Ask Warren Buffett - Complete CNBC Transcript - March 3, 2008

8/6/2019 Ask Warren Buffett - Complete CNBC Transcript - March 3, 2008

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Warren Buffett, Chairman of

Berkshire Hathaway, satdown w ith Becky Quick at tNebraska Furniture Mart in

Omaha for an unp

series of live appearances onCNBC’s Squawk Box prog

from 6a to 9a Eastern Timeon Monday, March 3, 2008

he

recedented

ram

.

long with questions from

his is the complete transcript of Buffett’s comments on Squawk Box

JOE KERNEN, co-anchor: Good morning. Wealth in America. An exclusive

ll Street

BECKY QUICK, co-anchor: You know, Joe, with times as tenuous as these,

s

A

Becky and the rest of theSquawk Box team, Buffett

also responded to selected

emails from CNBC viewersand CNBC.com users.

T

that morning, as prepared by BurrellesLuce.

CNBC survey on the state of the US consumer and a forecast for the

country's economy. Under pressure, the world taking its cue from Wathis morning. After Friday's sell-off, Asian equities dropping overnight,

European stocks opening in the red. Plus, Becky reporting live from the

heartland. Beck.

we are turning to the world's most watched investor for a little bit of

guidance this morning. The "Oracle of Omaha" joins us live this morning a

SQUAWK BOX begins right now.

CNBC’s Squawk Box – “Ask Warren” TranscriptPage 1 of 84



ANNOUNCER: This is a special presentation of SQUAWK BOX with Joe

Kernen and Carl Quintanilla at CNBC's global headquarters, and Becky Quick

live from Omaha with billionaire investor Warren Buffett.

CARL QUINTANI LLA, co-anchor: Good morning for a Monday, March 3rd.

Welcome to SQUAWK BOX here on CNBC, I'm Carl Quintanilla along with Joe

Kernen and Becky Quick. And Beck, what a way to start the week. We have

an amazing show on tap today.

QUICK: Yeah, guys, it sounds like we have a lot to talk about, and especially

with the markets, everything that we've seen happening both on Friday and

then overnight in Japan. A lot of questions about exactly how stable things

are going to be this morning, so we're very lucky to have Warren Buffett

standing right by to guide us through everything that's happening this

morning, guys.

KERNEN: Indeed. Yeah, it's going to be interesting, Becky. I want to--you

know, especially from the guy who coined the term "weapons of mass

destruction" and "financial weapons of mass destruction."

QUICK: Right.

KERNEN: And...

QUINTANILLA: And following the letter on Friday.

KERNEN: Yeah, yeah.

QUICK: For derivatives.






brand-new electronics store that they just opened up last year. And so

they've opened up early for us and given us a little bit of time to be sitting

here. But, Mr. Buffett, thank you very much for joining us this morning.

WARREN BUFFETT (Berkshire Hathaway Chairman and CEO): Even if

it's early, you can buy something if you'd like, Becky.

QUICK: Yeah, they'll open up the cash registers right away.

BUFFETT: Your credit's good.

QUICK: Well, as you know, we have a lot to talk about today.

BUFFETT: True.

QUICK: We want to get through the annual letter, we want to talk about

what's been happening with Berkshire's earnings. But we also want to start

off talking about what's happening in the global markets right now, and

what's happening with the economy. Where do you think things stand right

now in terms of the global strength of the markets?

BUFFETT: Well, you're getting sort of waves of deleveraging going on in

different areas, and last week we had some deleveraging of the municipal

bond market, which is not a market you would normally expect to get hit by

that sort of thing. But we've had it--they really haven't deleveraged as much

as they wanted, things like leveraged loans at the banks. They've been trying

to sell them, and they haven't found the levels yet at which they'll move. But

that's--you got a very leveraged world, and it's getting somewhat

deleveraged.




And unfortunately for the people that are deleveraging, it was leveraged at

crazy valuations in many cases. So people that are out--have been out on a

limb financially are having the limb sawed off.

QUICK: Well, in the past we've--you've spoken with us, and Joe's asked you

about this, the number of calls that you're getting on deals. What have you

been hearing the last couple of weeks, and how would you judge exactly how

chaotic things are based on the number of calls you're getting?

BUFFETT: Well, late last week it was pretty chaotic. I mean, we were getting

calls on large portfolios of various fixed income type instruments, and even

on municipals where multibillion dollar portfolios had been leveraged. And

people set that position up because municipals look cheap relative to

governments, and then they got a whole lot cheaper, and that happened day

after day after day. And it--really, in 1998, the Treasury was sort of the other

side of every trade on convergence trades. People shorted the Treasury and

were long on other kinds of other things. Same thing's happened this time,

only it's extended to something like municipals.

QUICK: OK. It's extended to something like municipals, and you're getting

calls on all of these deals. And I take it they're not calling you and offering to

sell them at 95 cents or 99 cents on the dollar?

BUFFETT: Well, it depends on the instrument. Some they're calling at 75

cents on the dollar. But--and we'll buy some, at some point. But there's a--

there's a lot of merchandise out there that people are getting margin calls

on, and they're not the small guy getting a margin call on stocks. These are

big guys getting calls on billions and billions of dollars of fixed income

positions.




QUICK: You know, there are suddenly a lot of people wondering what's

going to happen with this economy and trying to pin it back to a time that

we've seen in the recent past or maybe not so recent past. Some people say

this is like 2001, some people say this is like 1989. Other people say this is

like 1973 to 1974. What do you think?

BUFFETT: Well, it's nothing like '73, '74 yet. I mean, that doesn't mean it

couldn't be. But in '73, '74 we had this stagflation situation, and we really

had a meltdown in equity prices as really good companies got down to three

and four times earnings and they weren't phony earnings. So nothing like

that's happened in this situation. But of course in '73, '74, at some point

during that, it didn't look like it had happened either. So every day is a new

day, and we are seeing more fixed income type forced liquidations.

We're seeing more indigestion at banks with a lot of loans we don't want to

have. So you're seeing a time of easy money in terms of price, but not so

easy money in terms of availability.

QUICK: We also have talked an awful lot about what's been happening with

the bond insurers. You made a deal that you brought up on our air a couple

of weeks ago, where you said you would take over the municipal bond

portfolios for Ambac, for MBIA, for FGIC if they came to you. Did you hear

from any of them? Did any of them take you up on that deal?

BUFFETT: Well, we heard from them, but we tossed our hat in the ring, and

they tossed the hat back. But fortunately--it's been fortunate for us, because

we've been writing business that they insured, and we're getting a far better

rate than we offered to take it over from them. So here--we've written 206

transactions in the last three weeks, and we have been paid an average of 3

1/2 percent to take on business that they wrote at 1 percent. But we don't




pay until they go broke. So in effect, the municipality has to quit paying, and

over here I've got the bond insurers. And it's just--it's the three you named

plus a few others. And they have to go broke, and then we pay. So we're

getting paid 3 1/2 percent to be in a secondary position when we offered to

do it for 1 1/2 percent in a primary position.

QUICK: And we're still talking about municipalities.

BUFFETT: Municipals.

QUICK: We're not talking about CDO business or any of the other portfolios.

BUFFETT: Oh, no. We're not--no. These are all A-rated or better municipals

insured--202 of the 206 are insured. And we've received $69 million of

premiums for two billion of a par amount. The original insurer received about

20 million. And they're still primarily on the hook. So our price was all wrong.

QUICK: Why would this happen? I mean, why don't they come back to you

at this point and say, `We'll take that 1 1/2 percent deal'?

BUFFETT: Well, it--they don't have much motivation to do it from the

directors' level or the shareholders' level, and what they're hoping for is new

money, you know, and I hope for new money too. I mean, who doesn't? And

they may get it. In fact, MBIA has gotten a fair amount of money. But they--

in the end, they--they're not really--they really haven't, in a sense, totally

faced up to the mistakes that they've made.

QUICK: You say that they hope--you hope they get new money, as well, put

in?




BUFFETT: Well, if they get new money, as long as they stay solvent we can't

pay a claim on this. We get $69 million, there's no way we pay a claim

because they are primarily liable if the municipalities go broke. Now,

municipalities do go broke, or tax exempt issuing entities. People say it's risk

free. Vallejo, California, town of 120,000, last Thursday the city council was

scheduled to vote on going into Chapter 9 and going broke. And the thing

about municipalities, if they decide it's the easier way to go, it could be

contagious. Now, I don't think that necessarily will happen. It's unlikely to

happen, but it's not impossible it would happen.

QUICK: OK. Warren, I know the guys have some questions from back in the

studio as well. Joe, Carl, you guys want to jump in?

KERNEN: Yeah, I got a--we both want to jump in at some point. Can you

hear me, Mr. Buffett?

BUFFETT: I can hear you fine, Joe.

KERNEN: Good, great. So last week, one of the things that threw the marketfor a loop was this new figure for the size of these weapons of mass

destruction, $600 billion. And I'm just wondering--you know, you go back a

ways, we both do--S and L crises, LDC debt. You remember all the times in

the past when we've, you know, when we saw numbers like this. How does

600 billion compare? And is it the kind of thing that can throw our economy

for a loop for an extended period of time, worse than our, you know, shallow

recessions that we've become accustomed to?

BUFFETT: Well, it sure could. I don't know the answer on it, but it--nobody

knows what the economy's going to look like a year from now or two years

from now. But you have certain things in motion that could possibly lead to




that, or it may not. But I--you can't rule it out. There's no way you can--you

can say that the trouble we've experienced and the trouble we're likely to

experience can't lead to something pretty severe. And maybe we'll be lucky

and it won't happen. I've never made any money out of economic

forecasting.

KERNEN: Right.

BUFFETT: I've made money by staying out of trouble.

KERNEN: But yet you were early with the weapon--you know, you knew thatthese--all these structured products, that sooner or later there would be a

day of reckoning. The other thing I was thinking when you were talking

about where we haven't gotten to those levels in--that we saw in the '70s,

but as a person that epitomizes Graham and Dodd type investing, what--

we've had a long, secular bull since the early '80s. We have not gotten to the

extended part of, you know, where you get dividend yields at 4 percent, you

get a priced earnings multiple that it--drops well below 10. When now that

we see inflation in commodities like they are, is this the beginning of that

cycle where we do get to a really stretched valuation on, I guess you'd call it

a secular bear?

BUFFETT: Yeah, Joe, I don't know the answer. It's always a possibility. And-

-but, you know, I've never really been able to predict the stock market. I--

when things get very cheap, I know it. When they get very high, I know it.

And in between, I really don't know much about what's going to happen.

KERNEN: And--we're in between, I guess.

BUFFETT: I will--I will recognize it...




QUICK: Does that mean we're in between right now?

BUFFETT: Well, yeah. Thirteen hundred-plus on the S&P, you know. Stocks

are not cheap. As it--as a group they're not in some bubble price. But they

go to extremes every now and then, and when they do go to extremes you

have to be prepared to act.

QUINTANILLA: Warren, it's Carl. You talk about munis. The...

BUFFETT: Hi, Carl.

QUINTANILLA: Good morning. The Journal this morning tries to interview a

few muni bond fund managers, saying this is the kind of market they've been

waiting for, where something goes from paying 5 percent to nearly 6 in a

couple of weeks. You just said you will buy some. Are you champing at the

bit, or are you going to wait for everything to come to you?

BUFFETT: I never try to--I try to avoid getting excited, you know. But

there's no question that I salivate a bit more as the rates get higher. We

made a bid on a $3 1/2 billion portfolio on Friday; we didn't get it. I don't

think it sold either. So--and, you know, I may go to the office this morning,

and if there's a large portfolio--and it can be five billion, it could be one

billion, could be 10 billion--we would make a bid on it. But we try to have it

reflect what's really going on in the market. And it's been pretty chaotic.

QUICK: Warren, at times like this, when you get an offer, how easy is it to

come up--when somebody calls you, how easy is it to come up with that offer

price, and how long does that last?

BUFFETT: Well, it--if it isn't easy to come up with the offer price, I don't

make an offer. I mean, I have to--I have to decide myself where I'm willing




to buy it. And--but, in this kind of a market, if somebody calls us and they

say, `We have this list of 200 munis, and it's three billion' or something like

that, we give them an offer that's, you know, it's basically--like the used car

salesmen used to say on their warranties, 20-20. It was 20 seconds or 20

feet. Well, we're more or less that way in the municipal bond business. We--

we'll give an offer good for a minute or something. We--there's no--we are

not offering puts to the rest of the world for nothing. And a bid is a put as

long as it's outstanding, and puts you're supposed to get paid for in this

world. So we put them out for, you know, basically a minute or two. We want

the fellow on the other end to be able and prepared to act, and we do notwant him to use our price to out and shop with somebody else.

