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Published: Monday, 1 Mar 2010 | 5:57 AM ET | 12 Midnight Tuesday March 2 (NZ Time)
By: Alex Crippen
Executive Producer
This is a live blog of Warren Buffett’s three-hour ‘Ask Warren‘ appearance on CNBC’s Squawk Box on Monday, March 1, 2010.
Buffett released his annual letter to Berkshire Hathaway shareholders over the weekend.
Buffett answered questions submitted by CNBC viewers and CNBC.com users.
All times are Eastern. Refresh for the latest update.
5:59 AM: The program begins. CNBC’s Becky Quick introduces Warren Buffett who “made it here early.” They are sitting in Picollo Pete’s, an Omaha restaurant that he likes.
6:02 AM: Buffett and Becky talk about how Buffett brings many of his famous, and not so famous, guests to the restaurant.
6:03 AM: Buffett notes that his letter to shareholders includes a lot of introductory material for the many new shareholders created by BRK’s acquisition of Burlington Northern Santa Fe and the 50-for-1 stock split of the Class B shares. It’s generating a lot of conversions from Class A shares. “
6:05 AM: Buffett on economy – “We’ve gotten past Pearl Harbor. We will win the war, and it’s going slightly our way.” Things are getting better, “but at a very slow rate.” Says our businesses, on average, are not doing as well as two years ago. Some Berkshire subsidiaries “have really had a fair amount of bounce” but others have not. Jobs will be slow to come back. Points out that employment at BRK’s carpet subsidiary is down substantially, about 6500 from a base of 30,000.
6:08 AM: Housing inventory in the country is being corrected as starts fall but will take time. Guesses that within a year, for 80 percent of housing market, there will be a good balance of demand and supply. Doesn’t mean prices will shoot up, but there should be a better balance.
6:11 AM: Joe Kernen asks if Warren buys into the idea of a “new normal” .. several years of sub-par economic growth. Buffett says economy will bounce back sooner than 10 years from now, but it will be a slow process. Banks are in a “lot better shape than they were” earlier. He is not very concerned that rising interest rates will significantly hurt the economy or banks, although it is tougher on the customer.
6:14 AM: Joe: What would he do differently with investing during the crisis? Buffett admits that he was early in buying 18 months ago and should have waited until one year ago. “I was early” but he doesn’t like to take chances so he wants to have $20 billion in cash on hand for Berkshire. “It’s a yardstick.”
6:16 AM: Buffett says Berkshire’s cash gets replenished pretty fast from earnings and the insurance float, but he doesn’t want the company to have to depend on anyone else for money, so keeps a substantial cash cushion. “You never know what’s going to happen in finance” and you have to be ready for extraordinary things.
6:24 AM: In response to viewer question, Buffett says that if Geico’s Lou Simpson retires, Buffett himself would probably take over Simpson’s stock-picking job at the insurance subsidiary.
6:25 AM: Buffett says Berkshire’s loss of its triple-A credit rating hasn’t hurt the company’s ability to sell debt.
6:34 AM: As Squawkers discuss the new color scheme on the show’s set, Buffett, ever the salesman, suggests they buy some Benjamin Moore paint (a Berkshire subsidiary) if they want to make changes.
6:35 AM: On Coca-Cola’s move to buy its biggest U.S. bottler, Coca-Cola Enterprises, Buffett says on balance he likes the deal. He says on the whole he likes the concentrate business better than bottling, but the bottling business needs to be “rationalized.”
6:37 AM: Buffett says even after he dies, Berkshire will keep going in the same direction. He says the organization would reject anyone who tried to make major changes and notes that a Berkshire family member would still control a lot of the company’s Class A stock. As for management, he and the Board look at succession all the time. The pool of managers within Berkshire who could run the entire company “grows all the time.”
6:41 AM: NetJets is “solidly profitable” and rebounding now that MidAmerican Chairman David Sokol is in charge. “What David has done there is miraculous.” (Sokol is generally seen as a strong candidate to succeed Buffett as Berkshire’s CEO.) In response to a question, Buffett says Berkshire will not sell NetJets. “Net Jets is going to make money” and it even makes money in the current situation when sales of planes are not high. It’s a good business, “it just got out of control.”
6:44 AM: Carl asks about Berkshire’s reinsurance chief Ajit Jain, who received strong praise from Buffett in the shareholders letter. Buffett underlines that praise, calling Jain “incredibly valuable to Berkshire,” but won’t bite when Carl suggests Jain might be “the guy” that Berkshire’s board has selected to succeed Buffett.
6:47 AM: Asked who is more intelligent, his longtime partner Charlie Munger, Microsoft Chairman Bill Gates or Ajit Jain, Buffett says their combined brilliance is enormous and that each has special intellectual skills.
