Watch CNBC's full interview with Warren Buffett, Charlie Munger and Bill GatesFeb 27, 2020
this was berkshire hathaway's 54th annual shareholder meeting and while shareholder meetings are notorious for being poorly attended they held their own and were downright boring this was anything but over 40,000 people attended here including business leaders like Activision Blizzard CEO Bobby Kotick, founder of Quicken Loans, Dan Gilbert and Spanx. founder Sara Blakely and for the first time Apple CEO Tim Cook Apple is now Berkshires largest shareholder and Berkshires third largest shareholder Apple We caught up with Cook this weekend and asked him what he thought about all this. I think it's amazing. I've never been to an annual meeting like this before, you know, I thought ours was lively, but there are over 40 thousand people here and I love the fact that Warren and Charlie answer all the questions and of course not just the wisdom they exude. but you can feel the integrity and humility coming through.
I think it's a great learning experience for me and for everyone. body in audience I'm sure Berkshire Chairman and CEO Warren Buffett will now join us and he warned what does it mean to you to have made it through this weekend? It is fun. I mean, see who he's working for and them. I see you when you interact with them and they come in kind of a Mardi Gras spirit. I would say that in the last 10 years, who is now maybe 40 years old, well, from out of town, not 40,000, but many from all over the world, I just never understand. a letter of complaint, I mean, I know someone misses planes or has a rental car that's not available or a hotel room, but they just come in the spirit of enjoying it and and and and people and all that so people go wrong with smiles on their faces I mean we have 600 of our own people would come from our various subsidiaries and work for a couple of days and it was anything but smiles on their faces well sadly we're not going to let you rest on your laurels this week because we have major news coming out this morning you see the markets are already down almost 500 points futures here for the Dow what do you think about the potential for trade tariffs to come back and what that could mean for commercial dogs?
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Well I can't. I can't gauge that both sides will play the game and there are always some people negotiating in different ways and if we do have a trade war it will be for everyone and it could be very bad depending on the extent of the war but there are times in negotiations where you talk tough the only thing you can't do is you can't shake your fist first and then shake your finger later i got it that's not a technique that works well so when you move on you don't know exactly what the results will be well you can't shake your fist first and then shake which finger next I get that I actually did it but hey that's what you're worried about if you get the other figure back and and and and you have to mean it backwards er a while, otherwise it obviously doesn't mean anything when you do that and you're measuring an answer from someone else who also has their own calculation and has their own internal political considerations s etc so it's a dangerous game no It doesn't mean it's a game you shouldn't play but it's a dangerous game you also negotiate a lot of deals would this be your tactic ok it's mine not at all, but but you know, talk about the Occidental deal later in the illustration, but but I've had a consistent way of negotiating and that has its advantages, although it also has its disadvantages, but I just say what I'll do and I don't do anything more so people really know what I mean and they can decide if what I've said is acceptable or not but they know I don't go through that in a game now there are a lot of people with acquisitions who really like to play games and there you were in his own business and it's his way of doing it and that's fine but it doesn't work with me and I don't want it I can't afford to waste the time on it I'm serious you know you don't know if you're ever going to get there and you passed weeks and months and it's just that it would be a g What a waste of time, we did it, you know, I don't know, this is a blessing that it comes from President Trump, although he has already put the tariffs in place and I don't know if I would take it lightly and think. that we're not going to see something on Friday, you can't, but if you're playing, you're playing the game, you have to solve it that way, I mean, if it's with some people in negotiations, the best technique is to act half crazy.
I mean knowing with your kids you can see how trading things works without you not shooting them so he really got the upper hand and that's what happens all the time and it's an interesting thing with the reputation industry we buy. a very large car dealership operation a few years ago and we didn't do pretty much our kind of win price day and probably 20 times since then people come out and say we want to do something and they just never found one that we could do from the same way. I mean it's just part of their lives to negotiate and it's part of my life. no deal so I want to bid high I'm sure you'll say and I take you mean that's how a lot of things happen but probably most trades and but it's nice that reputation of not doing it because it makes it a lot easier to save a lot of time well let's talk about what it would mean if tariffs on Chinese goods were increased to 25 percent from 10 percent on those two hundred
billion dollars worth of goods by the end of the week how important is that what would it mean for the companies in the Berkshires well it would mean a lot to the world it's not just the countries involved because they know they take the dollars they've received from us net and buy goods elsewhere I mean there, there, there are trade surpluses considerably less overall than their trade surplus with us so it all intersects in the world and depends on who retaliates with us or it s, and it is easier to start it than to stop it. and the effects would be huge it takes place on a large scale over time just imagine to Becky our Constitution was set up differently and states could set tariffs and Michigan will put a tariff on those cars and we would have wanted corn and that the degree to which trade would contract in this country, the plants located in the MIS, the migration of workers in the way that I want to say, it would be nice if it sounds ridiculous to talk about it because it's ridiculous, but there are countries where it would have similar effects if you get country after country after country because you can't just have it between two countries that did it right now the very fact that it's kind of a core auditory threat is what brings people to the table which means that many play the game but you don't want to have too many nuclear threats because one day someone may feel they have to comply with one obviously that's why global markets. are under pressure it's not just the Chinese markets that are down you saw the Korean kospi down about 3% the markets were down it was almost everywhere it affects everything so you're saying the reaction of markets is correct, it is not an ovary. it's rational and then we'll see what happens next, but obviously if you went to bed a week ago and thought there was a 1% chance of a trade war and then subsequent events make you think there's a 10% chance in the markets.
Think real quick, what would you put in terms of I mean you're an actuarial mind in terms of probabilities? Would you put it when you talk about two leaders of the two main economic powers in the world? That's not the kind of thing I can bet on. I mean, you were talking about two personalities who are very used to getting their way and and and and in politics and you're talking about how they're going to be perceived in their own country in terms of our behavior and it becomes very complicated. Yeah, there's no way you know how to predict that even though you've written insurance contracts on weirder things than this, yeah, what would you do?
What would you need to make sure there was a deal done at the end of this? cousin yeah this wouldn't be the kind of thing I would make sure of frankly because it's so impossible to know yeah yeah and I wouldn't have to have a hard time finding the risk precisely because if they lasted a month and then to get into the duration of how long it was, you know a lot of problems writing the contract and, but there are the kinds of things that aren't exactly identical, but it's an unusual risk, but this is a big one.
What will it mean for Berk? county companies specifically and I think on Friday we talked to Jim Weber who is the head of Brooks they have already moved and moved a lot of their operations to Vietnam because of this concern that they have been in the process of doing that since these business talks First of all, it's good that we've seen them in our wagon login or more all things that travel on the west coast. I meant everyone stocks up at once and it skews things just thinking about it. imagine the distortion if you get involved and then you can't really predict the speed or degree of the effect because it ripples, you can't do something between the US and China in a big way without it hitting all the major markets as they go giving you turn around and you're starting a game that you don't know the end of but you know it's not a good game I could say that it may be necessary to play another game to avoid that kind of thing I mean that's what mutual assured destruction do I mean? felt while mutually assured destruction no one would launch a missile and this is similar may be similar type of game a bit of chicken on it you say intermodal rail loads that were affected by that means you saw an increase in railcar loads of train months ago months ago because people were trying to get people to load up on inventory they thought you could say if you thought there's a middle 25%, I mean if you thought there was going to be a 25% tax on coke- cola next week i'd have my house
fullof coke bums guys get bused my house would be doing great everything and boom it all ends well that's a big worry i mean yeah we've been looking at this great economy and thinking things are wonderful but it was actually just pushing things forward and then you find yourself in a situation where it stalls does that worry you? well they're posting forward I think actually in the GDP numbers there was a big inventory adjustment and you know if you think the flow of something is going to stop or get more expensive and you need it you're going to load it up early, well , that will change their behavior somewhat when it comes to buying stocks or doing deals no we will buy the same stocks today where all last week i just won't tell you their names but what do you buy more if you drop them 5g where they get the more i buy but doesn't mean you don't think about the markets I couldn't go there I'm not buying because I think they'll expect it to be next day or next week yeah so it's something you're
watching very closely yeah oh yeah but we
watchthe prices of things we do more than current. events because in the end we're not buying them because what's going to happen next month third in that next quarter you know we're really buying them because we think they'll be good deals ten years from now if someone comes to us with a good deal today we would buy it and we buy it regardless of what is going on in the kind of situation we might have this is the case but you are more likely to get something when other people are scared and you see it largely instantly in a market that knows in the business market it's but it's still there with people's minds welcome back everyone we're here and the news is breaking there's just one SEC filing that came out of Crabb Tynes which is obviously a big Berkshire Hathaway Holding Craft Ein says it will restate earnings for 2016 and 2017 due to misstatements in original filings, however it does not believe the Minh SAR error will which they quantitatively call material for any individual reporting period, says the impact on adjusted earnings is expected to be less than 2% for each year craft ein says it has now completed research showing that various employees in its purchasing operation they engaged in misconduct, but none of them were members of senior management, our guest today again is Warren Buffett, he's the chairman of Berkshire Hathaway, and he owns a significant chunk of Kraft Heinz and Warren, what do you make of this?