QUICK: Well, speaking of that offer you made on our air to the municipal

bond insurers--or to the bond insurers to take over their municipal portfolios,

is that deal still on the table?

BUFFETT: No, it's not on the table because you pay for puts in this world.

And what we did offer to do at that time--people got this kind of mixed up,

although it was--it was right on the program. We said they could take our

offer and have 30 days to shop it, and then have--pay us a 1 1/2 percent kill

fee if they found a better deal. So they could have used our offer for 30 days

to go out all over the world and see if anybody'd make them a better deal.

What they did was they said it was a terrible offer, but they didn't go out and

try to get a better deal on it. So we--no, we don't leave offers on the table

for--we don't leave them on the table for an hour in a market like this. You

don't want to go down on the New York Stock Exchange floor and say--if General Motors is at 24, and say, `For the next hour I'll pay 24 if anybody

wants to sell it to me.' I mean, you'll get it if it goes to 23, and you won't if it

goes to 25.




QUICK: Right. Guys?

KERNEN: Go ahead.

QUINTANILLA: Now--and--well, we got so many--where to start is the

question.

KERNEN: I've got it, I've got it. I've got a lot of other ones that they're just

asking. You know, we had this--we had Charlie Gasparino say a week ago

Friday say the Ambac deal was close, and then this past Friday part of the

reason we saw the big sell-off was because there were significant stumblingblocks I guess. I haven't heard what Charlie's going to say today. Knowing,

as you do, that there's no free lunches and things--you know, people don't

enter into transactions out of--well, not usually out of stupidity, but how's

this--is it going to be possible to structure something for Ambac that's going

to, you know, cause someone putting the equity in to feel comfortable with

the situation, given the looming CDO exposure that the company still has?

BUFFETT: Yeah, it may be possible. There may be people that feel that theyunderstand the risk that's already in the portfolio and see enough

opportunity in the future that they're willing to take on that risk. It's not

possible for me to do that. But who knows? You know, there's money all over

the world, and I would not be surprised if they were able to raise money. I

would not be surprised if they weren't able to do it. If they raise money, like

I say, we've made an easy $69 million in the last three weeks, because if any

of those bonds go bad, and some will, they pay--they pay first. So, in a

sense, I should be out trying to help them raise money.

QUICK: Warren, in your annual letter to shareholders on Friday, one of the

big attacks that you took was on companies and how they are expecting their




pension plans to grow over the next several decades and beyond that. What

caught your attention on that? Why are you focused on that?

BUFFETT: Well, I--actually, I've written about it before, too.

QUICK: Hm.

BUFFETT: The pension fund assumption--you can take your earnings up or

down by changing your pension fund assumptions. And within a fairly wide

range, the professionals, the auditors will let you pick different numbers. So

you have companies--if you look at the S&P 500, you have companiespicking lots of different numbers. And the higher the number you pick for an

investment return, the lower the charge that's made against your earnings.

And if you go back far enough, 30 or 40 years ago in accounting, they didn't

make you make any charge. And they soon found out that was folly. And

General Motors has been living with that, you know, in terms of particularly

in the health plans, since. I say that most companies and a great many

municipalities or public bodies are using rates that are really a little crazy.

And a year like this may dramatize that. Now, you're not supposed to look at

one-year returns in setting these rates, but we set--we have some public

utilities, and they have pension plans, and in those cases, the states tell us

what rates we have to use. We argue for lower rates, but they won't let us go

as low as I'd like. With our own pension plans, we use a 6 1/2 percent

return, and the world is generally using 8. And that doesn't sound like much

of a difference, but it's a huge difference.

QUICK: It's a huge difference when you roll it out and annualize the

compound interest over a number of years.

BUFFETT: Yeah.




QUICK: You asked our viewers last week on cnbc.com...

BUFFETT: Right.

QUICK: ...where they expected the Dow to close at the end of the century,

December 31st, 2099. For those of you who haven't seen this yet, we'll show

you the poll results. It came back that somewhere close to 34 percent were

looking for that level of 100,000, another 33 percent were looking for over a

million, and about 23 percent were looking at a level of quite a bit more than

that.

BUFFETT: Mm-hmm.

QUICK: Ten million, or the third question that you had was 10 million.

BUFFETT: Mm-hmm.

QUICK: So where should people be looking? Here's the number that you see

right now.

(Graphic on screen)

DJIA at Dec. 31, 2009

100,000 34%

1 million 33%

10 million 23%

100 million 10%

Source: CNBC.com Poll

BUFFETT: Well, I'm not sure where they should look, but the--but if it turns

out to be 100,000, that means that people in this century, from the start of

the century, will have had a return, including dividends, of about 4.2, 4.3

percent. That's before expenses. Now, commissions, investment adviser

services, all of that comes out of that 4.3 percent.




QUICK: Right.

BUFFETT: So that's a gross return. And I would say that most people think

that if the Dow went to 100,000 by the end of the century that they'd have

had maybe double-digit returns or something like that. If the Dow is at 10

million at the end of the period, you still haven't had double-digit returns,

believe it or not. So people can get kind of careless with numbers. Most

people aren't too numeric.

QUICK: But this is a word of warning to investors out there, and, Warren,

you've been gracious enough to offer to stay with us throughout the entire

show this morning. Throughout the morning, we're going to be getting to

some of those answers from the questions that you all have been sending in,

our viewers. We've gotten thousands of questions. And in the next half-hour

we'll be getting to a lot of the answers of those questions. But right now,

Joe, I'll throw it back over to you.

KERNEN: All right, Beck, thank you. Let's hope that furniture store in the

middle of the day doesn't look like that. I don't know. You know, we've

been...

QUINTANILLA: It's going to get busy.

BUFFETT: This store did 400 million last year, Joe.

KERNEN: All right. All right. I'm not worried about you. I'm not worried

about you. Your businesses, but...

QUINTANILLA: He's going to be behind the counter.

KERNEN: Yeah, exactly.




ANNOUNCER: Live from Omaha, Nebraska, here again, Becky Quick with

special guest Warren Buffett.

QUICK: Welcome back, everyone, to this very special edition of SQUAWK

BOX. We're live in Omaha, Nebraska, and we're standing by at the Nebraska

Furniture Mart. This store is the largest home furnishing store in the entire

country. We're standing by right now in the electronics store, which just

opened up last year. Nebraska Furniture Mart, if you don't know, folks, is one

of the 76 holding companies--or operational companies of Berkshire

Hathaway. And we are very fortunate to be joined this morning by Warren

Buffett, the "Oracle of Omaha," who has been gracious enough to offer--to

take questions from our viewers this morning. And, Warren, I have to tell

you, the demand was overwhelming, thousands of e-mails coming in, and

we've tried to narrow them down a little bit. Why don't we jump straight to

it.

BUFFETT: Just give me the easy ones.

QUICK: Yeah, just give you the easy ones. I have to tell you, there were

some very, very thoughtful questions that came in.

BUFFETT: Mm-hmm.

EMAIL TEXT: In your annual letters you make it very clear you are not a fan

of hedge funds and think they destroy wealth. Do you think hedge fundshave an edge which justifies their huge fees? Brad Alford, Atlanta, GA




QUICK: I want to start off with a question from Brad in Atlanta, Georgia, and

he asks, Ìn your annual letters you make it very clear that you are not a fan

of the hedge funds and you think they destroy wealth. Do you think hedge

funds have an edge which justifies their huge fees?'

BUFFETT: Well, the answer is an aggregate no. When there were very few of

them and a lot of talent, but not a lot of competition with each other, it's

very likely that they did. But in Wall Street you have this progression from

the innovators to the imitators to the swarming incompetents. And what

happens is that the results achieved by the innovators enable the product to

be sold by a lot of people simply because the record of a few people was

good. So the idea that billions--well, trillions of dollars can be managed to

get above average results while charging fees that are way higher than

normal just defies the--just defies the logic. So, in aggregate, people are

going to be disappointed with the results you get from hedge funds. But

there will be ones that do terrifically, but it's--I would not want to buy them

across the board.

QUICK: OK. Jake Kamm from Cleveland, Ohio, writes in and he says,

Àmong the CEOs within the universe of publicly traded companies in which

Berkshire doesn't have an ownership position, which CEO do you believe is

doing the best job on behalf of shareholders?' Tricky.

BUFFETT: Well, there's a number of them. The fellow at Fastenal has done a

very good job.

QUICK: I'm sorry. Which company?

BUFFETT: Fastenal. I mean he, all you have to do is look at the record on it.

Jim Senegal has done a terrific job of running Costco. We own a tiny bit of it,




but I don't think that's warped my view. There are a lot of good CEOs in the

country that--I'm thinking right now a few where we own them, but I think

Jeff Immelt at GE. We have some in a pension fund, we don't have anything

at Berkshire, has done a first class job. Some of these people got handed the

baton at the wrong time.

QUICK: Right.

BUFFETT: Jeff got handed the baton at kind of a bad time. There are--there

are a lot of outstanding--there are a lot of outstanding CEOs. I may think of

some more that I want to name as we go along.

QUICK: OK. If you think of more, you can jump in with them.

BUFFETT: Yeah. I've got to think of who I'm playing golf with next week.

QUICK: Let's move on to David from Defiance, Ohio. He asks, `How would

you define a recession?' This is something we talk an awful lot about on the

show, but he says, Ì've been listening to a lot of discussions on CNBC, some

of which can be very annoying because they tend to be so outrageously vocal

and the experts believe two quarters of negative growth qualifies as a

recession.' Is that the surest definition of it? Or do you think it's broader than

just that?

BUFFETT: Well, it's the standard definition, but if you think about it,

population grows 1 percent of year. So you could have growth of GDP of a

1/2 a percent, but GDP per capita would be going down. So the very

definition, you might say, is a little bit flawed if it--if it doesn't allow for the

fact that GDP per capita can go down while growth GDP's going up. Beyond




that, I would say by any common sense definition, we are in a recession.

And...

QUICK: You would?

BUFFETT: Yeah, we wouldn't--we haven't had two consecutive quarters of

GDP growth, but I will tell you that, on balance, most people's situation,

certainly their net worth has been heading south now for a considerable

period of time. And if you owned a house, and you had an 80 percent

mortgage on it, and so you had 20 percent equity a year ago, you might not

have any equity now. And millions of people are in positions somewhat

similar to that, and people would--people that own municipal bonds feel

poorer today than they did a few months ago.

QUICK: Mm-hmm.

BUFFETT: So business is slowing down. We have--we have retail stores in

candy and home furnishings and jewelry; across the board I'm seeing a

significant slowdown and, of course...

QUICK: That's the first time I've heard you say you think we're actually in a

recession right now.

BUFFETT: Yeah, well, I think, when we talked earlier, I said we might be.

QUICK: Right.

BUFFETT: But it--no, I would--I would say that--but when I say we're in a

recession, it doesn't meet the technical definition. We aren't in the second

quarter of--we can't be because we don't know what the fourth quarter of




last year was. But I think that, from a commonsense standpoint, we're in a

recession now.

QUICK: OK. Let's get to one from Don in Atlanta, Georgia. Ìf Ben

Bernanke's a company, would you be interested in owning it?'

EMAIL TEXT: If Ben Bernanke is a company, would you be interested in

owning it? Don Sitec, Atlanta, GA

BUFFETT: Well, I think that Bernanke's very able, and I'm not sure I'd want

to be in any--own any company that an economist was running, though, sohe gets disqualified by profession, but not personally at all.

QUICK: OK. Roy writes in from Maple Glen, Pennsylvania. He says, `Would

you please characterize, in general terms, the breakdown of shareholders in

Berkshire class A. Are there a lot of single share owners, and what would be

the average number of shares owned per shareholder? And by the way, does

Bill Gates own your shares?'

EMAIL TEXT: Would you please characterize, in general terms, the

breakdown of shareholders in BRK-A. Are there a lot of single share owners?

What would be the average number of shares owned per shareholder? Does

Bill Gates own your shares? Roy Stephenson, Maple Glen, PA

BUFFETT: Oh yeah, Bill Gates owns a lot of shares. As a matter of fact,

when he joined--I didn't know how many shares he owned when he joined

the board, so I had to put him on the board to find out. So he had to make a

filing so I could find out how many shares he owned. And he owned about, as

I remember, about $300 million worth, and then he bought another pretty

good size chunk of stock. And somebody asked him why he bought it, and he




said, well, everybody else on the board had a higher percentage of their net

worth in the stock than he did, so he felt like kind of a picker, and he had to

do something about it. We have about 400,000 shareholders. We have--I

believe we have the lowest turnover of our stock relative to the shares

outstanding of any company on the Big Board, which means we have more

real investors. We don't want anybody to buy our stock to sell it in a month

or six months or something. We really want it to be a holding like buying a

farm or buying an apartment house. We want it to be a real investment. So

we try, by our policies and by our communications, to attract those people.