6:49 AM: Buffett says he has no idea where Berkshire’s stock will be six months from now. “Six months is not an investment period.” Long-term buyers should hold a stock for a much longer period. He says stock buyers should act as if they’re buying a farm, with a long-term time horizon.
6:51 AM: Shareholder asks about the annual meeting, complaining that attendance is bigger than the Qwest Center’s capacity of 17,000. Will Buffett move the meeting to another city or allow it to be webcast or broadcast? Buffett says he’s considered a webcast, but he enjoys the personal interaction of the event and most shareholders don’t seem to mind watching the Q&A session on television screens in overflow rooms.
6:53 AM: Buffett says he likes stocks more when they go down in price. Stocks are “far less attractive” now than they were a year ago because they’ve gone up in price over that time. He says bonds are also far less attractive than a year ago.
7:02 AM: On health care, Buffett compares “out of control” costs to a tapeworm that’s eating our “economic body.” Says if he was president he would say, “One way or another, we’re going to attack cost, cost, cost.” If he had to, he would vote for the current Senate health care bill, but he’d really prefer a “Plan C” measure that would bring down costs. He calls those costs a “national emergency.”
7:06 AM: Buffett says he would like to have more people covered by health care insurance, but that controlling costs should be the top priority. He would bring in a lot of “smart people” to come up with something that would reverse increases in health care costs as a percentage of GDP.
7:08 AM: Buffett on health care: “We need different incentives.” Says U.S. costs going up far faster than Switzerland’s and that country has excellent care. “Insurance is not the problem. The problem is incentives.” He says, “We have payment for procedures, not for results” and that should change because it means we’re “doing unnecessary things.” He says profits for insurers is a very small part of the nation’s total spending on health care.
7:12 AM: Buffett says there are smarter people than him on health care, citing an article in the New Yorker magazine over the summer comparing costs in two different Texas cities. He says after Charlie Munger read the article, he wrote out a check for $20,000 to the magazine because he found the article so socially valuable. (The article is The Cost Conundrum by Atul Gawande in the June 1, 2009 edition of the New Yorker.
7:19 AM: Buffett says he’s still “very glad” he voted for Barack Obama and that he gives him “high marks” as he takes on very difficult problems.
7:20 AM: Buffett defends Social Security as one of the most important things government has done. Says our nation is rich enough to make sure those who get the “short straw” in life have some basic level of support. Says spending 4-1/2 percent, even six percent, of GDP on seniors is not too much.
7:21 AM: “Orders create jobs. Jobs don’t create orders.” Government should put money into the pockets of people who are going to spend it, especially lower-income people. Giving wealthy people money won’t help stimulate the economy as much.
7:29 AM: Joe Kernen asks Buffett to talk about the difference between Kraft using undervalued stock to buy Cadbury vs. his own use of stock to buy Burlington Northern. Buffett replies that he hates using stock for purchases, but in that case it was worth it to get the deal done. He says if he had to use all stock for BNSF he wouldn’t have done the deal. Buffett says they got back as much, or a little more, for the stock used than its intrinsic value.
7:32 AM: In response to question, Buffett says his section on boardroom overheating in the letter to shareholders is not a veiled reference to Kraft CEO Irene Rosenfeld. He says it is the result of decades of experience in corporate board rooms, and admits that he has made some “dumb deals” due to “animal spirits.” He cites Dexter Shoe as an enormous mistake. But he’s never had buyer’s remorse the following day. Buffett also says he hopes Kraft’s deal for Cadbury “work out” and wishes Rosenfeld “the best”
7:34 AM: Buffett says Goldman Sachs has “very good prospects.” He thinks the firm is getting too much blame. “They’re going to rewrite Genesis and have Goldman giving Adam the apple.” Can’t find a better manager than Lloyd Blankfein. He notes that Goldman got a $35 million advisory fee for the BNSF deal.
7:39 AM: In response to viewer question on why Berkshire sold some ExxonMobil so quickly after buying it last year, Buffett says it was not the result of the oil company’s deal to buy XTO Energy.
7:42 AM: Buffett says companies receiving the benefit of government guarantees should also be more closely regulated. And he says the top management of companies that have to be bailed out should suffer very large financial penalties.
7:46 AM: On Fannie Mae and Freddie Mac, Buffett says we need a whole new system. Thinks we should look at tougher mortgage standards but doesn’t know exactly how to do it.
7:47 AM: On global warming, Buffett says we should act on the problem even if we thought there was only a 20 percent chance of it actually happening. “There should be something that firmly reduces carbon emissions” and calls for the U.S. to act in cooperation with the entire world, especially China.
7:50 AM: Asked about specific measures, Buffett is vague but does think whatever is done must be in cooperation with the rest of the world.