This news just came in as we're sitting here, well that's pretty much what I've heard. I'm not on the board. more but but very capable and crazy a little bit cooler so I've heard from them and this is an update I heard last night that and they can't issue the first quarter reports until the 10k is filed and they can't file with 10k until Price Waterhouse approves it and that will apparently take a few years to reformulate and we were unable to report any earnings from Kraft Heinz in the first quarter because if we get a dividend fromBank of America, that dividend goes to earnings, but because we own over 20% of Kraft Heinz, we don't report dividends, we report earnings, so we got about a hundred and thirty million dividend in the first quarter, but we didn't we reported that and expected to get the earnings before issuing our own report, but when it came time for our report and we had nothing, we just put a zero in there. and I explained that in our release last Saturday and it's just one more indication of the facts as they now stand at some point Price Waterhouse Oh we'll have to be happy with the numbers being reported which obviously involve Restatement and at that point my guess that the quarterly numbers have become quite current and we're still collecting our share of the profits.
I mean it's been a long period of showdown between PwC and the company if they didn't meet all the deadlines to send you the numbers at that point which we didn't expect , I thought we would have the earrings in time and Kraft announced last year's earnings, but their auditors hadn't approved it, so even though they released it publicly, they couldn't file the wi 10k Subsequently, the SEC is not unusual for companies announce earnings before they've actually gotten approved, but in any case, you know we thought we'd get them this week a or next week, whatever, and then last Saturday.
It came along and that's our time to put out the quarterly earnings, we didn't have it so we didn't put anything in there and a footnote and we also put out our press release that we just didn't have the numbers if they're restating their earnings. it means Berkshire Hathaway will also have to restate its earnings. Bad Annelle, she'd be surly material for when she takes just our part or a much bigger company, so I don't know exactly what we'll do when we get there if she walks in. the second quarter I don't know if we collect two quarters in one quarter or exactly how it works they said this is what they have concluded this investigation are you satisfied with what you have heard from that part of the investigation or do you know What I don't know about that I know because I've been aware of some of the things that I don't hear and on calls from directors or something, but Gregg tells me what's the stop. points of what or the low points of what happened and we have a great boss from the car company jack is an independent director he knows this kind of thing and he and he and he and he has put hours into it and that's why i feel very good about the fact that jacket is really in charge of things from the directors point of view the company has their trust the company has my competition you had talked about it over the weekend where you said that what you paid for the craft was too much in hindsight not exactly what you paid for Heinz that's right we just want Heinz would that be a better investment? we pay it but in a situation where you determine that you have now paid too much what do you do? paid too much for stocks paid too much for a lot of things timing usually works but means capital could have been better deployed elsewhere in other areas you can always pay too much for a business and i've done it with stocks many times i've done it with businesses that we have we have in Berkshire we have at least half a dozen businesses and I can't even use a we I have to say I paid and if we do the next ten deals we do then there will be a couple of worlds or not I paid to leave you Warren there were others news the wire crossing last night and another deal that you are involved in that would be backing Occidental and it has been trying to take over Anadarko who is also in talks with Chevron which also has a little bit of interest last night Occidental issued its own statement and he said he's going to revise his proposal now he's talking about a deal still seventy-six dollars per share offer but seven-eight per one hundred cash and twenty two percent stock by increasing that portion of cash allows for what they call significant immediate value higher closing starting an improved build because with this they no longer have to ask their shareholders for permission on this what are your thoughts about where the deal is still on and the latest updates yeah i got a call yesterday after a night out for the first time.
I spoke to Occidental, actually, since we can go yesterday Sunday and they told me that they were going in this direction, which I like but I have nothing to do with I mean we committed 10
billion and it had nothing to do with if how they framed their offer how much they offered or whatever else all they knew was that they were sure they could get ten billion dollars from us if they completed the deal without article one of the excerpts from the letter that Vicki Holub, president and CEO of Occidental, she sent in her letter back to Anadarko I was a bit surprised with how it still seems like this is a hostile offer, it doesn't seem like good faith talks are taking place between them based on her letters, she said this, We remain perplexed by your apparent reluctance to get much more shareholder value from Anadarko, which has been clearly expressed through our interactions over the last week, it seems to me that e is still a hostile offer which I understand well and keep in mind the first thing I heard about this was that we can go on Friday said Brian White who had called us the people at Occidental like to talk to you and I talked to them on Sunday a week ago yesterday I understand Anadarko and Occidental had talked a lot before about Chevron's bed and we are talking about a transaction and then Chevron made an offer that Anadarko accepted but Anadarko was for sale I mean them , and so it ended, he had talks about something in himself for Occidental, as I understand it, about which they were talking maybe.
If they were talking to more than two parties to the case, I wouldn't know, but they decided they were willing to sell, I'm sure, subject to price obviously, and they accepted that offer and Occidental felt they had a better offer. and apparently that's where things go but i don't know part of the details part of the idea behind it had been that Occidental could get approval from its shareholders because its actions were under pressure some of the shareholders obviously didn't like it the deal using their cash instead of issuing as many shares as they had originally anticipated which will save them having to go to their shareholders for permission for this and as they say in their own level letter that certainly increases the certainty that this deal will go through out and removes some of that uncertainty. polish the Permian Basin because they have such a significant portion of their assets there so the idea that they will reduce using fewer shares and more cash as part of the deal although they will get the cash from us but I think net if it had been owner at Occidental over time, I would probably like that kind of treatment like at Berkshire.
I hate their stock so generally speaking if some company we own is buying something we like it better when they buy it with cash than they use stock because we like their stock so I'll see what the reaction is to this but I'm I imagine it had been a stock offering to begin with. but i think share your shareholders would like the change Andrews got a question from beckon studio to Andrew hey Warren I was curious if he was surprised Anadarko hadn't committed to Occidental on this at this price and Also if there was a price which you would think Anadarko would prefer that Occidental shouldn't pay, I mean, if Chevron were to go back there, you know, five times the size of the oxen, I think 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 stock ultimately is there a price at which you wouldn't view this favorably?
Well we have committed the 100% ten billion dollars but we don't have no control nor did we want any control over what Occidental did with our 10 billion in terms of read there is nothing in our deal that states that they have to come back to us and request permission to do anything, that's a remarkable deal, but that's the way we do them and in that sense and they get our ten billion if and when they close the deal without a bow and and they don't have to consult us that they certainly do not need our vote they do not t was a matter of courtesy I came to ca I told them yesterday, but it was not a matter of necessity on their part.
That's one of the advantages of dealing with Berkshire. I mean we can do things other people don't like to do where their lawyers don't like us to do and this is not a deal but our lawyers would have written if this deal is a bet on the Permian Basin and oil prices or is it just a bet on it's great to have eight percent preferred ok I'm Gregg but a preferred percentage on any oil is about your bet on oil prices long term more than anything else it's a bet too from the fact that the Permian Basin is what it appears 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 Wildcat Rover, that Oil goes down a lot, it doesn't solve that with almost nothing and if it went up a lot, it makes you make a lot of money and edit is not what you do next week or next month or next year you are buying reserves that go very far in the future, so you have to have a view of oil over time and Edie Charlie and I have some opinions on that, not very specific because they're not that well informed, but that's us. feel good about doing the financing, why not buy it yourself?
It's just a thirty-five billion dollar deal and he's got 110 billion and cash sitting around, well that could have happened if an arc husband but we would. I didn't get into another deal that we just found out about from someone who came to us and looked for financing. No, we expect people to approach business. Brian Moynihan's call, well, I'd read about the deal in the paper, but I've never had any non-R: contact of any kind. David Faber reported last week that he had said he would offer up to double $20 billion. the 10 billion dollars that you made on this deal is not In case they needed it, but I think what I mean is that they have a deal, obviously, with Bank of America that called us.
I don't know anything about that deal. a different kind of thing but what am I to some except with that as I would also be very happy if someone calls tomorrow and needs 20 billion. Occidental only needed the 10 billion, okay, but you like to do these deals at a bigger price. sizes not smaller sizes exactly back to Andrews point this is there forever no matter if the bids go up no matter what happens along the way your 10 billion dollars is in this deal no matter what what happens, yes, lawyers no. We don't write deals like this, but we tell you that there is no material adverse change.
There is no if the stock market closes, but steel closes. outs on it and but that's part of th The appeal of doing business with Berkshire and also we do it all ourselves so it's not something that gets spread out among ten parties and each one comes in and has to get their permission to do changes and all that when they arrived. my office at ten o'clock on sunday we did it sunday they knew if we agreed what we did at eleven o'clock they knew berkshire was an honor percentage and now they had their own board meeting the next night but they could tell your board will get ten billion dollars from berkshire one reveals you don't need to think about that obviously a lot of stocks are under some pressure from what they were seeing from these chinese trade talks what are the implications of all of that stock that in a stock that is Apple stock under pressure today if you want to see the chart closed Friday at two eleven seventy five this morning the bids at 204 ninety one the ask is at 205 ten and that's because because China has been such a component important to Apple, Tim Cook spoke in the latest earnings call last week about how things seem to be looking up there.