QUICK: Mm-hmm.

BUFFETT: Because, you know, it's like running a restaurant. If you put

hamburgers on the outside, and you'll get a crowd that wants hamburgers. If

you put French food, you'll get a crowd that wants French food. We try to be

very clear we have investors out there. We don't want anybody--we don't

want all shareholders. We don't go out and make presentations to analysts'

societies or anything like that because the idea that every shareholder we

could add would be a plus is ridiculous. I mean, it would be like measuring a

church, you know, with high turnover and every week you had a different

congregation sitting in the thousand seats. Well, we've got a 1,500,000 seats

out there, and we really like the idea of talking to the same congregation

every week. So we have a lot of one share class A shareholders, we have a

lot of one share class B shareholders. What we do have is a lot of individual

shareholders. I used to have something like 100 shareholders in my zip code

here. So when I would take the kids out trick or treating on, you know, onHalloween, I mean, we scored big time.

QUICK: You know exactly where to show up for all the candy.




BUFFETT: I knew where to go.

QUICK: Warren, we have a lot of e-mailers that came in from the viewers.

We also solicited a couple from some of your well-known friends, and we get

one that I want to bring up, too. LeBron James of the Cleveland Cavaliers

writes in.

BUFFETT: Ah.

QUICK: And he asks, Ìf you were ever to buy a professional sports

franchise, what would it be?'

BUFFETT: It would, well, if I lived in a big city that had a--that had a top

team, I'd want to buy it there. I mean...

QUICK: You would?

BUFFETT: Yeah. Well, I own a quarter of the Omaha Royals, which is just a

minor league team, but if--but it--I grew up in Washington, DC. My dream

might have been to buy the Washington Redskins, although they were

playing baseball then, the Washington Senators. I'm not sure you would

want to--they used to say, you know, `First in war, first in peace and last in

the American League' about the Washington. But the--I would--sure, if I

lived in Dallas, I'd want to own the Cowboys or something like that. So that

would be the team I would buy. But...

QUICK: I guess the question would be is are you planning on moving

anytime soon?

BUFFETT: No, no. I went to Cleveland for a game to watch LeBron, and,

when I was a kid, I thought for sure if I ever got rich that I would be buying




a sports team, but I'd rather play on one now. So if there's anybody out

there who would like to sign me up, I'm ready.

QUICK: OK. We have a lot more questions to get to this morning, but we

also have to get in a quick break, and so, Carl, I'll send it back over to you

and figure out where we stand right now.

QUINTANILLA: I can imagine Warren playing a power forward. Joe, can't

you? Maybe some elbows in the paint?

KERNEN: Will he put on...

QUICK: There you go. Sharp elbows, Warren?

BUFFETT: Yeah. You bet. KERNEN: Will you put on one of those Will Ferrell

wigs, Warren? "Semi-Pro" wigs? I don't know if you've seen that.

QUICK: Darren Rovell ran around dressed up like this new Will Ferrell

character last week.

QUINTANILLA: Yes.

QUICK: And he had the big wig, he had everything going on. Shorty shorts,

remember that?

BUFFETT: I took on LeBron last year, one on one, and I noticed he hasn't

asked for a rematch.

QUINTANILLA: He's not going to take that mistake twice. We're going to

take a quick break. We've got a lot more with Becky and Warren Buffett

when we return live. We're back in just a second.




ERIC JONES (question on tape): My name is Eric Jones from Los Angeles,

California. Mr. Buffett, with spring football right around the corner, what's

your prediction with Nebraska football?

QUICK: OK, there's the question for you, Warren.

BUFFETT: That's an easy one. We've got Tom Osborne back as athletic

director, Bo Pelini, we've got a lot of talent. We should win at least eight

games. If--it was getting kind of desperate around here a year or two ago.

The coach was asking for a fullback prospect that was 6'4" and weighed 120

pounds. And people said, `Well, that's kind of a strange definition for a

fullback.' And it is the only kind of guy that can get through the holes when

the line opens up. Well, we have a little stronger team this year. We'll do all

right.

QUICK: OK. Another question from a viewer. This comes from Tony in

Springfield, New Jersey. He says, Ì'm getting a tax rebate and I would like

to invest it. Which of these do you think is the better bet? Number one, bet it

all on the hard eight,' straight at Atlantic City, I guess. `Number two, buy a

lottery ticket. Or number three, invest in Ambac.

BUFFETT: Well, OK, I'll give him the answer. The answer's number four. Buy

a no-load neutral fund with very low costs.

QUICK: OK. That's the question for him. And finally, Cara Bruder from

Oklahoma City, Oklahoma, says, `My favorite charity is my children, and

yours is the Gates Foundation. When I give over $12,000 to my children, I




am taxed at about a 50 percent rate, yet you were taxed at nothing for

giving to Gates. Why shouldn't you be taxed the same rate? Or why shouldn't

I be taxed at your 0 percent rate?'

BUFFETT: Well, he's only taxed at all if he's used up his lifetime exemption.

And the lifetime exemption, I think, next year goes to $3 1/2 million, and

that's man and wife. So you can actually give your children, next year, over a

lifetime, you can give them $7 million, and there is no tax whatsoever. So if

anybody's told them that, unless he's already given $7 million, he can give a

lot of money to his children. Or to his dog, like Leona Helmsley did, you

would out--without paying tax. But the idea is that in one case you're doing it

essentially for personal benefit, and the other you're doing it for the benefit

of society.

QUICK: OK, we're going to get to a lot more questions like these. There are

people who had questions about the estate tax and other issues. Plus, we

have Mr. Buffett here on a very fortunate day. There's been some chaos in

the markets. He's going to tell us what he's seeing right now, both in terms

of the markets and the economy, from the perspective of his businesses. We

have much more live from Omaha, Nebraska, with Warren Buffett right after

this.

QUINTANILLA: And today's not a good day for the greenback, Joe.

KERNEN: Nope. It's a good day to have Buffett on, though, when we're

talking about the dollar. As Carl said, this is a special morning for SQUAWK

BOX. We're live with Warren Buffett in Omaha, Nebraska, answering e-mails.




Just go to cnbc.com. Send them in. We'll still get them. Becky's with Mr.

Buffett right now. And I know he has an earpiece in, Becky, probably just

heard about where the dollar is.

QUICK: Yeah.

KERNEN: We're going to talk to him about that, no doubt, at length today.

QUICK: Yeah, that's perfect, Joe. It's a--it's a great stepping off point for

this, because when you see this kind of chaos and turmoil in the markets,

well, who better to ask than probably the world's most watched investor,Warren Buffett, who's here with us today. And, Mr. Buffett, let's go over

some of these exact things. Joe uses this as a perfect jumping off spot.

You've made some negative comments about the dollar in the past. You see

where it trades right now. What do you think?

BUFFETT: Well, for five years we've talked about it. It--we were following

policies which were, in my view, five years ago, were certain to produce a

weaker dollar over time. I never know what it's going to do in a month or ayear, and maybe I don't know what it's going to do in five years, but I think I

know what it's going to do in five years. And we--as long as we force-feed a

couple of billion dollars a day to the rest of the world--they take it whether

they like it or not, because we buy goods--buy two billion a day more than

we well goods to the rest of the world...

QUICK: Mm-hmm.

BUFFETT: ...the dollar's going to get weaker over time. And the government

can talk about how it's in our interest to have a strong dollar, but we're not

following policies that lead to that, and it's just a consequence and it'll just




continue to be. If you do the same thing over and over again, you're going to

get the same result...

QUICK: Mm-hmm.

BUFFETT: ...and we are doing the same thing now that we were doing two,

three, five years ago, and the dollar will weaken in an irregular basis, in my

view, for some time to come.

QUICK: Now, you mention all this in the annual letter to shareholders.

BUFFETT: Right.

QUICK: You also talk about how you are long the Brazilian real. If you think

the dollar's going to get weaker, why aren't you short the dollar at this point?

BUFFETT: Well, we bought more--we bought companies that have more and

more of their earnings in those other dollars. So if we have a company that's

earning money in Japan, one or two, in the end, we're earning more dollars

than before. But the carrying costs, with low interest rates in the United

States and higher rates elsewhere, there's a real carrying cost to maintaining

an outright foreign currency position, whereas if we do it through future

earning power in other areas, it looks to me like a more intelligent way to do

it. But you can make money in, you know, you can make money even with

low interest rates here if the--if the--if the spread keeps widening over time.

But right now, the Brazilian real was a relatively small position, and I almost

did it kind of as a commentary on what was going on because for decades

people thought you put your money in South America any place, then you

were going to lose it. And the South Americans actually parked their money

here. But in the last five years, the Brazilian real has more than doubled




against the dollar. If you were a Brazilian, you put your money in dollars you

lost half your net worth, and that's continued since the end of the year.

QUICK: But it hasn't stopped you from betting against the dollar in the past.

What changed your mind on that?

BUFFETT: Well, we had a positive carry. When we had...

QUICK: Yeah.

BUFFETT: ...the 22 billion of foreign currency positions, we not only made

money because those currencies appreciated, but there actually was a

positive carry because of the interest factor on most of the currency. So we

were picking up a couple hundred million dollars a year on positive carry.

That's gone to a negative carry now, and that makes it expensive to hold

certain foreign currency positions. If you want to hold a position in the euro,

and you buy a euro out six months, it has to go up for you to break even.

QUICK: OK. We've been talking an awful lot about the economy today, and

in the last half-hour, you mentioned that you think we very well might be in

a recession. That's the first time I've heard you say that. What gets you to

that point?

BUFFETT: Well, I see the figures coming in on all our retail operations, I see

what's going on in terms of the wealth of Americans and how they feel about

their houses. I see--I see purchasing power declin--obviously, when

somebody forecloses on a home, the purchasing power of that family is not

going to be very much. I see unemployment increasing a little bit although

it's still relatively low. So I just--I think it's clear. What isn't clear is how far it

goes.




QUICK: And so--and that's the question. You can't see how far out...

BUFFETT: No.

QUICK: ...this lasts, if it's something we pull out of quickly.

BUFFETT: I didn't see it--in '73 and '74, I didn't see how bad things were

going to get. I kept buying more as I got worse, but I--if I'd seen in '73 what

was going to happen in '74, I wouldn't have bought anything in '73. You can't

predict. We don't try and time anything or predict. We just look for where

there are good values, and if we find them, we buy them, and if we don't, wedon't buy anything.

QUICK: OK. Another issue we've been talking about an awful lot with you is

the bond insurers and where things stand. On Friday on SQUAWK BOX Wilbur

Ross came in and talked about how he was buying into AGO, Assured

Guarantee. He says that he's in direct competition with you right now

because he's writing a lot of reinsurance as well with--through AGO. What do

you think of the competition?

BUFFETT: Well, I always prefer no competition, but that's hard to find in this

world. So there will be competition in bond insurance, it's the nature of it.

And what people have to decide, though, we just insured a bond that comes

due in the year 2054. Now if you're--if you're going to buy insurance from

somebody and the test will be whether somebody pays in 2054, I personally

think Berkshire Hathaway is the best bet around. I--it isn't where--credit

analysis or insurance analysis isn't where you are today, it's like Wayne

Gretzky says, you know, `Don't go to the puck, go to where the puck's going

to be.' Well, the payment needs to be there in 2054. The question is, is

Berkshire Hathaway the one that's likely to be there in 2054?




QUICK: OK. I know the guys have some questions in the studio as well.

BUFFETT: Yeah.

QUICK: Joe and Carl?

KERNEN: Yeah, I have a follow-up for Warren on the policies we've been

pursuing and what we can do about it. Warren, obviously we're consumers to

the rest of the world because we have a lot of prosperity here, obviously.

And I'm trying to figure out how we were--we should reverse the policies that

caused us to consume so much and send all this money abroad. Do you thinkthat free trade is a hindrance to what we're doing? Is NAFTA, has that been a

negative for us? It seems like we're going to consume no matter what, and

that's good for the rest of the world, and we're not going to export as much.

How should we change our policy? What would make sense?

BUFFETT: Well, actually, we, you know, in the last 30-plus years, we've

increased our exports from 5 percent of GDP to about 11 1/2 percent of GDP.

