the world in terms of its ultimate scientific capacity. But if you take all the unnecessary operations and all the unnecessary procedures and all the rackets and the thing, which Singapore probably will, take it out. It's discouraging. I look at Singapore, I look at the United States and I think, "How in the hell do we get from where we are to there?" And if you ask me, what's going to happen I think we're gonna fail to get to an intelligent system.
BECKY QUICK: Well, on that cherry note, we are just about out of time. If I can ask you gentlemen, we have about a minute left, if I can just ask you what you're reading because that's something we hear back from our viewers often. Warren, what are you reading right now?
WARREN BUFFETT: I've just finished reading, very recently. I read it one sitting, it captivated me so much. A book by Melinda Gates which just came out very recently.
CHARLIE MUNGER: It's a best seller.
WARREN BUFFETT: The Moment of Lift. It is a terrific – it's a story, but it's learn much about the world that you should know. And I would say most people don't know. I mean, this is a story of her experience that is absolutely sensational.
BECKY QUICK: Warren took all your time. Bill, I guess you're not upset about that.
BILL GATES: I love the book.
BECKY QUICK: Gentlemen, I want to thank all three of you very much for being with us. We truly appreciate your time. Warren Buffett, Charlie Munger, Bill Gates. And Andrew, we'll send it back to you.
ANDREW ROSS SOKIN: Great. Becky, thank you. And thank you, all three of you for a terrific several hours all together. Finally check on markets right now. As we have said multiple times, we have been in the red. 454 points right in the Dow, S&P 500 off about 45 points, NASDAQ off about 141 points on a threat by President Trump that the tariff deal with China may not happen. We will see. Make sure you join us tomorrow, "Squawk on the Street" begins right now.
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