Tim Cook also traveled to Omaha this weekend. He was here for the Berkshire Hathaway annual meeting. It is his first time coming. here, but for Berkshire, Apple is now the biggest investment that they have in their stock portfolio, it's also Berkshires the third-biggest investor in Apple stock, so when we sat down with Tim Cook this weekend, I had a chance to ask him that I though. and how he found out that Berkshire was buying Apple stock for the first time Listening I probably found out how you did it, what's the 13f coming up and somebody tell me about it and oh this is really cool.
Buffett is investing in Apple, you know, us, all shareholders welcome, but we run the company for the long term, so the fact that we have the ultimate long-term investor in the stock is amazing because our intereststhey're aligned and then yeah I knew Warren before that but we had no idea we were seeing the company do all of that obviously in secret and they have their own method of doing it and it's been a privilege and I'm so happy that they've accumulated what it happened when you found out there was talk in the office was there any high-fives or was it an oh boy now what seemed like a seemed like recognition in a way and in a like an honor and a privilege and i don't want to say it was a light hearted way , I mean wow it's more on Buffett not investing in the company and yeah and I think it felt great to the whole company because we knew he didn't he's been very clear he didn't invest in tech companies and companies he didn't understand which is he's been totally clear with that and he obviously sees Apple as a consumer company and in a different way I think that's that's that's really special to Warren what did you think when you heard this because when I told you we were going to say you how he found out you said oh well i'd like to hear the story r and you've never talked to him about it and it's not about it specifically i don't know him a bit over the years i've seen him maybe at least once a year and maybe twice a year and I've talked to him on the phone several times and Salmon Ladder.
I sent you a Martin Luther King speech a few years ago that was lost to history, it was fantastic and I thought you would enjoy it, but no, I didn't. I didn't call him. While we were shopping, I try to stay as quiet as possible. What I would buy anything in China, although it is a big problem for Apple. That's why stocks came under pressure earlier this year. how did you think that china the situation there was improving what does this news today mean to you well the important thing is really what is the relationship with china three years five years ten years twenty years from now by this I mean all of this comes into play and it's certainly hard for me to imagine that the two of the most important countries in the world would do foolish things for a long period of time, but you could say that there's always the possibility that you have miscalculations or egos or national pride or whatever and let things escalate.
I don't think that's going to happen I know it shouldn't happen I think it's a bit likely but but that would be bad would be bad for everything that Brooks owns I mean it's not an Apple thing or it has a very negative effect on our economy or in world economies and there are chain reactions of the kind of thing so I don't think it'll happen but I don't think it's a zero you'd probably say it would be bad for pretty much every company that Berkshire owns but apples are in a Pretty unique position because it's so front and center because it's already become a potential target for some of these things.
Do you think Apple is at special risk or not? of our electricity c utility in Iowa is going down we would have a very small effect relative to the 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 reckless it's like have a have a nuclear war you don't mean ha ha ha you know if you're in Canada because we're not attacking America or something it's impossible to contain it if you have two superpowers and in trade and by the and and and you can't exactly predict how it spreads Apple shares are down three percent this morning.
I'm just looking at a graph. t put a penny i love it you know and obviously its better to buy it in excellent 2x they have said they will buy they have reauthorized up to seventy five billion dollars worth of additional stock your well you ain't for it i should say wildly i'm for it , we're going to talk a little bit more about stock buybacks not just with Apple but more broadly because it's a question that came up quite often this weekend at the annual meeting that buybacks may be the dumbest thing ever. world or the smartest thing I've ever seen. both but they're just buybacks by the company or just like buys from us they're dumb at one price and they're smarter at another price and I like it when companies like it when we invest in companies where they understand that a lot of companies just buy back and buy back , they know it's the right thing to do and some shareholders and their brokers encourage them to do it and they buy back, it can be done, they can be smart at Apple, they've been smart, warm, we talked at the top of the last hour about what what the China tariffs potentially mean for business and what they mean for Berkshire but you're seeing the markets down almost 500 points this morning and for people who are just waking up and just trying to fi Find out what this means for them for their portfolios for their businesses today.
I'm sure you have some questions. What? What? What can you tell them? the Dow Well, I'm saying that if you own a farm and you're worried about something on your farm because you read the paper this morning or you have a perfectly decent business in your town and you're worried about something that you think you should be worried about. about selling your business today because then you should think about worrying about thinking about selling stocks but if you look at stocks as businesses as you own little pieces of why in the world you should be solid based on headlines of whatever kind I want say if you expect a business if you expect the farm to be a good investment for ten years if you expect an apartment building to be a good investment for ten years and if you want a marketable security that is an interest in the business and you expect what business to be a good business for ten years its silly to feel 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 cheaper like you can buy the farm right next door cheaper you would love it if you were a farmer you know its usually an analogy i understand and agree with but this time on a farm In particular, I would be quite worried if I were the farmer trying to figure out if I should plant soybeans or if I think I'm going to be able to make enough money to get things back this time the tariffs have hit farmers particularly hard and many of they have said that they are behind the president wants us to get to a better situation but many of them are also in a position where they have already been asked to give a lot they thought we were about to come to an agreement and hope that when they're making decisions for this plant g season they have some players well it's true that the overall business has improved markets and scheduling and the farmer hasn't been involved in that so it's been a very good economy for a long time I want say we've been going back for eight or nine years and companies have kept getting better, interest rates have been low for companies, stocks they've gone up and the farmer hasn't participated in the same way, so maybe I shouldn't have used that example, but if you have a decent business, I mean you buy into a business, you don't buy a stock that moves around you, you know it and people get it but then they act like it's bad news when the deal the price goes down, if you had half an interest in a wonderful deal and the person the whole other half went in and they were depressed by these headlines today and it's also much cheaper than yesterday because I think all this is going to end the world. if you were proud of being cheaper you know the business will be here in five years and in ten years and all the headlines you don't know what the world will be like in three years or five years or ten years what you do know is that America is going to grow over time and business will do well overall and if you have decent business you will make money that's a great long term outlook but short 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'll be able to pay for some items or figure out how the vendor relationship is going to work out at this point could be an impact and quite that's fairly new terms they're owned subsidiaries obviously where they thought rates could be increased they've loaded more into inventory I mean you make business decisions but you don't make a decision on whether to buy or sell the business if you have a good business and you got it if you're going to own the business for ten years you're going to see a lot of terrible headlines you know i bought my first business in 1942 no you don't realize i did it but imagine all those headlines at that time in the world you know what The Philippines was going down I mean we were losing the war and America is going down the new kids will look better than you and your grandkids. but better than them and generally speaking earning assets will be worth more in this country and if you own a diversified pool of earning assets you will do well as long as you don't read the papers though he said an hour ago that the sell off when the dow it fell about 500 points it was not improper liquidation it was not exaggerated at the time if we really go into raising tariffs ok India it may not be improper I mean daily or weekly but you shouldn't I have no idea how to buy and Sell shares for a day, a week or a month.
I know how to buy businesses over a long period of time. If you see lower prices today, would that mean you would buy more shares than you could have last week? Yes, someone else would reach levels that they could have been below. I like I like buying a business you know if I could buy this hotel we're at and they drop the price that's good or bad news for me if I like buying hotels but the bottom line is some people get it. no, but when you're buying a stock, you want, you're buying something, it's moving or you're on a chart, you've got a price target, you're buying part of a deal, if you're right about the deal, you know that crazy price. you may be right about the stock, as long as you don't do silly things yourself over the weekend, he got a lot of questions p about buying back shares, people were asking specifically about Berkshire, why don't you buy back more Berkshire shares, especially when you have a hundred and ten billion dollars in cash on hand?
What is your answer? we think that the shareholder the next day is or let's say is richer after we buy the shares, in other words we buy them for a little less or maybe a lot less, but at least a little less than it's actually worth and not we do. We didn't set out to buy a given amount we set out to buy stocks at prices below safe intrinsic value now safe intrinsic value isn't something that's down to the penny or it's probably a 10% band or something like that and my partner Charlie Munger, if you were to ask us to give you a paper with intrinsic value per share, it wouldn't be the same number, but it would be close and we'd both have the band or something like that if you're buying both in the figure you know if I'm we have a dollar and I will you sell yeah and we put it on the table and you can't reach it for a while you say well I can't reach it too it's my share for ninety-five cents I'll give you a ninety-five cents you know it's $1 yeah guys so no It's complicated, maybe it's beyond my ability to discover the intrinsic value of certain types of businesses, but with Berkshire I have a reasonable idea and I tried to give the shareholders the same information that I consider important to the calculate that now you can change presumably who wanted to change up over time because we held and said we should drive more value but that's the thing, first of all you have to have the cash you need.