We exported a trillion, six hundred billion dollars worth of goods last year,but the problem is that over the last 35 years our imports have also gone

from 5 percent to GDP up to about 16 1/2 percent of GDP. So we've been

prosperous ever since World War II and the trade deficit only has become

really significant with the current account deficit in the last six or seven

years. I wrote an article for Fortune about three years ago where I suggested

one solution in terms of import certificates. I believe in free trade. In fact, I

would have no barriers to countries or products or anything of the sort. But I

do think the only true trade we had last year was the 1.6 trillion which we

imported and exported and then on top of that we imported 700 billion more,

and that was unreciprocated trade. So that creates problems over time

because we do hand these little pieces of paper over to other countries, and




we keep force-feeding those countries, and after a while they're not so

enthusiastic about getting the money.

QUINTANILLA: In the letter, Warren, on Friday, you talk about how the

weaker dollar's not done a lot bring our trade activity into balance, and yet

all we hear about is the benefit of--to exporters, to manufacturing in this

country that comes from a weaker dollar. Is the weaker dollar a net benefit

or not?

BUFFETT: Well, a weaker dollar helps exports, but even despite that, as I

put in the annual report, in the last five years, when the euro has gone from,

I think, an average of 90-odd cents to today $1.51 or something like that,

our trade deficit with Germany--and people don't think of us as having a

trade deficit with Germany--but it's number five on the list, and that trade

deficit has increased significantly with Germany. The Canadian dollar's gone

from 60-odd cents to roughly par, and with Canada our trade deficit's

increased. So a cheaper dollar does help exports, but you just saw that

contract that didn't go to Boeing but partly went abroad. And, you know,

that's with the euro at 1.51 and classic economics will tell you that that isn't

supposed to happen, but it's happening.

QUICK: Do you think there'll be a backlash? We've already heard from

several different congressman and congresswomen who were upset that

that--that this is going to an overseas company and that some of those jobs

will not be right here at home. What do you say to that?

BUFFETT: No. Well, it's a problem that--it's a real problem when, with the

euro at $1.51 or whatever it is today, that still a competitive market sends

those jobs abroad. I mean, it shows--you know, the whole world is living

according to what David Ricardo said, you know, back in 1820 or




thereabouts, and he was not contemplating this kind of a world. A

cheapening dollar is not solving the problem, and that's why I wrote this

article about import certificates a few years ago.

QUICK: You know, Warren, also in the letter to shareholders--I'm sorry, Joe.

I'll ask this real quick and then I'll...

KERNEN: OK.

QUICK: ...throw it back to you. But in the letter to shareholders you also

talked about how you are now looking at four potential successors for thechief investment officer position at Berkshire Hathaway.

BUFFETT: It's Joe and three others actually.

QUICK: Joe and three other people who are looking at this. You mentioned...

KERNEN: Three others?

QUICK: ...that they are middle-aged--yeah, three others, he's upset about

that...

BUFFETT: Yeah, they're way behind you, Joe.

QUICK: You mentioned that these people are young to middle-age, that

they're well-to-do to wealthy. These are all people outside Berkshire

Hathaway. If we took a stab at it, are any of them women?

BUFFETT: Actually, none of--that's more than I usually tell, but yeah, none

of them are women.

QUICK: OK.




BUFFETT: But that's a good question, because I didn't hear from many

women. I would say that I didn't hear--I would say the hunters, really, up to

1,000, I'll bet there weren't more than 3 percent women. I know some very

good women inventors, but I'm not sure. Yeah.

QUICK: Hm. Only about 3 percent who wrote in to you.

BUFFETT: Wrote in, the applicants. I--that's a guess, but it was something

like that.

QUICK: OK. And, Joe, I'm sorry. I interrupted you before. What was yourquestion?

KERNEN: Yeah, I have a bunch of them. Going back to the--trying to figure

out how we solve this trade problem. I know a lot of what we send--we send

a lot of money over there for energy, obviously. Be good to bring more of

that domestically, Warren, but you're a free trader, you're positive on free

trade. You back Senator Clinton and Senator Obama. I was wondering

whether their positions, their recent positions--maybe it's to win Ohio, I don'tknow what you'd attribute it to--but the protectionist rhetoric from both

candidates, are you in sync with that in terms of NAFTA and free trade?

BUFFETT: I'm not going to get too specific on the eve of the election

tomorrow, whether or not I agree with them. I will say this, I don't agree

with them on everything. But the--what I'm protectionist, I would like to

protect us essentially selling close to as much to the rest of the world as we

import from them. I think it's in our national interest. I don't care whether

we have $100 billion current account deficit or 50 billion or 200 billion, but to

have one that's 5-plus percent of GDP. Alan Greenspan said many years ago

it was unsustainable. Ben Bernanke said last summer it was unsustainable.




KERNEN: Yeah.

BUFFETT: Everybody says it's unsustainable, and yet we keep doing it.

KERNEN: Are we--are we living beyond our means? Are we just consuming

and consuming and driving SUVs and just, you know, we're just gluttonous,

is that part of it? Do we need to tighten our belts?

BUFFETT: Well, in the end we have an enormous amount of assets in this

country, which the world is willing to take. I mean, Indonesia or Thailand

couldn't do this because they couldn't issue--they couldn't issue debt in theirown currency and have people keep accepting it. But we--we're like a

country that has a farm the size of Texas, or we're a family farm the size of

Texas, and it beings all kinds of goods and services to us, but we want to

consume 5 or 6 percent more than the farm produces, so we sell off a little

bit of the farm every day or we mortgage a little bit of the farm every day.

And we can't even see it because the farm is so big, and that we can--we can

give a little mortgage and nobody notices, put an IOU on it. Or we can sell a

little bit of it like when the sovereign wealth funds come in and we don't even

hardly see it. But over time, it's like eating an extra 100 calories at every

meal. I mean, you don't sit down at the table and then get up and everybody

says, `My god, you're fat.' But if you keep doing it over time pretty soon

they'll say, `My god, he's gotten fat.'

QUICK: And ver...

KERNEN: I wish you'd take something--I wish you'd take a different analogy

there.

QUINTANILLA: Joe didn't know there was an alternative.




BUFFETT: Nothing--Joe, nothing personal--nothing personal.

KERNEN: No, no. Maybe you don't have a monitor, but it is personal,

Warren.

BUFFETT: OK. If you've got a monitor, you can--you can retaliate.

QUINTANILLA: They say the camera...

QUICK: OK, guys, we will--oh, go ahead, Carl.

QUINTANILLA: Go ahead--I was going to say they say camera adds 10

pounds, Joe.

KERNEN: Yes.

QUINTANILLA: Although you don't see it on Warren--you don't see it on

Warren. I don't know what your problem is.

KERNEN: I know what my problem is, he just described it. Eating, you

know...

QUINTANILLA: We'll take a break here, Beck, and come back in a little bit.

STEVE LI ESMAN: And one bright spot: While Wall Street, they're panicked

over the credit crunch, three quarters of Americans say, `Credit crunch?

What credit crunch?' They're reporting no trouble getting a loan, and that is

unchanged from our survey in October. And just 16 percent of Americans say




they have a lot of debt. So while the economic pundits may worry about

American debt levels, Americans themselves aren't too concerned. Who

better to ask about this than Warren Buffett? Good morning, Mr. Buffett.

Steve Liesman here.

BUFFETT: Hi, Steve.

LIESMAN: So let me ask you what this means from a stock market

perspective when we find such tremendously widespread negative attitudes.

Does that signal a buying opportunity to you?

BUFFETT: Well, at some point it will. I--but I don't buy based on what I

really think the market will do in the next, you know, month, six months or a

year. If things--if I buy something at an attractive price, I don't care what

the stock does. You know, if I buy a farm, I don't get a quote on it every

day. If I buy an apartment house, I don't get a quote on it every day. And if I

buy a stock, I want it to be a stock that I'm happy owning. If they close the

stock market for a couple of years--they--back in 1914 they did close the

stock market for many months and, you know, it's what the business does

over time that's going to determine how I do. So I don't really--I don't try

and time stock prices, I try to price stock prices. And it is true--and there's a

lot of negative sentiment around--I'm more likely to find good things to buy

than if everybody's in a very bullish mood.

LIESMAN: Is that one of the...

QUICK: So, Warren, that actually...

LIESMAN: Go ahead, Becky.

QUICK: Go ahead, Steve, I'm sorry.




LIESMAN: No, I was going to say, is that one of those times right now? Are

you finding more things to buy in the stock market, and are those negative

attitudes helping depress prices and creating buying opportunities for you?

BUFFETT: I'm--certainly I find more things to look at now than I did six

months or a year ago. But I would say that it's changed more dramatically in

the fixed income market than it has in the equity market, so that I may--that

may be where I find the opportunities.

LIESMAN: Warren, one...

BUFFETT: You just--you go to work every--you go to work every day and

you just look at--the nice thing about securities is that they change in price

every day, and you don't have to pay any attention to it except if you--if you

have borrowed money, it can--somebody pays a lot of attention to it. Or if

you have fresh money to invest you--you know, when you get--when you

find something you like at the right price, you buy it, and you don't think

about whether it's going to go up or down next week or next month.

LIESMAN: One of the most striking things in this poll is for the first time--

we've done this for four quarters now--Americans now look for a decline in

their home values. What's the significance of that from an economic point of

view, Mr. Buffett?

BUFFETT: Well, it has a huge effect because, you know, with 60 percent-

plus of the American people being homeowners, as being a huge asset--and

in many cases it's a leverage asset--it obviously is going to be on their mind

big time. And I get the figures every month. We have a number of real estate

brokerage operations around the country, and I get the--I get the figures

from many markets on listings and sales, and I've seen something like Dade




and Broward County go from 6,000 listings and 3600 sales a month to where

they're now, I think, 82,000 listings and about 1500 sales a month. So

unless there's some major intervention by the government in some way, or

something of the sort, home prices have not stopped going down. Now, they

will at some point.

QUICK: Any of the intervention plans we've seen from the government

strike you as being a good idea?

BUFFETT: Well, that--I haven't seen the details on many of them, but I

think it's very hard to start interfering with markets without having a whole

lot of unintended consequences.

KERNEN: Hey, Warren, always there's a backdrop to the things you say. You

always end with, Ì know that in the future things are'--you know, `the

United States is going to do great and US businesses are going to do great.'

That's always sort of the backdrop, you don't know when it's going to

happen. I just wonder, you know, with your view on the dollar and knowing

what we still have to work through in terms of all the--what you referred to

as financial weapons of mass destruction--and there was a time where you

actually said that--we believed you when you said the dollar was going to be

worthless. You actually said worth less. You actually said worth less, but I

mean, you are saying five years from now it probably is going to continue to

go down. I mean, is--are you more negative now than you have been in

recent years, would you say? Or tell me we're going to be OK down the road.

BUFFETT: No, no. No, I--you know, we'll be--we'll be fine. I mean, the

factories don't go away, the people and their talents don't go away, the

houses don't go away, the population grows. No, over time, you know, my

children are going to live better than I do, although they don't seem to think




so. They'd like to hasten it a little bit. My--and my grandchildren will live

better than they do. And the same with you. This--in the--in the 20th

century, the real standard of living in the United States went up seven for

one, and a great many of the--of the factors that went into producing that

really unprecedented gain in how people--improvement in how people live,

those factors are still present. I mean, we have a market system, we have a

meritocracy, we have the rule of law. None of them perfect, but they have

combined in the past to move one generation after another ahead of the one

that preceded them. That will continue to be the case. But it will also be the

case that markets will do very wild, unpredictable things and you will seethings you haven't seen before in markets. That's the way--people make

markets, and they're not rational much of the time.

KERNEN: Hm. All right. Thanks, Beck. And we'll be back with you, Mr.

Buffett, in just a second. If you're just tuning in, yeah, this is a very special

morning. Becky Quick is live in Omaha with--in Nebraska with Warren

Buffett, and he's fielding whatever we can throw at him, whatever you can

throw at him, whatever Liesman, Carl, Becky, all of us and all of our viewers.He's answering your questions on CNBC.com. We like it.



QUICK: Welcome back, everyone. As you know, we are taking your viewer

e-mail questions. They've been coming in, and we haven't shown Mr. Buffett

any of these questions. We've been catching him by surprise, asking him on




the fly. So I'd like to go back to one of the questions from earlier because

Warren said he's been thinking about it and has another answer for him. This

is from Jake again from Cleveland, Ohio. And again, if you missed this earlier

he'd asked him, Àmong the CEOs within the universe of publicly traded

companies in which Berkshire doesn't have an ownership position, which CEO

do you believe is doing the best job on behalf of shareholders?' Now Warren,

you mentioned some CEOs, but you told me you just thought of another.