7:51 AM: Problem of issuing too much debt as a country comes when rest of world doesn’t want your currency anymore. “Inflation steals from savers, and inflation is the logical result of printing too much money.” If the U.S. continues to print so much money, that money will eventually be worth less than it is now.
7:53 AM: “There is a huge incentive for the EU” to help rescue Greece, and “that’s what we’re seeing now.” The time to “stop runs is early on.”
7:54 AM: Buffett says Berkshire did not write any municipal bond insurance last year because the risks got bigger and the premiums got smaller. He’s concerned about fiscal problems for states and municipalities that have “deteriorated dramatically,” but thinks Washington would ultimately stop a state from failing.
8:02 AM: Joe Kernen introduces PepsiCo CEO Indra Nooyi for a live interview about that company’s now-closed deal to buy some of its bottlers, noting that Buffett’s Berkshire has a large stake in Pepsi rival Coca-Cola.
8:08 AM: Buffett says that he thinks PepsiCo is a great company and that he enjoys eating some of its Frito-Lay snack products like Cheetos and Fritos, although he does so while drinking a Coke. He recalls that when he was much younger he drank Pepsi because it was less expensive.
8:11 AM: Buffett says Coca-Cola’s bottling franchise system around the world works very well and doesn’t need to be fixed. Pepsi’s Nooyi says she thinks the bottling franchise model works around the world when the category is growing. Buffett replies that sales are increasing for Coke around the world.
8:21 AM: Buffett says he knows that if he consumes more than 2500 calories a day, he will gain weight and if he consumes less than 2500 calories a day, he will lose weight. He wants to choose those 2500 calories.
8:25 AM: If he had to exchange all his U.S. dollars for another currency, which currency would he choose? Buffett says it might be the Swiss Franc. But he notes that Berkshire holds many assets valued in dollars and does not have any short positions betting against the dollar. Referring to both the dollar and the euro, Buffett says, “Both of those currencies, in terms of purchasing power, will decline over time” because both the U.S. and Europe are “following policies that will cause their currencies to lose value.”
8:28 AM: How many annual reports do you read a year? “A lot. I keep looking for a centerfold.”
8:29 AM: Becky puts Buffett on the spot, reading a viewer’s question asking Buffett to multiply two three-digit numbers. He declines but does demonstrate some mastery of numbers by doing another problem posed to him by Becky.
8:31 AM: Buffett also expresses some interest in China’s currency, although its not easily exchangeable. He thinks the Chinese economy will do well “as far as the eye can see.”
8:33 AM: Buffett says one should invest in companies he or she understands, and not just pick a stock because it is in an “emerging” market.
8:34 AM: Would you be fearful or greedy in today’s market? “I always start from a position of fear.” Takes special care not to lose a lot of money and never has had a “destructive” loss. “I always look at the downside of everything first.”
8:35 AM: Buffett repeats his belief that over the long-term, one should have money in stock instead of fixed-income investments.
8:36 AM: Uptick rule should have no effect on real long-term investors, although “on balance” he supports it. Short-selling is not investing.
8:38 AM: Buffett repeats his advice that one should buy a stock as if one were buying a small piece of a business at a good price, and not buying a price that goes up and down on a daily basis. Buy, and then forget it, he recommends.
8:41 AM: Railroads are “easier” than media, but there will still be a lot of money made in media in the future, just not by newspapers. Buffett says he doesn’t know how the media landscape will shake out in the future and so he’ll let “someone else” make money on it.
8:44 AM: Joe and Buffett joke about the name of Berkshire subsidiary Acme Brick. Joe suggests it comes from a Road Runner cartoon. Buffett replies that it is the best known brand of brick in the country, although people in New York might not know that.
8:50 AM: Asked about Charlie Munger’s recent parable about the economy headlined Basically, It’s Over, Buffett says Munger is more pessimistic than he is. When they disagree, Charlie will usually say that Buffett will come around because, “You’re smart and I’m right.” When they seriously disagree on a possible course of action, they usually don’t do it.
8:53 AM: Both trucking and railroads are shipping fewer goods right now because the economy has slowed down. They will eventually come back, but they are not “roaring” back.
8:55 AM: Do you watch the Olympics? Yes, but I like the summer Olympics more than the winter Olympics, although I now know a lot about curling than I did a month ago.
8:56 AM: Buffett says he hasn’t gone on any late-night talk shows, such as Jay Leno’s, and he “won’t” although he and Leno did talk about the possibility of talking on-air about old cars.
8:57 AM: Harder to figure out Citigroup’s earnings power than Wells Fargo’s earnings power.
8:58 AM: Would rather make money insuring cars in the future than figuring out which company is going to make them.
8:59 AM: The Squawkers thank Buffett for appearing on the program, and say goodbye.
All times are Eastern. Refresh for the latest update.
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