I need to run the business I mean it's Steve Jobs called me once I mean he called me I don't know how many years ago but I even think he was thinking of buying back shares and I said Steven there are only two questions I said you know a you have the whole business all the money you don't need to develop the type of business you have in mind for the next five or ten years and all it says is we have a lot of money and then I said the second question is if your stock is selling for less than it's worth and he said it's Allianz and for much less than it's worth and I said well you answered your own question and bottle feeding answered we need we need the money we have here to
fully develop our business and we've had opportunities to do so forget about that you know build the new planets and do that maybe the cash will come later where you can buy stuff and secondly if you said stock isn't real mind cheap, what is the reason to buy them? after that, he bought back shares he didn't like.
I think he expected me to give him a different answer, but I think he maybe he expected a different answer. It's interesting that he says that because Tim Cook is the current CEO of Apple was here this weekend and we also had a chance to ask him about stock buybacks because stock buybacks have been a big deal for Apple, they've invested so much cash and they just announced last week in earnings thatthey would buy back an additional 75 billion dollars worth of Apple shares or at least have authorized the buyback of that amount again, we sat down with Tim Cook this weekend and this is what he had to say about it to hear in Warren, This is a The funny story of debt dates back to 2012.
I was in the CEO role, maybe a year or so, we had a growing amount of cash. I think we just cost 100 billion. lots of input from lots of different people as you can guess and when I'm inexperienced in something I always make a list of people who I think are the smartest people I can contact to talk to and get advice and Warren was in top of the list as can be. Imagine I've never met Warren before, so I get his number. I call Omaha and say I wasn't sure you would answer a call. and he took the call and I had a great conversation with him and that was the first time I met Warren and he was very clear to me.
I still remember him saying go let me cut it if you think the stock is undervalued you should buy their stock and I thought that was the simplest way of looking at it so here's what we do: first and foremost we take care of our people and take care to the company in the future of the company and we've been investing a ton both in this country and in some other countries we're going to spend three hundred and fifty billion dollars in the United States and build their sites and we just found a new expansion in Austin , so all of that is number one fine and then if we have money left over we look to see what else we do part of what else th Yes, he said it's to make acquisitions and what I didn't realize is that he said they are making an acquisition every week or two, they make a lot of little ones, like you said, they've made twenty to thirty acquisitions in the last six months. little acquisitions that they don't really talk about and don't tell people things about, yeah, you knew if you look at the 10-q and you know you can see, but they do a lot of acquisitions, yeah, and it's like that.
I expect Berkshire to make a lot of acquisitions, and I'd rather buy a hot business than buy our own shares at their intrinsic market value if our shares are well below that. I still have this strength and I can do both fortunately, but why can an executive pay to say that we are going to spend ten billion dollars buying shares and then not pay attention to the price at which they buy them? They wouldn't buy any other business that way and so we're trading sensibly in it on the other hand when the price is right there's no easier way to make money for your shareholders you say you like Apple to buy stock again so you think the price is right there well they've done a terrific job they've done a terrific job they've made their shareholders that much richer because kim has done it aggressively when the price was right what do i mean how Do you know in hindsight if you know and how can you know when a company is doing a poor job of buying back and if you have to be able to figure out how to value these guys? correct is easier than what you say about the dress the truth is that if you look back and I was a director of the company but coca-cola kept buying back their shares at a time when it did not make sense if you look at it in the previous years, They just had a great idea to buy back a future company that just had a market value of less than ten billion and they bought a lot of stock and they were aggressive about it and but I fell in love with the idea and I was a director at the time and but they are one of many i mean the same thing happened you will add every eight it's interesting sometimes it's hard for CEOs to be objective about their own stock price and they think this but think the more you sell the better you know and that's good way to feel example if you are buying back and bought at sky high prices when coca cola was buying back stock and it turned out to be too high of a price and you are a director did you know Since he had a pretty good idea at the time, why didn't he say something right?
I may have made some comments, but the management had done a sensational job. I mean that's one of the reasons it got so high they did a great job there they made me a lot of money and if you burp too often at the dinner table you don't get invited to parties anymore which is the difficulty i think with probably anyone is just that you don't get to be a director if you look maybe you're an activ or something but yeah people don't like you to talk and some ceos like it a lot less than others. from 12 1 you have to leave at 12 to catch your plane explain six hours later that it is interesting that the boards are handled in different ways have you known that each board you have been on has been handled well and which one is not well and aged well in some respects and they can be financially foolish.
I mean, you have some assistant managers who really have a sense of money and then you have others who are very good managers, but they're not good. I always love it when I listened to management, you know, and I asked the guy what he was doing with his own money and he said, well, there's no way you know about yourself, like stocks and everything, I handed that over to someone else. person and then he goes out and makes five billion. dollar acquisition or something is not really i don't want to think about just buying a lot of stocks some are good at some art that is true of our managers we have great managers some of them are good at bold acquisitions and some of them would be terrible. you let the ones who would be terrible at it go ahead and do it at a time very often some of them don't have great operational sense they don't exactly have money sense you know you talk to a lot of managers CEOs and they don't want to manage their own portfolio of stocks well those are those are decisions and those are capital allocation decisions and they know a lot about them they know a lot about business and they know how to value things that you would think I would be a good investor but I used one that I thought was a great partner and when I ran a previous ship a long, long time ago, he had stock options and he regularly worked out and took the money and bought Berkshire. actually you know it's unique to have someone who either understands both the operations and the money side of some who really understand and I think I would say Tim Cook for example does X-rays has a real understanding I mean he has, has a minor operative knee and someone in mind.
Also, what about Greg's capable energy? I asked because you know Berkshires 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, yeah, can someone do both? they have extreme economic aspects, but I don't want to be scared. I understand that I can't help but try. Welcome back to Squawk Box. President Trump tweeted the United States a few minutes ago, but he has been losing between 600 and 800 billion dollars a year for many years. we trade now with China we lose 500 billion dollars sorry we're not going to do that anymore take a quick look at the futures they continue to be down close to 500 points 471 Point 472 Nasdaq down 161 that's a low P 50 I guess Becky if I had to ask a question in Warren, it would just be that these trade deficit numbers, you know, we get stuck and talk about whether it's good or bad or how to fix it and it's a symptom of what it really is a symptom rather than a cause. of what What happens with China?
I was just wondering Warren, you've done very well over the years with the status quo with the way the United States approaches China and China trade. Berkshires very good. We have all done very well. It didn't take on China at all and we're just not addressing any of these long-term issues with IP or you know, take your pick which issue we're trying to solve, but I wish I'd have just left it alone and left it alone. Berkshire does business the way it has been doing it or believes there is any reason to confront China China in the United States for the next hundred years.
I can tell you two facts about it: there will be two superpowers in the world and us. I'll always have a few dozen ions with them and it may well be about intellectual property it certainly has had in the last 20 years or it's about 30 years and it's going to be about trade, it's going to be about policies that they're doing in terms of their neighbors or we're doing there's no way you're going to have to come to such dominant countries in the world without them having unless you just don't know there's going to be tensions there's going to be negotiations and sometimes we'll both walk away thinking we've lost but it's inevitable so me and how do you play the game if you are negotiating with some people who are tough negotiators on the other side. you're doing with work you know nobody really wants to go on strike it's bad for both parties but sometimes things play out at that point so i think you should get used to the fact that if you're a young person you're going You're going to see a lot of different tensions about you me and a little bit about the people involved and about the details of the situation, but every time we sit down, you know it's not going to be like a garden party.
Like they lose, are there times when both parties can walk away and feel like they're winning because that's usually the sign of success? You want both parties to feel that they want to be and you know that the idea of a negotiation is to take something that you have that the other person needs and and and in a sense trade that for something that they have that you need and it's going to be constant and and and there will be moments where it's going to be tense it's just the nature of things you have that, yeah, a very different level when you're negotiating nuclear arms reductions or something like that, I mean, we know it's in the interest of reducing nuclear stockpiles and all that, but that doesn't mean it's easy and and you you you try to come to agreements that are good for both parties but that's not always easy I mean I try to think about that in this scenario and it can be particularly different and difficult in this scenario because for a long time we've been dealing with China like it's not yet a superpower like it still is, and because of that we've been giving them better aspects of the deals, it's very difficult to suddenly say that we are taking any of that back.
What do they gain from this deal when we are trying to change a negotiation that we believe has been unfair to this? Well, it's hard for us to accept the fact, the hardest thing for us is to accept the fact after World War II that that the Soviet Union was a superpower in terms of military power and there was, I mean, as you know, obviously, there's all kinds of tensions involved in that and in the negotiations, and it is still a concern that we have that we have the two largest nuclear reserves in the world. and you worry in terms of mistakes that are being made.