BUFFETT: Yeah, I think Bob Iger at Disney has done an absolutely terrific

job since coming in a couple of years ago, and he--it's a--it's not an easy

company to manage and he is--he's done a first class job. He's shareholder

oriented. He works well--extraordinarily well with the people that are

involved. He understands his business. He's moved them into new areas, so I

give Bob high marks. And actually, Jim Kilts, who was at Gillette when we

were there, he's not running the company now, but if I find out he's going to

run a company, I'm going to buy stock in it.

QUICK: Well, let me ask you that. You mentioned both Disney, and you

mentioned Jeff Immelt of General Electric. Why don't you own those stocks if

you think they're doing such a great job?

BUFFETT: Well, unfortunately, the market recognizes the fact they're doing

that job, to some degree, although neither one of them think that,

incidentally. They both think their stocks way underpriced, and it may well

be, but I have to--I have a universe of $20 trillion worth of stocks and bonds

and everything to decide where to put the money, and every day I look at

what's going to make the most sense for us. And they're close.

QUICK: They're close. OK. Stephen Battaglia writes in from Alexandria,

Virginia. He asks, `Why do you think that you are afforded the exemption




from the SEC to avoid revealing certain positions when others in your same

position have to reveal theirs?' He also points out that he's a professional

investor.

BUFFETT: Yeah, well, I think there are actually certainly many, many

dozens, if not hundreds--you're entitled to get an exemption if you're in the--

if you have a purchasing or a selling program going on. That's not a special

rule for us at all. So if we--if we're buying X, Y, Z at the end of the quarter,

we or any other institution that reports to the SEC is entitled to ask for an

exemption for that, and they grant it. So it's not a special exemption at all

for Berkshire.

QUICK: OK. We also got a lot of e-mails that came in from international

places. This one came in from Switzerland and D.L. Frischnecht writes in, he

says in regards to the subprime loan and banking crisis, he says, Ìn physics

we know the fundamental principle of conservation of energy, so where did

all these billions go? Was it burned in heaps at the Pall Mall, or is economics

maybe not really a science?'

BUFFETT: Well, he's a little beyond me there, but the mistake was in

lending, you know, unwisely, as Shakespeare would say. There were a lot of

dumb lending practices that were dumb lending practices in private equity

financing, and that's why the banks are hung up with the loans. It isn't that

the companies are terrible, but if you loan too much money on anything,

you're going to lose money. And if a house has doubled in price, and

somebody lends 95 percent of the price that's doubled in a couple of years,

there's a good chance they're going to lose money. If they--if they lend

money to people where their income isn't going to make the payments--allow

them to make the payments, they're going to lose money. So there's of ways




to lose money, and for a while people thought houses could do nothing but

go up, so they paid no attention to any other factor. They didn't pay

attention to borrowers' income, they didn't, you know, and you know...

QUICK: But somebody's making that money, right? Somebody's on the

other side of the train.

BUFFETT: Well, the person who--the person who buys the house--well, the

person who sold the house got a bubble-type price. The person who buys the

house now buys it cheaper than other ways. I mean, every time anybody

tells about somebody losing a lot of money by selling a house, there's

somebody else that's buying it at a more attractive price than they would've

paid a year or two ago.

QUICK: OK. Here's an easier one for you.

BUFFETT: OK.

QUICK: Gordon writes in from Meadville, Pennsylvania and he asks, `What

do you put on your hamburgers?'

EMAIL TEXT: What do you put on your hamburgers? Gordon Barrett,

Meadville, PA

BUFFETT: I put a lot of salt.

QUICK: Serious?

BUFFETT: Oh, yeah, well, I salt everything a lot, and I--sometimes I put

tomato and mayonnaise, sometimes I put pickles and, you know, and then I

top it all off with a little See's Candy, wash it down with Cherry Coke.




QUICK: Well, happy breakfast everyone for anybody who's looking at home.

Sam from Tarnation, Texas, writes in, Ìn December on CNBC, you said that

if unemployment rose to 5+ percent, some quote "very large dominoes"

would start to fall. So what are those dominoes and have they started to

fall?'

BUFFETT: Well, I think--I don't think 5, I said it was at 4.7 then, but if it

started moving up significantly.

QUICK: Mm-hmm.

BUFFETT: Five is still not a really high level at all, but it's going the wrong

direction, and some factors are in play that I think will keep it going that

way, but when people aren't employed, then a lot of bad things happen.

QUICK: Right.

BUFFETT: And we're closer to seeing that now than we were when we talked

in December.

QUICK: OK. Tory from Bellevue, Nebraska, writes in and said, `You support

Barack Obama and Hillary Clinton to be President and Chief Executive of the

United States. Would you support either one of them to your successor as

President and Chief Executive of Berkshire Hathaway?'

EMAIL TEXT: You support Barack Obama and Hillary Clinton to be the

President and Chief Executive of the United States. Would you support either

one to be your successor as President and Chief Executive of Berkshire

Hathaway? Tory L. Lucas, Bellevue, NE




BUFFETT: Well, I would certainly employ them to run a business, but

running a business is a little bit different form my job. I couldn't run the

Furniture Mart very well, but I've got the best people in the world in the

Blumkin boys running this place. So I would them--I would put either one of

them in charge of a business. I don't think I'd give them my specific job,

which is strictly allocation of capital. I've got a little different job. But if

they're looking, one of them will probably be looking for a job here in a few

weeks. I would be glad to hire either one of them. !

QUICK: OK. Douglas from Alexandria, Virginia writes in and says, `You

stated that people, including you, aren't paying enough taxes. OK. So why

don't you send some of your billions to the government?'

EMAIL TEXT: You have stated that people, including you, aren't paying

enough taxes. OK. So why don't you send some of your billions to the

government? Douglas Smith, Alexandria, VA

BUFFETT: Well, I don't--I don't say generally people. I think the lower class,

the middle class, even the upper middle class are paying more than they

should be paying. I think that the super rich, like myself, you know, my tax

rate was 17 and a fraction percent in 2006, and everybody else in the office

was paying way more. I'm not advocating tax increases across the board at

all. I'm advocating a redistribution to the super rich. In the last 20 years, the

total wealth of the Forbes 400 has gone from 220,000,000,000 to a

1,540,000,000, seven for one. The average wage has gone no place in real

terms, it's up about 80, 85 percent and that's exactly what inflation is. So the

world has gotten tilted to the super rich, and I think that the middle class

and even the upper middle class, I think they've been getting a very raw

deal. So I would change their taxes and move them over to people like me.




QUICK: Back to the point, we've got a lot of questions like this from viewers

saying...

BUFFETT: Yeah.

QUICK: ...why don't you send your billions in? Here's the address.

BUFFETT: Well, my billions will go to society. Every share of stock I've got.

And, on balance, I think that the five foundations I'm giving to will probably

get a better result than sending to the government, but I wouldn't have any

objection to sending to the government. This society has showeredeverything on me. I've gotten everything in life I've wanted, and I will spend

less than 1 percent of my net worth, I and my family, during my lifetime. If

the only choice were to give it to the government or to give it to create a

dynasty of Buffetts, I would give it to the government.

QUICK: OK. Fair enough. We have a lot more questions that have come in

from you, the viewers, and we'll have many more of them when we come

right back after this.

(Announcements)

JIM CRAMER (ON TAPE): Asking the icon. Sir, isn't it true that we have an

energy policy backing ethanol that is creating so much inflation that perhaps

it would be better to stop the emphasis on ethanol, allowing inflation to come

down and the Federal Reserve to cut more? Am I wrong that mankind is

being crucified upon a cross of ethanol right now, and it's killing the poorer

nations and the people in our country who can't afford anymore to eat

chicken or beef?

QUICK: Warren, what do you think?




BUFFETT: I wouldn't put it exactly in those terms, but I would say that

ethanol is a relatively inefficient way of creating gasoline--gasoline

equivalent, and it uses a lot of energy in the process of raising the corn that

does it. And, as correctly pointed out, it has a by-product of raising

agricultural products elsewhere. In economics you can never do one thing.

Anytime anybody tells you they're doing something in economics, then you

have to say, Ànd then what?' And the ànd then what' in the case of

ethanol is A, if you use it to plant more corn, you're going to use--in terms of

fertilizer and everything, you're going to use a lot of energy. And secondly,

you're going to raise the prices, on balance, you'll raise the prices of otheragricultural products. So there's no question that that--that's a fairly correct

statement of the problem.

QUICK: Those are very brave words when you realize we're standing in the

"Cornhusker State."

BUFFETT: Yeah.

QUICK: Do you get pushback from that?

BUFFETT: My son was head of the Nebraska Ethanol Commission. He is a

farmer. He lives $5 1/2 corn, he loves $12 soy beans, I don't blame him. But

I'm not running for anything, fortunately, and, you know, I can call them as I

see them.

QUICK: OK. Let's get back to some of our viewer e-mail questions.

BUFFETT: Sure.

QUICK: This one comes in from George Greene in Wilmington, North

Carolina. He says, `Do you believe the media sensationalizing news events




has caused the turmoil in the market as well as driven up the price of oil due

to constantly talking about $100 a barrel?' He's talking about the `fog in

Houston for two days, it shouldn't cause an increase due to a possible supply

disruption.' Is this our fault?

BUFFETT: Yeah. In other words, if you just keep people ignorant, will

markets work better?

QUICK: Right.

BUFFETT: You know, the nature of it, you are reporting spot news all thetime, but you're going to get spot news one way or another, and the problem

is the way people react. And--but they're going to react--they reacted too

much to short-term news, and if it doesn't come from you, it'll come from

somebody else. So just do the most reliable job you can of reporting.

QUICK: Whoo! We got a pass. We got a pass from you on that one.

BUFFETT: Yeah.

QUICK: We'll take it.

BUFFETT: Yeah. People have themselves to blame for crazy markets. You

know, we're talking--if you talk about apartment houses, you talk about

farms, normally or something like that. Prices move very gently and people

don't get quotes on them every day. You don't have to look at the price of

the stock market. I don't even look at--I don't look at the price of

Berkshire's...

QUICK: You don't look at Berkshire share every day?




BUFFETT: No. What difference does it make? I haven't bought or sold a

share in, you know, 25 or 30 years. I mean, it's the business that counts.

QUICK: Wait a second, come on. You have to have a rough idea for where

you stock is trading.

BUFFETT: Oh sure, I've got a rough idea and some days I look at it, but I

don't feel like it's a necessity to look at it. It doesn't tell me anything. The

market is there to serve you and not to instruct you. That's the most

important lesson in investing. And when it gives you the chance to do

something because it's doing something silly, you do it and otherwise you

ignore it.

QUICK: Can you remember the last day you didn't know exactly where

Berkshire share was. Was this in the last week, maybe?

BUFFETT: Yeah.

QUICK: Yeah?

BUFFETT: Mm-hmm.

QUICK: Wow. OK.

BUFFETT: Yeah.

QUICK: Jerry in Chicago, Illinois, writes in. He says, Ìn recent letters, you

mentioned investment management "Helpers" and hedge fund "Hyper-Helpers." You say fee arrangements and costs work to the detriment of the

investor. So what type of investment management fee structure do you think




is fair? And if you were still running the Buffett Partnership, how would you

determine fees?'

BUFFETT: Yeah. I--overall in terms of that--I think everybody should read

Jack Bogle's book. Low--what you really want to do is you want to own an

American industry which is going to do fine over time, but you want to make

sure you don't put all your money in at once because you might pick just the

wrong point.

QUICK: Mm-hmm.

BUFFETT: But if you buy in over time into a wonderful business, which is

American industry, and you make sure you don't go in at just the wrong

times, when people get excited, and you get to keep your costs low, you're

going--you're going to beat 90 percent of the people because they're going

to run up unnecessary costs. And if you have the whole world running hedge

funds, and they're all charging you 2 and 20 or something of the sort, believe

me, it doesn't make the cars, you know, Toyotas sell for any more money. It

doesn't make the Furniture Mart make any more money. It just--it just

transfers the profits of those enterprises to a bunch of people who are

essentially telling you to buy and sell.

QUICK: OK. There's a question that came in from Kim Johnson in Spring,

Texas. He said--this is a good question, I really like this one. `Would you be

the same man you are today if you'd been accepted into Harvard Business

School?'

BUFFETT: Well, no, because I wouldn't have gotten hired by Ben Graham

later on, and I'd probably wouldn't have married my wife, because events

would've been different. It was a two-year school there, and I got out in one




year, therefore I had some time to put on a full court press on the romantic

side. And--so, no, it was very fortunate for me. I didn't feel that way at the

time. It was very fortunate for me they turned me down. So maybe they

should be soliciting me for their alumni fund based on the fact they turned

me down.

QUICK: OK. Melvin writes in from Manila. He says that `You mentioned in

your annual letter to shareholders that Berkshire would be experiencing

slower growth in the future and definitely would not be able to match the

high growth rates of the past. So do you think the present price of Berkshire

Hathaway stock reflects that outlook as well?'

EMAIL TEXT: You mentioned in your annual letter to shareholders that

Berkshire would be experiencing slower growth in the future and will

definitely not be able to match the high growth rates of the past years. Do

you think the present price of Berkshire Hathaway stock reflects this outlook

at well? Melvin Olivan, Manila, Philippines

BUFFETT: Well, we certainly try and explain the facts to everybody, so the

price should reflect all of the facts that we give them, including my views

about the fact that the past is not replicable. Well, if we knew we were going

to compound at 21 percent a year for the next 40-some years...

QUICK: Mm-hmm.

BUFFETT: ...you know, a much higher price would be justified, but that is a

total--that would be a totally crazy assumption.

QUICK: OK, guys, I'm going to throw you off in the control room here

because I'm going to go out of order. I want to go to the Reed in Canton,




Michigan. He wrote a question that says `You seem like the guy next door.

Do you sit down and pay your own bills? Things like electric, heat, phone,

credit cards, etc. It would be great to know that one of the richest men on

the planet sits down and writes out his own checks every month or goes to

the Quickie Mart and picks up a gallon of milk.' Do you do those things?

BUFFETT: Well, I like to go to supermarkets. I like to buy things there and

roam the aisles and see what there is. Actually, my assistant writes out the

checks, you know. So I do sign checks, but I don't--I do not make them out

anymore.

QUICK: OK. All right. We have a lot more viewer e-mail that we will get

through throughout the show. Also, Carl, when we return, when we come

back on this, we're going to be talking about some of the news of the day

and Mr. Buffett's particular thoughts on derivatives. He's got some new ideas

he'd like to share, and we'll get to all of that when we come back.

QUINTANILLA: All right, Beck. As she said, a lot more with Warren Buffett

coming up in the next hour of SQUAWK. We're also going to find out how

politics and the economy are playing out in the CNBC Wealth in America

report, and Charlie Gasparino going to join us. Also--did we mention?--more

e-mails for Warren Buffett as this special edition of SQUAWK BOX continues.

KERNEN: Welcome back to SQUAWK BOX here on CNBC, first in business

worldwide. I'm Joe Kernen, along with Carl Quintanilla and Becky Quick,

who's in Omaha this morning with the man himself, Warren Buffett. It's a




perfect day to have him on with everything going on in the markets and the

economy. Becky, I don't know if you've gotten access to the wire services,

but they truly...

QUICK: I don't.

KERNEN: Well, they truly are hanging on every word. I mean, I'll see a

flash, you know, the ones you would think of: Buffett, common sense, we're

in a recession. But also, Buffett says he has not--a woman is not on the list

for CIO. They have another one that says Buffett would not put Obama or

Clinton in charge of Berkshire. So they're putting everything on there.

Nothing about me being the main guy for CIO, though. Nothing about Joe

being in the--in the...

QUINTANILLA: One of the four candidates.

KERNEN: And I challenge Reuters and Dow Jones to, if he said it--they're

putting everything else on. J-O-E, right?

QUINTANILLA: K-E-R...

KERNEN: Even just my first name is OK. I'm mad.

QUICK: And Joe, did they pick up--did they pick up what he puts on his

hamburgers? The mayo and ketchup?

QUINTANILLA: That also has not been on the wires.

KERNEN: That has not been picked up, either. It's like, you know, they're

trying to judge what's important and what isn't and, you know, someone--




they're like 22 years old, they're misspelling everything. But--no, they're not.

They're...

BUFFETT: I'm doing my best to make news, but...

KERNEN: You are--you are making a lot of news.

QUINTANILLA: Yes, you are.

KERNEN: And I got so many follow-ups, Beck, but let's get to--there--you

know, earlier it was quiet. There are so many e-mails at this point that have

come in, I'm sure they're very similar to the ones that you already have

ready to go. So you want to take it away, Beck, and do some more?

QUICK: Sure. And guys, jump in as you want. You know, you tell us when

you want in on these things, and...

KERNEN: We want in at--we want in whenever you can let us.

QUICK: ...it's hard when we're far apart, but you guys jump right in.

KERNEN: Yeah, we want in whenever...

QUICK: All right, you guys jump in. You guys are listening. You hear any

points you want to jump in on, go right ahead because...

KERNEN: OK.

QUICK: ...we're OK with this. We're working. We can hear everything.

KERNEN: Good.




QUICK: But we're going to start off with a question about derivatives,

because Joe, you brought this up earlier. You were talking about those

comments that Mr. Buffett's made in the past about these being weapons of

financial mass destruction. And Warren, you said you had a couple other

thoughts on derivatives.

BUFFETT: Well, you know, the ways you get into trouble in markets is doing

things you don't understand, and then doing them with a lot of borrowed

money. And derivatives combine those things. And--but the really important

illustration that has never gotten picked up on much was that a couple of

years ago Freddie and Fannie got into big trouble, billions and billions and

billions of dollars of--that they had to restate. Now, Freddie and Fannie had

auditors like everybody else, but they also had a government agency called

OFHEO that had 200 people in it whose sole job was to oversee Freddie and

Fannie. Two hundred people going to work every day, and those people did

not pick up at all on all of these problems that Freddie and Fannie had. I

mean, they were looking at complex financial instruments, you know, all

kinds of swaptions and all that sort of thing. The auditors didn't pick up on it,but more important, 200 full-time--they didn't have to think about General

Motors, they didn't have to think about AT&T. They had two companies to

think about. And they issued a report later on telling about the failing of all--

everybody else.

QUICK: Mm-hmm.

BUFFETT: But it shows you--when things get that complex, you're going to

have a lot of problems. And CDO squared--I figured out, on a CDO squared

you had to read 750,000 pages to understand the instruments that were

underneath it.




QUICK: Oh, my gosh.

BUFFETT: Yeah. Well, you start with the RMB, that's the residential

mortgage-backed securities, and that would have 30 tranches. And then

you'd take--and that would be a 300-page document--you'd take a tranche

from each one of that and create a CDO, 50 of those times three--300, you

know, it becomes 15,000. Then you take a CDO squared with 50 more, and

now you're up to 750,000 pages. QUICK: You have to read through it.

BUFFETT: And the mind can't comprehend that. What people did

comprehend was that the fees were terrific in selling them to the people.

QUICK: Yeah. It raises some questions, too, when you talk about people

who are looking at oversight for these very particular things, about what's

been happening with the rating agencies as well, and there's been some

viewer e-mail. I'd like to bring in another one right here. In fact, Brad

Osterloo from Mitchell, South Dakota, writes in and says, Ì was surprised to

see no mention of the municipal bond rating crisis nor a mention of Berkshire

entering that market in the annual report--how come?'

BUFFETT: Well, we entered it very late. I write--I write the report in

November, December, we didn't even enter in the--and we're still very small

in it. We'll undoubtedly have something to say about it at the annual meeting

and in the report next year. But, you know, as I mentioned, we only have

had 69 million of premiums. We've written 206 contracts so far. So it's

something we've just started in. We were admitted in New York about a

month ago, we've been admitted in five more states. The states have been

terrific about responding very quickly. But we got into Maryland the other

day, so it's moving, but it isn't yet a big item.




QUICK: OK. Joe:

KERNEN: You know, Warren, I was--your comments about insurance, the

party being over, I don't think you were talking about monoline. And typically

property casualty, P and C companies, there's these big macrocycles that

have to do with--I don't know whether there were a lot of disasters in one

year, and being able to raise premiums. What are your thoughts on what

makes it such a difficult time right now for the entire insurance industry?

Why did you say that, that the party's over? Because of the credit crisis?

BUFFETT: Well, it's been a--it's been a--it's been a--no. It's been a

wonderful time up to now. Now, if they happen to own the wrong assets,

they could lose some money on that. But on their peer insurance

underwriting, we've had two very, very good years, partly because rates

were very good and partly because natural disasters in the United States

were almost absent on a big scale. So we're now going into a year where

rates will be somewhat lower. Exposures grow every year, and some years

we'll be lucky on natural disasters and some years we won't. But I would bet

a lot of money that the--that the underwriting profit margin--or loss,

perhaps--but underwriting profit margin of the US property casualty industry

decreases in 2008, but it's decreasing from a very good level. So it--but it's

going to be worse.

QUICK: Carl:

QUINTANILLA: Warren, we've talked a lot about growth concerns this

morning, inflation concerns. Page two of the Journal, Greg Ip, big Fed

watcher, has a story about how for the Fed it is recession, not inflation, that

poses the greater threat. If you were in the chair, and Chairman Buffett was




giving Humphrey-Hawkins on the Hill, would you be framing it the same

way?

BUFFETT: I'd probably arrange to get an emergency call so I had to leave

the place. Hey, it's a very tough position. I never--I don't like to second

guess Fed chairmen, because they have a very, very tough problem. They

don't--and they don't have all the answers. They know they don't all have

the answers. And, of course, people like to think they do. And the problem

with inflation is that it's very easy to ignite it and it's very hard to put it out.

And you needed a Paul Volcker to do it 25 years ago. So I think Bernanke's

got a very tough balancing act and I think there's a pretty fair chance that

the country will react in such a way as to ignite inflation in a serious way.

QUINTANILLA: I don't want to put words in your mouth, but one could take

that and say, `Well, Buffett's suggesting they're on the wrong side of the

trade.'

BUFFETT: No. The trouble is they have--they've got a problem on the other

side. You know, it's like Woody Allen in that movie many years ago, where he

said, you know, `We face a fork in the road. One leads to death and

pestilence and the other leads to total destruction. May God grant us the

wisdom to make the right choice.' I mean, it is not an--it's not an easy game.

KERNEN: I was thinking of Yogi. Ìf you get to a fork in the road, you should

take it' is what--that was much--that was much easier one to...

BUFFETT: Yeah, absolutely take it. Yeah.

KERNEN: Warren, real quickly on--I wanted to follow up, a long time ago,

on your comments about hedge funds. I don't know the exact numbers, but




let's say 10, 12 years ago there were X hedge funds, now let's say that

there's 50 X, or whatever it is. And you're not a big fan, obviously. How do

you foresee the scenario where we go back to something between X and 50

X? Does the market--does a bad market take us there? Does bad

performance across the board take us there? How do we see the end of this--

of this explosion in hedge fund mania?

BUFFETT: Over time there will be a disillusionment when the--and

incidentally, it won't be disastrous or anything of the sort. There'll be--there'll

be the occasional blowups here and there. But over time, when people find

out that it's not the Holy Grail, you know, the money will flow elsewhere. You

know, people will--people always go through the rearview mirror, what's

been popular and has worked recently, and this will be like all the rest.

KERNEN: Hm.

QUICK: You know, Warren, in your annual letter you laid out an argument

not only against companies and how they're not really thinking correctly

about their pension right now, the pension plans and how they're funding

them, but you also said that the public sector faces a much bigger problem;

that municipalities are even in a worse situation, because they're promising

people they can retire in their 40s and different things, making promises that

they're never going to be able to keep.

BUFFETT: Sure.

QUICK: Floyd Norris over the weekend, of The New York Times, pointed out

yes, but at the same time you're very willing to underwrite a lot of those

same municipalities for the promises they're making right now. Why is that?




BUFFETT: Well, that could be a tough problem. I mean, they won't walk--

they won't walk away from the pension problems. It's going to be easier to

walk away from their bonds than it would be their pension problems. But it's

a--it's an incremental problem. And it's so easy, if you come up for election

next year, to increase pension promises. You know it'll get you votes and you

don't--you're never have to--going to have to pay if you're on the city council

or if you're a governor or a state legislator. So those promises--you know,

when I was in New York, I knew some guys that retired in their early 40s and

they worked a lot of extra hours in the last year and all of that. And they

were going to be getting pensions for 40 or 50 years. So they worked for 20years and they're going to get paid 40 or 50 years for not working. And that

creates a lot of problems on their own. And it's much more so in the--in the

public sector than it is with corporations.

QUICK: OK. Another viewer e-mail here, a gentleman named Bo Mann

writes in. He says, `You usually advise the younger crowd. But what would

an ideal portfolio consist of for a 55-year-old man with two kids entering

college and $1 million to invest? Should it be 100 percent Berkshire?' That'swhat he asks, not me.

BUFFETT: I'm only 99 percent Berkshire myself, so I never go 100 percent.

Well, I think if you buy equities across the board, which means an index

fund, and if you do it over time so that you don't put all your money at the

wrong time, and it's a low cost index fund, that's probably the best

investment that most people could make. Mm-hmm.

QUICK: OK. Now, Carl and Joe, we will get back to you guys in the studio.