I mean it's a great game and with China it's overwhelmingly an economic game and it's an economic game that we didn't think we'd be in 40 or 50 years ago. I mean the Chinese, their economic boom has been extraordinary and they do some things that we don't like in relation to that and sometimes you have to be tough to make changes and we do some things that they don't like but it's a reality now and it's going to be a bigger reality as the years go by and it's very easy to become a big political issue. I mean there will be people fanning the flames for their own personal interest in politics or their own personal interest in business. -to-navigate but but leadership has that's leadership's job is to take on major issues having said the economy has held up very well in the face of the stresses we've seen up to this point incredibly strong jobs report Friday the Last GDP report was also very strong, so you can't stop America, although you can't stop China either, but you can't stop America.
I mean we're fine. We live as a country. You know, it's extraordinary what we have compared to 30 or 40 years ago. difficult in agriculture because we become more productive all the time and that tends to depress prices but this country is going to move on I mean there's no question about it but China is going a little bit forward and the way to try to do it it's to do it that maximizes what both companies the countries can do well and and and and more trade is better but trade in specific industries can hurt specific industries here and that's a big problem that the president the heads of both countries have to be the educators in boss and they have to explain why trade is good for the population as a whole and can be terrible for people in certain industries and that a rich country cares for those people who get run over in the process of producing over our lifetime for 330 million Americans a lot of people on Wall Street are not going to be so optimistic about this news today I've been reading some reports last night Goldman Sachs saying that this is not just rapidly increases the chances that we will not reach a trade deal withChina, but also increasing the odds that Trump will announce that he will withdraw from NAFTA or impose auto tariffs on European imports, what do you think of that and what would that mean?
It is the problem of escalation and in everything we have, the problem of that was with nuclear weapons. I mean escalating and becoming more and more dangerous as people feel more and more threatened and their own local political situation demands more. and more action, I mean, that's the dynamic you face every time you get to these major cross-country issues and that requires the wisdom of the leaders, but to some extent it requires is the wisdom of the people, I mean and then and how leaders conveyed people and how they behave but this kind of thing will happen it obviously happened and we would occasionally turn into wars in the past we can't do that anymore in the nuclear world you can't get to that point and in the same person notices, but you don't want, you don't want to get too close to that tinderbox, we MCA aka brand new.
NAFTA, that agreement is available, but now I think Pelosi is saying that they will not take it to a vote at this time. What do you favor about the new knife to get it right? I was in favor of the original. we're very, very lucky to have Canada and Mexico bordering us, I mean that, and then oceans on the other side, I mean it's geographically, it's a very attractive position compared to our countries that are situated all over the world and we have many , many, many of common interests and and we are the big guys in the game and there's the big guy in the game we should be doing more than our fair share to make sure our neighbors grow and prosper at a rate that is consistent with ours not does not mean that they are equal, but when we live better they live better and trade with Mexico and Canada enormously important that we treat them as neighbors and not as adversaries we live in Omaha where we have been talking for the last hour and a half plus with Warren Buffett who is the Berkshire Hathaway Chairman and CEO Right now we are joined by Charlie Munger, who is the Vice Chairman of Berkshire Hathaway, he is also the Chairman President of Good Samaritan Hospital in Los Angeles, President of The Daily Journal and is on the board of directors of Costco and Charlie, thank you very much. for being here with us this morning, I'm glad to be here, it's great to see you, we're coming off the annual meeting of shareholders and obviously we're going to talk to you about the news of the day, but first I'd like to take a chance while I have you you two here together just to talk a little bit about what your partnership has meant to each other how many years you haven't been partners with Charlie I met him in 1959 and we instantly became partners in thought and then over the years Over the years, we've developed all these financial relationships, but I knew right away, Charlie, that we were going to be in sync and last a lot longer than I thought we would, but yeah, but we've had amazing fun. together we've done all sorts of things some work some haven't worked and we've never had an argument we disagree on things sometimes but we've never had an argument and you never question me I try not to question it.
It's a great relationship. Charlie, 60 years old. Did you know at that first meeting that you would have a partnership? Well, I knew we were on the same page, but it's been very lucky that a small company has grown into a big one like it did, hasn't it? We've had the run we've had how it is I think we're very talented and all that but we've also had a good luck tailwind how it is in terms of how you all use each other as sounding boards how does that work here yeah they'll collaborate in their own way they're better off Einstein couldn't do what he did if he didn't have multiple people to talk to it's more fun - yes ideas are better on the net but it's also more fun and when we disagree Charlie says you'll break up agreeing with me because you're smart and I'm right you're both pretty they both act pretty one-sided though they both do their own thing and then it comes to each other factor he knows what I'm thinking I know what he's thinking and any of us would anything we really think the others oppose us we might feel that with a little something - no, but we're in sync, come on talk about a deal we made you recently in the west right where you agreed to back them you cut that deal and then you call
charliebut you already knew what he was thinking i didn't want to wake him up doctors on shore i thought it wasn't very verified yes or i knew he would be on that deal how did you know it's?
How do you know so much about each other and how do you think well of the Western in my part of the world and of course I have followed to some extent the developments which are interesting and what do you make of the accidental deal? why you like it I like it why I think it has potential because well because I think Occidental is right to want to do it to buy in the Permian Basin for more assets I absolutely have a lot of I don't like the desert just for its own good Le I asked Warren this earlier today if it's a great deal in the Permian Basin it's a great deal why didn't you shop at a Darko no one asked us to that might sound weird but who knows if they would come to us you know we do We usually wait until people come to us, so it's not like we want to buy in the field, then necessarily, you know, we start marking and flying and everything that Westerner knows a lot about the basin and us No.
I actually like having someone with us who knows something about it yeah one word Salomon we had something called Anglo-American that some promotional operation but there's no person selling it anyway but there was something but no it was nor was it either and Switzerland actually Angle Swiss and they came to the directors and they had this big plan to drill in Russia and we were going to put a lot of money and send it to Siberia and hope we get the oil back and Charlie said they know who is Anglo and who he is swiss he was Swiss and of course none of these people were, I mean so they were lying on behalf of the company and I didn't explain to myself so what was a Salomon board?
Charlie pointed out and sent a lot of money to Siberia and they got a little vial of oil the guy came to see me once after I became president he showed me this magnificent you know exactly the kind of oil they wanted that's the only oil they they saw weavers and it was producing 50,000 barrels a day towards the end they just kept turning it off and yeah go Swiss Anglo Swiss no the fishermen are not Swiss just wise to the end let me ask you about Occidental and steel in particular if you like the Permian Basin, but you both have also commented on times where you think you've paid too much in the past there's a number you'd reach that you'd think well this is paying too much for the Permian Basin to Charlotte of course all the time we always think that way way yes but it's nowhere near that price they're paying right now yes we don't know we don't know it may be bottom dollar all we know is we're s willing to do it, both of them have made some comments to us about it recently that they think The prices are too high in terms of what you have to pay for a The premium for buying a company outright is because there is more competition to buy companies from individuals who use other people's money and are therefore less price sensitive and are willing to borrow a lot more and are offered the ability to borrow a lot more with less than the form of covenants, competition is it lasts and makes it part of the positive side and none of the idea of not having anything on the negative side.
I think they make money off the downside, yeah, so that's some really terrible competition. for us it gets worse every year that's why you're sitting on a lot of cash right now part of the residue on the other hand you know I'd rather have a lot of common stocks than bonds and of course that's what I think stocks are they compare to bonds and you have to compare them they're the old lady we've talked about about bond yields and the fact is that gravity and when they're very low there's very little increasing gravity to bring stocks down and that condition that exists today, you know weed is much more good in America, America's business, then you get 3% for 30 years from the government and people were making those decisions all the time in the investment world than making them stocks actually in many cases seemed like perfectly smart investments
charlieyou agree with that of course let's talk about some of the initial public offerings that have been coming on the market recently Because there's been a bit of a fervor, a lot of these initial public offerings have done very well, although not all of Lyft's stock is under pressure. to the market this week and Warren you mentioned this weekend and you talked once again about how you had looked at uber about 18 months ago and you conveyed that.
What do you think about the arrival on the market of new burrs now? I don't want to discuss that, right. I don't have any special feelings about it than anyone else who comes to Martin, but I would say that in 54 years, well, I don't think Berkshire has ever bought a delicious. ean the idea of saying that the best place in the world I can put my money is something where all the sales incentives are there the commissions are higher you know that animal spirits are increasing that is going to be better than a thousand other things that I can buy where there's no similar sales enthusiasm and desire to close the deal and extra commissions that that's the best thing to buy on any given day I mean it is and I can't think the time we've done bought an idea yeah never good, but what could be the best thing to use your money on any given day?
Is it something you have? They've got everybody pushing, you know. I'm not saying that what we're buying is necessarily going to work better, but there always has to be better things than a single problem if you make a decision about investing if you can't find something among all the options we see that is better than something that and as I say you know the commission used i went down i think now on this but i mean the highest commission a stock seller gets on the stock was the new issue so yeah all this momentum why we don't like to buy things?