Again, we'll be here--and I should point out, we are at the Nebraska

Furniture Mart right now in Omaha. You wonder why we're sitting in the




middle of a store. This is one of Berkshire Hathaway's many companies and

this store that we're sitting in right now is one that they just redid this year

and opened up this brand-new store. So if you wonder why we're sitting in

the middle of a store, that's why. And we'll get to a lot more questions with

the Oracle coming up.

QUINTANILLA: That's a great shot, Beck. We'll see you in a couple of

minutes.

QUINTANILLA: We do have--thank you, Charlie. We do have Becky and

Warren, of course, in Omaha, listening to all of this.

GASPARINO: OK.

QUINTANILLA: And there's a lot--a lot of cross currents here, Becky. Any

thoughts from that part of the country?

QUICK: Mm-hmm. Yeah. Actually, Charlie, Warren was just listening in to

what you were talking about, and we started talking about Moody's because

Berkshire owns about one sixth of Moody's. And that was a question that

came in from a lot of--from viewers, as well, Warren, is what do you think

about the value of Moody's? Was this a mistake to jump in and buy this

stake?

BUFFETT: Well, it wasn't a mistake at the price we bought it. But in terms of

the--the intrinsic business value of Moody's decreased last year. I mean,

Wells Fargo stock was down last year. I don't think the intrinsic business

value shrunk. In fact, I said I thought it probably increased a touch. And




there's a lot of companies whose stock went down where the intrinsic

business value did not go down, or maybe went up. But I--our holding a

Moody's, which is a significant holding, they're--I don't think there's any

question that the intrinsic business value of a Moody's shrunk last year, just

as McGraw-Hill owns S&P and the S&P component of McGraw-Hill, it--they

have less of a moat around them and they're going to be affected for a long

time by the experience of the last couple years.

QUICK: OK. And, you know, that's something interesting, though. Does that

mean you would sell this stock and try and get out of it, or do you hold onto

it through this time?

BUFFETT: Well, we own 48 million shares, so we have not seen a lot of bids

for 48 million share blocks. We have a much more difficult problem either

buying or selling stocks than the average investor. I mean, moving big blocks

of stocks around, it's very difficult for us to sell, except on the way up, and

it's difficult for us to buy except on the way down just because of the

quantities involved.

QUICK: OK. Charlie, that's Warren weighing in on what he'd just heard you

reporting about.

BUFFETT: Mm-hmm.

QUICK: And, guys, we'll toss it back to you.

KERNEN: All right. Warren, I may lighten up on that a little bit if I--if I do

come in and start running--I mean, maybe a million here, a million there.

You're not going to--I mean, you're not going to come in and tell me what to

do, right, once I become CIO, right?




BUFFETT: Well, I don't know how many million shares you've got, Joe, but

we'll let you go first.

KERNEN: Well, no, I got--I'm going to sell some of yours when I'm running

the place. Forty-eight...

BUFFETT: Oh, I see. Well, you...

KERNEN: If we got--if we got 48 million, I'm going to start lightening up. I

just--I don't want you looking over my shoulder every...

BUFFETT: You...

KERNEN: ...you know, every time I do something.

QUINTANILLA: Joe, have you started looking at homes? Have you started

looking at homes in Omaha?

KERNEN: Oh, yeah, I forgot about that. That--I won't be able to buy a

sports team, either. Charlie, you want to get back in here?

GASPARINO: Yeah. I mean, you know, listen, we've been writing--I've been

covering the bond rating issues for a long time, and every now and then you

have this huge flare up where everybody says they haven't done their job

and, you know, there should be more competition. And basically nothing has

really changed much. This--if we--we were talking about bond insurance as a

license to steal. Well, let me tell you something: The rating agencies is--you

know, multiply that by 10. I mean, these guys have an entrenched--it's not a

monopoly, because it's three of them. What is that, a triopoly? Those

generally aren't bad businesses to invest in, unless, of course, you think

there's going to be regulation out there. And this SEC does not seem to want




to regulate the rating agencies. It's not really--it's not really--it keeps saying

that it wants to open up the competition, but the types of competition it's

opening up to doesn't seem to--these are not--these are not companies that

could really compete against big companies like Moody's, S&P and Fitch,

which is a growing company. So, you know, we've sang their--you know,

we've said in the past that they're not great investments. Whenever we hit

these sort of bump in the road, like now, they've obviously missed the

subprime market. But, you know, they're there for a reason, and three of

them, and it's hard to break in. And I guess Warren Buffett would agree with

everything I say.

KERNEN: Yeah, and I would...

BUFFETT: Yeah, I--can I?

QUICK: Yeah, go ahead.

BUFFETT: I do agree with that. But they have--certainly structured finance

rating has been a--quite a profitable--everything's profitable at the ratingagencies.

GASPARINO: Right.

QUICK: Mm-hmm.

BUFFETT: But structured finance has been very profitable, and certainly that

stream of revenue probably has diminished dramatically for quite a while.

GASPARINO: Gone.

KERNEN: Mm-hmm.




QUICK: OK. I...

KERNEN: All right, thanks...(unintelligible).

QUICK: Warren--thanks, Charlie. Guys, I'd like to bring in a few more

viewer e-mails that have been coming in, as well. This one comes from Shan

Ausaf in Katy, Texas, who writes in: `How do you know when you're dealing

with an honest and capable person?'

BUFFETT: Well, it's a great question, and I would say this: If you--if we get

100 possible sellers to us of businesses, I don't think I can make a correct judgment all--on all of the 100. But I only have to be right on the ones I

make an affirmative judgment on. So I think I can be right a high percentage

of the time on the six or eight that I might pick out from there, and I think I

can sort of pick out the obvious thieves, you know, of the six and eight. But

in between, I think, I can't grade everybody in that 100. And--but we have

had--I mean, when we bought the Furniture Mart from the Blumkin family,

I'd seen them operate for 20 or 30 years. I knew them personally. There

wasn't any doubt in my mind whatsoever that they would work harder and

more--you know, for me than they had when they owned it all themselves.

And we've had good luck in that. But we've not batted 100 percent. Every

now and then I make a mistake.

QUICK: In terms of the management that you're betting on?

BUFFETT: Yeah, yeah. It--human beings sometimes change. Sometimes

they change with age. I hope not, but I kind of feel it myself some days, the-

-but you can be right most of the time. We love buying businesses from

people who are second and third generation. You've really got to--you've got




a scorecard on them then. Buying them from a financial operator, we've

never done it.

QUICK: OK. Steve Cady from Charlottesville, Virginia, writes in: `With the

obvious understanding that you have of economics and of business, how in

the world can you be a Democrat?'

BUFFETT: Well, I think--I first became a--I was president of the Young

Republicans Club at the University of Pennsylvania. My dad was a Republican

congressman. We used to sit around the dinner table thinking that if

Roosevelt won again that the country would disappear and all that sort of

thing. But civil rights in the early '60s probably changed my view. I just felt--

it wasn't exclusively a Democrat vs. Republican issue, but I felt the

Democrats cared more about it. I feel the Democrats--I feel people like me

can take care of ourselves. The Democrats, I think, have some more concern

on average, but it's not universal. I vote for Republicans. But I think they

worry a little bit about--more about the people that get the short stick in life.

QUICK: OK, we had a viewer write in from Zimbabwe--I believe the name's

Mfaro Hove--who writes: `What approach would you use to invest in a

country where inflation is at more than 100,000 percent a year?'

BUFFETT: The only--the only defense you have in--when money is turning

into confetti is basically your own talents and earning power. If you're the

best brain surgeon, if you're the best meat cutter in town, if you're, you

know, the best professional football player, whatever it may be, if you have

your own talent, whether the currency becomes, you know, totally devalued

or they go--they go to sharks' teeth or seashells for currency, you'll

command your share if you have personal talent. So the best investment you

can make is always in yourself. I tell students that all the time. If they learn






decision? Or is it you that makes the decision to go with the Glaxo, Sanofi vs.

somebody else?

BUFFETT: Yeah, it's me that makes the decision. And I would say this: with

drug companies, I feel I know less specifically about a given company's

future than I might if I were buying a candy company or whatever it might

be, because it's very difficult to say who will have the winners five or six

years from now. I think--I think if you buy drug companies that you probably

want to buy those with--that--you probably want to buy them somewhat

across the board. You know, it would be hard for me to make a bet on any

specific company based on something that was in the pipeline that might

come out in two or three years. You know the ones that are coming off

protection, so you'll see--in a Sanofi, you'll see certain things that are going

to cause the earnings to go down, and what's going--what will cause the

earnings to go up is in the pipeline, you're sort of guessing at. If you have a

group of them, I think you'll probably do OK if you buy in at sort of a multiple

for the group. And actually, the drug companies have gotten in some cases

quite a bit cheaper in recent years.

KERNEN: So we shouldn't be surprised to see you--then it wasn't that you

were picking non-domestic drug companies, you might end up with a stake in

one of the domestics at some point.

BUFFETT: Yeah, very easily. And, of course, the domestics have a lot of

earnings coming from abroad, too. I do like earnings coming from abroad

better than earnings coming from the United States. So if they're doing

business--but most of them are doing business all over the world, so there's

not a huge difference in that. We own some Johnson & Johnson and, you

know, half the earnings, roughly, will come from abroad. And we think we




probably have some currency play. We've already had some, but it hasn't

been reflected that much in the stock. But there will be a J&J, a Sanofi, you

name it, they will earn a lot of money abroad and they'll come up with some

drugs that surprise you and they'll have plenty of them that are earning a lot

of money now that'll--won't be earning any money for them or anything to

speak of 10 years from now.

KERNEN: Let me--you want to go back? Or I had a real...

QUICK: No, go ahead.

KERNEN: I had a theoretical question. Alternative energy, Warren; I mean,

you seem to buy things you know. Utilities. Obviously, utilities are going to

deliver energy to communities all around the globe. It seems like there's a

huge potential in alternative energy. Is that just too out there, or maybe the

fundamentals get ahead--or the stock price gets ahead of the fundamentals?

It seems--are there any earth-changing areas that you're considering right

now or do the stocks just get ahead of themselves?

BUFFETT: Well, I don't--I don't try to--I usually don't try to make money by

guessing that something will be doing enormously well 10 years from now,

that is sort of a dream...

KERNEN: Yeah.

BUFFETT: ...at the present time. I look for things I can understand. I mean,

here's our own See's candy, I might add. And See's candy will be--will be

popular 10 years from now or 20 years from now. People will keep eating it.

They'll keep chewing gum, they'll keep doing all kinds of things that are

obvious.




KERNEN: See's.

BUFFETT: They'll shave with Gillette razors and, you know, they'll use Tide

in the washing machines and so on. And I can't pick--I can't pick the

winners. There were 2,000 auto companies started in the United States and

you've got three of them hanging on by their fingernails now. So it was a

tremendous industry, it changed the world, but 2,000 of them disappeared.

QUICK: Hey, Warren, you mentioned earlier--and you wrote about this in

the annual letter to shareholders, too--the sovereign wealth funds. So these

guys have come out of nowhere. When you made these comments earlier,

we were talking about the strength or the weakness of the dollar. But are

sovereign wealth funds a bad thing, necessarily?

BUFFETT: Well, they're inevitable. I mean, we are creating the sovereign

wealth funds in the United States. We have--when we ship $2 billion today to

the rest of the world, it has to go into stocks or bonds or direct investment in

the US or something. But we are forcing investment in the United States by

our consumption pattern. So when we--if we run a negative trade balance

with China of 250 billion this year or something of the sort, they're going to

have 250 billion of US somethings. And they're picking equities now, and in

the end--you know, it's kind of interesting. They produce the 250 billion net

of goods. People work hard over there, they work extra hours to send us

shoes and send us a lot of the things you see in the store, and we send them

little pieces of paper, you know. And they're not as excited about getting

those pieces of paper, but we ought to expect them to do with those pieces

of paper whatever's the most intelligent. That's what we would do. And so

sovereign wealth funds are simply a result of a large trade deficit here, large

current account deficit, and they're going to get larger and larger and larger.




And, you know, we may hope that they buy government bonds instead of

buying equities, but they should have the right to make that choice.

QUICK: You know, very quickly, you mentioned that they are less excited

about getting those little pieces of paper.

BUFFETT: Sure.

QUICK: Our dollars. Right now, everything trades in dollars, from gold to oil,

anything else out there. You think that that will change in the next five to 10

years?

BUFFETT: I don't think so. I think--I think people will keep using it. The

dollar will become somewhat less important over time, but it's a very, very,

very important currency so people will think in dollars for a long time.

QUICK: OK. We have a lot more of your questions that you've been sending

in to us through the e-mail, and folks, we're going to get to a lot more of

those when SQUAWK BOX comes right back.