We're nobody making a dime selling them Charlie specifically on some of these companies and I'm not going to talk about uber versus any of the others but a lot of these companies are coming very late in the cycle that they've had a lot of private capital that's been put to work up to this point and they still have massive losses and need for more capital which is even worse some of them have preference for every round so the rounds are really fair rounds there's a lot of lies and modern finance so you're not in favor of any of these big dollar lies what do you think of these?
I ask this because we have a lot of retail investors watching and looking at this and feeling that the emotion behind it was about $5. whatever you buy a stock let's say his bike and General Motors 1.4 billion shares I'll say the stock is a little below what you should be able to pull out a one page piece of paper and say I'm buying the General Motors company which is $56 billion because and if you can't answer that question, if you can't write that, then move on and if you're buying Berkshire, you have to say I'm buying Berkshire Hathaway for $500 billion because what if the answer it's not something you can write you can't say i'm buying it because my neighbor thinks he has to go up or because you know everyone is talking on CNBC this morning or whatever ya like to turn around yeah no yes, yes, yes, that's the question you answer now when you shop, you know, you shop for groceries, you shop for everything else, you can answer that question, but if you can't answer it on something that's eating into your savings, you know here's more of a good why in the world should you why should you be doing it gentlemen, let me ask you about a topic that came up over the weekend at the annual meeting of shareholders and that is wells fargo stock and just the company.
Up to this point, I've gotten a lot of questions from shareholders asking why I've been behind Wells Fargo without saying more about what happened there, Charlie, what do you think? Well, I think it's a good company, so they made a bad decision on an incentive plan. I considered it an honest mistake, not a deep moral failure, no one. I was in my ranks at Wells Fargo they just had a blind spot they had a blind spot when it was fixed very quickly though that's the problem yeah yeah but we get you they didn't lose their jobs because of a blind spot and uh. but i dont think tim sloan had a blind spot i think he just lost his job because life is hard you thought dick kvass i dont like it you thought dick dig that much he had a blind spot yeah right and andythe next guy john stank yeah but you don't think there isthere been no criminal activity of course not but a car how to tell you is full and that was forgivable they were under some crazy system the problem is fixed now i think i think so a very very very high percentage of what would certainly be the intent this is correct I mean it cost shareholders a lot of money and they want to correct that when I went into Sol and wanted to correct it - I could never say it was over even though people kept asking is over.
I don't know, I wanted to finish. they have about 260 thousand people it's a scary job running a city of 260,000 people without cops and we've got something we've got some things wrong in berkshire now that i don't know about charlie stick this in me all the time you know as soon as you find a mistake do something about it t and y sometimes that's nasty but I have to do it I'm serious I might have appointees to do it but it's mine yeah and you do it too fast Wells Fargo is different because it's an equity stake and not an actual Berkshire company that you own outright of course we don't have any control over you you know what they do who should be the new CEO Charlie well I've been taking it would have been Tim Sloan but now they're going to get someone, sometimes a new person is better and sometimes worse.
I think half and half, yes, that's something, yes. I met two weeks or so ago with four people, including Betsy Duke, the president, and I never thought the first time I met her. of my life or I talked to her and like that, but we talked about it at that time and it's a difficult position to fill, what did you tell her? he called me i didn't call them i mean i i was i didn't jump into it but they just asked me what i thought was the first time they had done it better but i thought about it and gave him a suggestion or two and these people but i suggested, well i suggested publicly you know it's not a wall street thing not because there aren't even good people on wall street i just think the politicians are looking for the next one to be a pot and it's good tv or the right place on the campaign trail and and it needs someone running it who doesn't have the added baggage of having a sticker on their forehead that says Wall Street which will make half the audience cheer whoever heard on top of all this concern about China this is scaring the markets. a little bit today Joe is right it's less than 2% decline for the day but still down 460 points as a number that catches your eye and when you look at the China markets which are down five and a half percent and a seven percent, that's certainly something that's catchy.
Get your attention today too. I can't think of three better people to speak to on this bill this morning. You've spent so much time going back and forth with China. You know the Chinese leaders very well and perhaps you can understand what they are thinking. in some of these things, Charlie, you've spent a lot of time encouraging yourself to invest there and Bill, you've also invested there. Warren, same thing, all three of you have traveled there and spent this time. This morning as you hear these headlines and Bill you are new at the table today so I'm going to ask you to start with this what do you think about what you hear with this tweet and the potential for a real trade war?
I believe that good trade relations are beneficial to both countries and it is dangerous for people to think that this is a zero sum game, so I am hopeful that despite the latest announcement, there will be a trade deal where The two countries can find ways to work together is th The most important relationship in the world, both sides bring a lot of strengths to the table, so I understand why the markets are a little worried that these fees are going to get higher and higher when we get the tweet. for the first time there were some initial reports that Lee who and the Chinese delegation might not be coming here that's what we heard last night this is the first thing I heard a moment ago that the Chinese have confirmed that they're going to send that delegation this week which itself same is good news but how do the chinese deal with this when forced when faced with real force like i think yesterday's tweet was ok I am not an expert in negotiation, but it creates a dynamic in which both parties. they could start to escalate against each other which would be a loss for both sides so they know this week is going to be interesting they know they did it even though China is not a democracy which political dynamics don't allow Em to look like they're caving in to a one-sided position Charlie, you're an expert in negotiation, what do you think?
Hardly, but hey, if you back off, we put a fee on the trucks to Varennes, the Japanese, from Squelchy on the entire American car. industry and that lasted a long time, it wasn't the end of the world, so if we end up with some trade deal that involves tariffs on both sides, I don't get excited at all, rarely as part of normal life in general. Speaking, I think a good deal is better than the beautiful World War, some tariffs are one thing. 10%, it seems like our economy has been doing well, even with the 10% tariffs that existed on that $200 billion, today it's 25% tariffs on potentially everyone.
Over 500 billion of incoming imports would worry about the US economy well I don't think we want a full scale tariff or since it's as high as both sides can go that would be massively stupid and if both of them are a little Disappointed with negotiations would feel a bit battered so they should feel battered by both sides as a deal is much better for trade war for both parties which they should get used to. have a bit of a loss of face and come to some sort of deal and I think they will what do you think about us taking a stand like the United States taking a stand with China up to this point well I don't think Trump is totally crazy to say that on some occasions you put in a fee to save something no as the end industry is right we have been on the losing end of the deal for some time there are a lot of americans i think he sees it more as a loss than we have a trade deficit and I don't think it's all automatic so I don't totally agree with him but I do agree with Jonathan barge war what do you think in terms of who pays the tariffs I mean has the US Treasury increased, but a lot of those tariffs are being paid by the companies that import the products and then pass them on to the consumers yes its bashing consumers and as such it changes what people buy it changes where they d where things are produced, it readjusts, it can readjust the world, it knows that it was through tariffs and, in general. speaking, i mean there are obviously exceptions for key equipment, military equipment or you know, but in general i think that in a world that conforms to something very close to free trade, more people will live better off than in the world that had significant tariffs and changing tariffs over time. a subject of constant negotiations and the second war of this heavy box on both sides yes its not a trade war you mean a real war yes but you have to remember just like our country the United States had tariffs for the first 150 years that was all we had this is not like a new thing is coming this is an old thing is it a good thing or a bad thing good of course i prefer to have total goodwill and everyone ge going on but i dont think it is World's End.
There is some tension on the subject that has been there since the inception of the country's bill. A moment ago he said that he is not surprised by the market's reaction. It's the same this morning. about you, well, what do I care about a brief temporary reaction on some excessive business negotiations? Does that mean they're all so many little spacetime rebels to me, look at Chinese stocks in a five and a half down market? half a percent and the other in the Shenzhen market down over seven percent our futures are down but that's still less than a 2% decline this morning that means it's more painful for China which for us, well, I don't think China likes their market is going down as a result of a trade uproar.
I think people are more like this to figure something out because they had this ruckus today. The deal is that it sounds like a great alternative, but there certainly has been a lot of friction. the way the biggest may be how it's enforced and at least among a lot of the trade negotiators and the negotiators in the United States that when we've done deals with China in the past say things and then don't follow it how do you Do you make sure that if we have an agreement, it can actually be enforced? I think China buys big is a pretty good place.
It certainly worked well for the Chinese and I think it's desirable, but it's worth it. It works well. We want China. to prosper this yes we do if you posit a world where in the next 50 years china or really the usa but it seems like they're being abused and the word doesn't stick and yes it's for one thing and then you want to ask for one more thing, I mean, there will always be tension between the two countries, everyone, everyone, we don't have disagreements, but you can't, you can't really make it anywhere, not if there's something. working out of control and things can't get out of their control role mate but i guess i'll be back to try and figure out which side you think is right no one wants to say that does anyone think they're both right to be as worried as they are and I predict they'll figure it out? they all agree with the same prediction, though what do they think they know?
It's a dilemma when it seems like they're reacting to an ultimatum. They know that, in the case of China, there are no scheduled elections, so their leader will not simply be unselected. because they've had to take a tough stance in trade negotiations you know until recently the markets assumed this deal would go down so that's kind of why you see the Delta the reason would be a deal going down and I know I would still rate as likely that I agree that bill timelines are kind of tricky, so I want to say yes, they do produce reactions and people and they may think you're responding to public opinion that they couldn't. t inflames people and then they start to react t heir to difficult things, on the other hand, sometimes it's the best way to do things, a good sign, although it may be that they just said that the Chinese delegation will keep coming because I myself had real questions about it or doubts about it after seeing that yesterday you want to run a negotiation so it doesn't look like the other guy has to give in or something exactly ideal is to make him a hero and still get the deal you want. you want over the weekend at the annual reunion that two had an aside on stage a lot of people noticed you didn't follow up so I thought we could do that here you were talking about Dairy Queen and how your presence in China it's not big but you do have a presence in China for Dairy Queen it's a very big presence but not for Berkshire Hathaway no but you made the comment Warren that you would have been a much bigger presence rande if he had gone through big trouble he did it like one side of Charlie I was over the mics alright Dai Ry Queen no I'm not turning Dairy Queen into a global giant yeah we've seen good sized stuff in China. capital we have the big markets outside of the United States, they're going to be the place where I'm most likely to do something and China will certainly be the biggest market and then outside of the United States and there should be opportunities there and I think we're somebody in Berkshire.
I think if they're looking for capital around the world, we're a very logical prospect. Why didn't that deal work? Was it because of trade tensions? I can't go into details about it. I thought I'd give it a try, you'll be the first to know in terms of what you do with your businesses, do these business conversations have any impact on your investments, even personal ones, because everyone has a great individual portfolio that they do? and charlie i know if you focus on others you didn't focus much on china does this dampen your enthusiasm for chinese investing in any way?
A lot of it was big, you know, we'd be happy to get that call and we'd follow up and see if anything happened, but that would be very interesting for us. It's running parallel to the trade talks about what the tech export regime will be like in terms of things like artificial intelligence, so I'm concerned if that's going to try to separate Chinese students from American students, the general sentiment towards China, is it? TRUE? now it's down a bit so there are businesses or commercial deals that have to go through a new process and they're talking about even getting Cepheus further I think so you know. now i'm concerned about the slowdown in intellectual cooperation well we'll see where that goes but it's if they take our intellectual property in Dairy Queen no we can handle it we've talked a lot on our air recently about socialism vs capitalism defending capitalism all the different political pressures that areemerging as we head into another election year and I thought maybe we could talk about it this morning: Several questions came up over the weekend about advocating for capitalism in Warren. come out and say you're a card-carrying member, a card-carrying capitalist in front of everyone, what do you think of the attacks we've seen so far against capitalism?
Well I guess I don't think people are exactly the same I know what they're talking about it's not capitalism it's perfect but if you look at what was here in 1776 and you look at what's here now this country is an amazing job in terms of deployment of resources and and human ingenuity and that's a product of the system and now it means that every decision has to be made simply by the determinants of the open market. the idea of people unleashing their potential using the resources they have to create what we have now out of what was here two hundred and forty odd years ago is absolutely miraculous and yet what the three of us have seen during our life and if you compare it to any centrally planned economy I think we won hands down and I think we've just started what capitalism couldn't produce in the United States but I think it obviously needs certain rules and regulations.
I did an
interviewin Davos with someone and you made a rather innocuous statement that you looked around and thought that capitalism was the best system and all these people can attack you online. who came up with these crazy statements how can you say things like i mean what do you think about the weather when you see stuff like that some people think that when you defend capitalism you are defending the tax rates we have today and saying that absolute tax rates more higher are more progressive tax rates where you disagree with them. I don't think Warren and I don't agree that he could make taxes more progressive. we think it would be nice if socialism got you where she turned socialism used to mean the state controlled the means of production and a lot of people who are promoting socialism aren't really using that classic definition so what we are what it's going to have it's capitalism with some level of taxes most people aren't really arguing against capitalism there may be some but most people just say taxes should change even though you have someone who I think is taking the second highest and the Democratic Party at this time, which was a socialist until very recently, Bernie Sanders, well, whether or not he was a socialist for the whole term, now there are some money areas when you start to say there. there shouldn't be any billionaire who has some limit on wealth or something that's beyond what i think and i might say i'm selfish but the current ones that a government needs to reallocate some resources i mean an extreme case would be to be in world war 2 i mean that is the closest we got to socialism you had an office of price management you had a war production board yes but during peacetime you are always prepared to warn you you do it through the government government the government needs to reallocate some resources but the market system that exists under capitalism is an extraordinarily effective and proven way of using human and other resources to produce incredible goods and Henry Ford could He would learn to design a system that could produce a couple million cars a year but he could only use half a dozen or his whole family could use 50 I mean you You had to produce a couple million cars that other people would get bids on and that in my opinion, I think if you had set up a government office in 1850 and given them a hundred years, you would have come to something like Ford assembly lines and all the things that have happened humans ingenuity is amazing and you want something that maximizes its use and then slows down some people who may have evolved on their own charlie you have done the big test of how capitalism works is china when china copied singapore and let the farmers in their own plots and let the manufacturers in their own businesses, etc.
China's productivity increased many times over and they went from rural poverty to modern extreme wealth and they did it by embracing a fair amount of undemocratic capitalism. the politician doesn't understand he's crazy you've said the same thing Charlie that you think the private sector does so much better than the government sector however many of these people who are running also want to make government much bigger do you have a fight with that or now like they say if you love your post office you're going to love socialized medicine they don't necessarily want to make it bigger in terms of redistribution it means the market system is brutal and leaves behind people who they are perfectly wonderful people who have no market related talents and are just unlucky yes they are just unlucky and in a rich society believe me if we have a war or something we call such people and they get paid next to nothing to go fight. for us and that and then we want the goods to go down but it's going to displace the textile worker that we used to go through so the role of government is not necessarily to grow it can be in an important way to take care of people who for a reason or another, they get left behind in a market system that you also consider to be essentially this huge source of wealth and goods and services, so how do you fix the problems or at least the perception of the problems that there's a huge perception out there and American puffiness right now obviously help our government we are wiser and it would be wiser if the two sides didn't hate each other so much anger expels reason and there is absolute cold fury between politicians on one side and politicians on the other is quite counterproductive, that's why I don't allow myself to get angry with the politicians, how would you fix it? we've never done that to each other it just does I mean so much better we get mad at each other would you know I try to kill their deals you don't make my deal it just doesn't make it work that way we don't need a couple of the alpha males they bluff driving or these things just cool down and take a little reputation hit and get the feathers but we Otto have to care about the people who don't finish the system but we want the system and a lot of people are getting every they are lagging further behind because as capitalism advances, it becomes more specialized and in fact there is a bigger difference between the haves and the have-nots, and the haves can take care of that, which is interesting for both parties and they basically agree that just yes, how do you get there, how to examine and come.
The tax credit can take a big leap in that direction. they've shown us things that give people more opportunities and take care of people who fall by the wayside we just have to keep doing it right you've spent a lot of time in 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 giving people the advantages they need before they get into that system what, how, how do we fix that aspect, yeah? I believe that better education is so key to America fulfilling the dream of equal opportunity, and particularly as more and more of our students are inner-city and come from low-income homes, we really have to take the best teachers to understand. what they do and spread it further that's the best path to equality reform progress has been pretty modest but there are plenty of you out there who know smart people it's not just technology it's helping teachers figure out who they are making things super cool, and spreading that even into the university system, we still have very high dropout rates and the way you catch kids early when they're off track. some use of the Internet.
I am hopeful in the area of education, although progress has been made. slow surprisingly slow yes when we compare the improvements in global health which is the other big area of the Gates Foundation with the improvement in education it showed that education is harder to make big strides in the last decade that was what I expected when it started no, actually it's the opposite because global health implied going out to poor countries whose governments are really weak and there isn't even stability there is some corruption we thought it would be the slow area to work on but very important that has surprised us how how much progress has been made in overall statistics like cutting kids in half in education though there are some bright spots some excellent schools some are charter schools some are using a new curriculum the overall numbers math scores US dropout rates have moved just a little Charlie just started going back to your idea that people don't hate each other n both and they get along how do we make that happen? how do you try and push towards it because it seems like things like that i think you have to do it one relationship at a time and of course i think it would help but both sides didn't kill themselves in the primary we have these extremists on both sides and they take over each other. party is horrible the california legislature has two kinds of evil the right is not pancakes and left us pecan pancakes they kicked everyone else out this is not a good system why did it end up like this particularly in california i hate a lot of hate right? we district mom, how would you disappear as part of a majority?
It's just a wonderful product of hate, gentlemen, just taking a look at what we've been seeing with the markets today. Obviously things are under a bit of pressure today, but we've been looking. in much higher markets if it goes back to the Christmas Eve low and the concern about what the Fed would do, what it may or may not be doing from then on, the Fed has sounded much more dovish and I wonder if you could not talk a little bit about your own opinion on the markets and Bill again. I've talked to Warren and Charlie before about this a little bit, so what about your take when you hear that the Fed probably isn't going to raise? interest rates in the short term, how does that change your outlook on stocks or stocks vs.
Treasuries? Well, the interest rate is like gravity and all of these valuations are dramatically affected by it. At the beginning of the year, people didn't think the 10-year bond would be where it is today and that's provided a lot of momentum, so it's a great first quarter for US stocks. Over the next few years, I think people you should have fairly modest expectations for what your portfolios will do in the year. The years ahead. But no, it's a very equity oriented portfolio, it's overweight in the US even though it has a lot of foreign exposure, it knows it's a bullish portfolio that the US economy will do well over time.
Lucky we have a mattress, the foundation continues to spend lavishly, but I'm praying. I'm surprised at how high the ratings are if you look broadly, charlie, do you think so? every country print money like crazy you lifted the asset vote for everyone and i think they really had nothing else to do in the Great Recession so they took the only weapon they had and you aggressively i don't think we should discuss what made that people were already rich to get richer and that was not done on purpose or anything and i think that will correct or automatically you think we should continue to use 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 1% and also push for quantitative easing one more time, but I am very afraid that a democracy would have the idea that it can only rent money to solve all problems. And in the end I know it's going to fail Singapore, which has a wonderful economy, has zero debts, if I ran the world, I would like the United States to be in that position, which is not typical, that's nobody's position, you know all these politicians in Europe, and America has learned how to print money and if we keep these extraordinary measures for the Federal Reserve I guess not just the Federal Reserve here but central banks all over the world yes but who knows when the money gets out of hand and we at the end if you print it. too much you end up in something like Venezuela you're not suggesting that happen no I don't like the ideas and both parties you're political to say what we've learned is we print everyone who wants I don't have to rai se taxes we just printed Warren youshare those concerns, yes, he probably couldn't have conceived a world recently ten years ago.
I learned that I would not have envisioned a world where I would have a budget deficit of 5% at full employment with the real probability that they would rise from that level and at the same time. timehe has the long bar 3% would have said that could not happen and then people now modern monetary theory that there is no doubt that he is their Marlin any country should borrow money and their own currency I am a father that is not let it be a big dollar find but yeah and that's the point i mean it doesn't settle anything just to say it's much safer to buy your own currency but the convergence of these factors would have seemed impossible to me and in Generally if I feel like 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 the only thin g However, I will say if this is a conversation that I feel like we've been having for at least four or five years right where you're watching and continuing to wait for these interest rates, yields go up, we're still sitting at two-and-a-half percent in the ten years that and we're sitting with very, very little inflation with a Fed that put a 2% target not too long ago and it seems like nirvan it seems like we've found the promised land where essentially money costs nothing and you can put a lot of money and have full employment and no inflation and I would have thought something would have happened sooner now I don't know what would have happened but I didn't think you could have these things at these levels long term rates inflation rates budget deficits and have a stable situation for a long period of time and i still believe it but i am so far wrong so in the meantime you haven't really changed your way of losing weight k la s stocks are ridiculously cheap in comparison if you think you're going to have 3% interest 30 year bonds make sense that's great if that's what makes these three work well so it's comfortable if everything goes down not by 90 percent percent, so we're not a fair representative sample.
I'm sorry, Charlie, what was that? To say that this trio is comfortable if everyone, if everything goes wrong for 90. Rozonda doesn't know the rest, yes, but we wouldn't want that kind of world really everyone else, would we? Can we talk a little bit about health care because all of you have spent a lot of time focusing on health care in the United States and abroad? billions and billions of dollars in it I think over 13 billion dollars just from inception to 2017 in global healthcare initiatives. What's the progress? You mentioned it a little earlier that you've seen more progress here than on the education front in the United States would house that kind of demonstrated what's great that by taking the new vaccines and giving them to more kids and some other tools like mosquito nets malaria we have gone from over 10 million children dying each year to now less than 5 million now 5 million still a lot of us need a few more tools but actually the innovation pipeline looks very good so you know this is a phenomenally story positive that these doubts are weighed and that continues what is the thing that brings you the most hope or gives you more hope about the advances that have been made or the research that has found a good one that we were working on is to reduce malnutrition because a child is growing well their ability not only to avoid these diseases like diarrhea that kills them, but also the degree to which they will develop their mental abilities. ales and complete physiques and therefore they will contribute their own life to the well-being of their country dramat The reduction of ic and malnutrition would be a huge thing and we are now realizing that we believe that it will be possible.
It's been a long scientific Germany that has to do with gut inflammation and the microbiome, but now we see we're going to get more of those kids on their growth path, so I'm very excited about them, but malnutrition isn't just not they have the food to eat, even in cases where they have the food to eat, there is a problem, that is correct, what happens is that because their diet does not contain much protein their intestines become inflamed and that means that you have a set of bacteria in there that don't allow them to absorb nutrition and that's a downward path and so you can see that even two twins, one will get that and not grow and the other will achieve normal growth and therefore an intervention that stops the inflammation change the microbiome to a healthier mix that would eliminate malnutrition for that child, so what? it's a really cheap intervention where you can see the problem and stop it with probiotics or something yeah that's the kind of thing though they tend to be broad spectrum here we're going to go broad and it's probably a cheap pill it will probably be a couple of vitamins and drugs that translate to things that could be useful here in the United States and other days well the basic understanding you have and it will eventually lead us to understanding not just malnutrition but more nutrition why Why is it so difficult to control people's hunger?
Over time, people have tried having pills to control hunger. I would say over the next decade that will eventually succeed. the gut microbiome has many companies working on things that will reduce the excess nutrition that is used 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 a problem that Berkshire has been focused on along with JPMorgan and Amazon what have you found we haven't gotten any updates recently other than the name of this The new organization will be Haven.
Where is it in this process that we are taking? the first step in what is bound to be a very long journey i'm serious i'd say it's no more difficult than i expected but i expected it to be terribly difficult and you have an industry that's basically about the same size as receipts from the US government and everyone always says that every dollar in the budget has a constituency and every dollar and in an industry spending has a constituency and we have the right person we have the right partners capital is not the key part but we have people who are willing to spend money, but we will spend the money that is necessary if we are making progress and it is going to be a long and difficult pull to make a major journey to make major changes and you know it is that it has a good old guarantee of success, sir, but I think there's no one that's in a better position in terms of the number of tactics and totally the people that are teaming up to get along and all sorts of things to maybe find. rar something that makes the system more efficient. and they know we will try but nothing will happen faster so there is no revolutionary movement or anything like that and there will be a lot of opposition to any change in
interviewing people to run where we interview people in all aspects from the medical profession and activity and everyone agreed 100% you know this system needs change but of course it's not my part that's very understandable we wait for that and we'll find out what happens but I know this I would prefer the private sector to come find a solution and throw it all over the government and if the private sector doesn't come up with some solutions of the qualities of increase and cost, you know, in many ways it's amazing just to hear g Bill talk about the strides that can be made what is the cost 5% of GDP and in my lifetime or even in my adulthood up to 18% is the federal budget the state is constant about 17% everyone thinks it's out of control and here our federal receipts i must say and now this went from five to 18 and no one really thinks it's going to stop charlie you've been oh go ahead you've been a good samaritan the president there for how many years for 40 years if you take the senate war , which tends to have smart government and do things right, they spend about 20% of what we spend on health care and they're healthier and there's all kinds of abuse and counter productivity.
It's crazy that we have and Warren is right we're not going to have a hard time getting incidents and direction from the board because humans are benefiting or the existing system if you know that may seem like an unnecessary operation to me I actually do. does but the helmet looks like God's work, where would you suggest after his years on Good Samaritan? Where would you say focus here first? I think this system is out of control. a baby you don't have health insurance they just changed the system and then if you take the completely unnecessary treatment where people find a way to take advantage of this government's money streams and do a lot of unnecessary work like belonging to you I know inevitable death and all kinds of dreadful things they do.
I would say we have a pretty disgusting system. On the other hand, he is the best in the world in terms of his ultimate scientific ability, but you take all the unnecessary operations and everything unnecessary. the procedures and all the shenanigans and what Singapore is is pretty daunting when I look at Singapore I look at the United States and how the hell did we get out of where we are there and if you ask me what's going to happen I don't think we're going to make it to an intelligent system, Well, and that happy note, we're almost out of time, if I may ask you gentlemen, we've got around.
One minute left if I can ask you what you're reading because that's something we hear from our viewers. Often warm. What are you reading now? I just finished reading very recently and read it in one sitting and was captivated. as much or a book by Melinda Gates that just came out very recently and that is a bestseller at the time they lost it is fantastic it is a story but it is that it learned a lot about the world that you should know and I would say that most people don't know, I mean, this is a story of his experiences as an experience, it's absolutely sensational, yes, Warren took all your time.
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