QUICK: Welcome back, everyone. We are live in Omaha, Nebraska, at the

Nebraska Furniture Mart, which is one of the many companies that Berkshire

Hathaway owns. We've been asking Mr. Buffett questions all morning long,

and at this point we're turning the show over, once again, to you. Warren,

we have a lot of questions that are coming in, and one of them comes from

Larry Beckler from New York. He asks that, `Given the board of directors are




normally quite chummy with their CEOs, how can shareholders get some kind

of accountability for CEO pay, particularly when the company's stock has not

appreciated or decreased in value?'

BUFFETT: The only real way, in my view, is to have a few of the very largest

shareholders--I mean, you would need--you would need the CalPERS, the

Vanguards, the Fidelities. If a half a dozen of those, when they saw

something really that they felt was outrageous, would simply withhold their

votes and explain why, that would get through. You know, the--you've got a

bunch of big shots on the board, and they don't--they don't like criticism.

And they particularly--they don't like criticism when it would come from a

group that would not look like a bunch of hot heads or anything of the sort.

QUICK: Mm-hmm.

BUFFETT: So I would--I would say that if four or five of the largest

institutional investors--and they don't have to give an opinion on every one

or anything like that. If they saw something really egregious, they just

simply said, `We're withholding our votes,' and...

QUICK: They do that from time to time, right?

BUFFETT: They--but they don't--they don't speak out. It just would take

four or five of them, practice would change, then, in some cases. I'm a big

fan of pay for performance. We pay people a lot of money at Berkshire when

they perform. But we don't--we don't let them--we don't let them shoot the

arrow and then paint the bull's-eye after it lands.

QUICK: OK, Allan from Manchester writes in with a question--Manchester,

New Hampshire, I should say--writes in with a question that we heard in a lot




of different forms. He says, Ì'm a shareholder of Berkshire. How can you

assure me that Berkshire Hathaway will not change the way it is now after

you're gone? In other words, will corporate culture change or will the

company be split into different entities when you're no longer in charge?'

BUFFETT: Yeah. I think it's--I think there's more chance of our corporate

culture being maintained intact for many decades than any company I can

think of. I mean, we have a board that's bought into it entirely. They're big

owners themselves in almost every case. They've seen it work. We've got 70

managers at 76 businesses out of--out there. They've come to us because of

that culture, in many cases. They've seen it work, too. So you've had this--

you've had it communicated through annual reports, at annual meetings. I

mean, it is--I think it's as strong a culture as you could possibly have. And I

think that anybody that tried to fool with it would not be around here very

long.

QUICK: Because of the board and everyone else involved.

BUFFETT: Because of the board, and the fact that I would come back and

haunt them, too.

QUICK: Peter Knoll writes in from Minneapolis, and this is another question

that we got a lot of similar questions. He says, Às shown in your

appearance on CNBC, you've been taking a much more public role in the past

few years. Why, and what's the benefit to shareholders?'

BUFFETT: Yeah. Well, I think, you know, today is a good chance to explain

things that I may not have communicated perfectly in the annual report. And

people can ask questions about it, and I like talking about Berkshire. I like--

at the annual meeting, you know, they have to use a hook to pull me off. I




mean, it--so I've always been very open about talking about Berkshire. I

haven't gone out to sell it to anybody, I never will, but I like--I think you

should be able to defend your policies. I think you can do it through various

kinds of communications. And if you--if you can't defend them, you know,

you better--you better re-examine them. So I kind of enjoy it in that respect.

I am not saying that Berkshire stock is a buy. I never--you know, I don't

know whether it is or not. And I--and I never will get into that. But if

anybody wants to understand the philosophy, we have a section in the back

of our annual report, the economic principles of Berkshire Hathaway. We've

run that now for over 25 years and they don't change, because they're

principles. And I want people to know what Berkshire's all about, and I--

frankly,, I want people that might sell us their business to know what

Berkshire's all about, because for some people we are the right choice.

QUICK: OK. Another question that came in came from Brent in Fountain

Valley, California. He's got an offbeat question. He says, "Why Coke and not

Pepsi?"

BUFFETT: Well, the--I bought the Coke in 1988 and we bought what's

become 8 percent of the company. And I thought--it's a business I like very

well. I like Pepsi, incidentally, as a business, too. I mean, Frito-Lay is a

terrific business. It's better than the--it's probably better than their soft drink

business. But Pepsi's been a wonderful investment to own. But Coke's been a

wonderful investment to own. So just put me down as having made a

mistake for not having bought both.

QUICK: Although I see you're drinking Cherry Coke today.

BUFFETT: We drink--this stuff'll do wonders for you, folks.




QUICK: Joe's got a question for you, too. Hey, Joe.

KERNEN: Hey, Beck. You know, Mr. Buffett made some news earlier about

the common sense recession, and from some of the--some of the businesses

in the Berkshire portfolio, how about your rail holdings, Mr. Buffett?

Slowdown reflected in rail volume?

BUFFETT: Yeah. You can get rail volume--you can--you can go to the

Internet and every week get car loadings as to each railroad. And so I click

on there every week and look at--look at car loadings. Car loadings were

down last year, but we're particularly seeing it in things like our brick

business, the carpet business. Haven't seen it so much in paint and

insulation, although we've seen it. But I can tell you that those businesses,

on balance, are getting worse. The--you know, it--we have not hit bottom at

all in construction-related businesses. But that's OK. I mean, we knew that

when we bought them, that they would be cyclical business. So that doesn't

bother me in the least. I would buy another business like that tomorrow if I

had the right management and the right competitive position and the right

price on the business.

QUICK: But we haven't hit bottom? You just said we are not near the

bottom.

BUFFETT: Yeah, but I wouldn't try and--but I wouldn't worry about hitting

bottom in terms of when I'd buy them. I think if you knew exactly the

bottom for the business, you would not know the bottom for the stock.

QUICK: OK. Carl?




QUINTANILLA: Warren, with that in mind--and we talk about, you know,

Berkshire's exposure to housing here in the states--we've seen you buy Iscar

in Israel, we've seen you now get into the real in Brazil. You've gone to China

with Becky. Would you guess that your next big purchase would be overseas

or domestic?

BUFFETT: Well, it'll be whatever I get the call on. I hope I get it from

overseas, but, you know, I just go down to the office in the morning and wait

for the phone to ring and hope it isn't a wrong number, you know. So...

QUINTANILLA: Why would you hope for an overseas offer?

BUFFETT: I...

QUINTANILLA: Because of--because of the currency?

BUFFETT: Well, yeah. I would--that would be a factor in some--in some

situations. And frankly, we're way more on the radar screen in the United

States than we are around the world. So the more I can feel that an owner

that cares enormously about their business thinks of us in the UK or

Germany or wherever it might be, you know, that would be encouraging if I

started getting more calls from abroad. But the one I'm really waiting from--

for is from Sophia Loren in Italy, but I haven't gotten that one yet, either.

QUINTANILLA: Well, you--she's been trying to reach you.

KERNEN: Yeah, she has. Warren, you...

BUFFETT: Yeah, well...




KERNEN: Yeah. You--for some reason we think of all that big cash horde you

had. I don't know, what is it now, 40, $50 billion? We think that you'd like to

do something with it, but you just really haven't felt that comfortable over

the past five, 10 years with what you've had to choose from. Is that a fair

assessment?

BUFFETT: Well...

KERNEN: I mean, do you expect to be down--could you be ever down to

having $10 billion in cash?

BUFFETT: I think so. We probably wouldn't go much below that. But we did-

-we've contracted to buy eventually 100 percent of Marmon, which would

cost us at least 7 1/2 billion. We're going to write a check for 4 1/2 billion

some time--at least 4 1/2 billion sometime this month for 60 percent of it.

We've bought a lot of businesses in the last--in the last five years, but the

money's come in even faster. Basically, we'll have a couple hundred million

dollars a week coming in to Berkshire, and some weeks I spend it and some

weeks I don't. But I like to spend it.

QUICK: Hey, Warren, we haven't heard from Sophia Loren yet, but we have

heard from another one of your famous friends, Alex Rodriguez of the New

York Yankees.

BUFFETT: Oh.

QUICK: He wrote in an e-mail, as well, and here's his questions, guys. He

said, "If you were starting in the business world today, what sector do you

believe has the most potential?"




BUFFETT: Well, I still think money management would have the most

potential for me. I mean, if I were starting today, I would--I would--exactly

what I did, you know, whatever it was, 50-odd years ago. And I would--I

think--I think I'm better at that than I'm at other things. I mean, I don't

think I can sell television sets or--you know, or vacuum cleaners as well as

some of the people here--right here, you know, in the store. So--and I'm not

going to be a research scientist. I'm just--I'm a little bit better at money

management than anything else. And it's a big, profitable field. I mean, there

will always be lots of opportunities in it. So I would--I would go right back

doing that, unless I could hit a baseball like A-Rod, in which case I would talkto the Yankees.

QUICK: We also got an e-mail from a viewer who wrote in, K.A.--don't know

any more than that--but this person wrote in, "Would you consider creating a

Class C share for Berkshire Hathaway?" Probably what they mean is a

lower...

BUFFETT: Yeah, we have a Class A and a Class B...

QUICK: And a Class B.

BUFFETT: ...and it's not impossible. I mean, it would...

QUICK: It's not?

BUFFETT: Well, anything a little goofy like that kind of appeals to me in

some extent. We created the Class B because we kind of got forced into it.

But--and the Class A and Class B served us well. I mean, I'm very happy

with that. I wasn't happy that I was forced into doing it, but I'm happy with

it. But it's not inconceivable.




QUICK: All right, Class A right now is $140,000. The Class B, like we're

looking at on the screen, is closer to $4600. Class C, what would you set that

up, maybe $1,000 or less? How would--how would you do that?

BUFFETT: Well, we probably wouldn't get much below that, but...

QUICK: Yeah.

BUFFETT: ...we don't want anybody to buy Berkshire stock based on what

they think some corporate event will be, or whether we'll split the stock or do

this sort of thing.

QUICK: Right.

BUFFETT: So I don't--I want to have something that makes people really

think they're investing in a business. And when you--when you buy a $3

stock or something like that, I think most people think they're buying a $3

stock that might go to 5. We want--we want to discourage those people from

buying our stock and we want to encourage the people that are buying it

because they think it's a good investment to hold for 10 or 20 years.

QUICK: OK. An Vo writes in from Edmonton in Alberta, Canada: `What do

you think is the most complicated out of the three? Is it A, love; B, science or

C, business?

BUFFETT: The most complicated?

QUICK: Yeah.




BUFFETT: Well, I think anything involving human emotions is the most

complicated. But it's the most rewarding, too. So I would--I would pick love

as being the most rewarding and the most complicated.

QUICK: OK. We have a lot more questions to get to, and we will do just

that when we come right back from a very quick break. Stay right here.

SQUAWK BOX live in Omaha, Nebraska, with Warren Buffett.

STEVE (on tape): I'm Steve, and I'm wondering why Warren Buffett isn'trunning for president.

QUICK: Well, Warren, go ahead.

BUFFETT: Bill Buckley, who just died a few days ago, ran for New York

mayor many, many years ago. And they said, Ìf elected, what's the first

thing you'll do?' He says, Ì'll demand a recount.' And that's sort of the way I

would feel about running for president. It requires a whole different set of

talents than I've got. I wouldn't like the job, so, you know, and I love what I

do. I mean, I would do this if I had to pay to do it. But don't tell the

shareholders that. But the job of being president, the compromises you'd

have to make, it just wouldn't appeal to me at all.

QUICK: OK. Joe, I know you have another question from back in the studio.

KERNEN: I have to. And it just has to do--Warren, over the years you see

commodity cycles and supercycles. I'm just wondering, this time around--

and not worried about the dollar. The dollar notwithstanding, because that's

the excuse everyone uses. But have we now passed the point of no return in




terms of what we have on this planet and what we're using as--is the

Malthusian nightmare finally here, or will we go back to where wheat doesn't

cost, you know, $50 a bushel?

BUFFETT: Well, ag commodities are a little tough. You know, if I had to on--

where ag commodities would be three years from now, up or down, I

wouldn't know which way to bet. But they look like they've had quite a run.

But if you take something like oil, I mean, we have been sticking straws in

the ground now since, what, Titusville in 1850-something with Colonel Drake.

And we have--we have--we have found a lot of the oil that's to be found. And

if we're going to produce--or use 85 million barrels a day now and the rest of

the world probably is going to increase its demand in the--in the--in the next

five or 10 years, we're going to have--we're going to have a tough time

maintaining production that satisfies those at this price, even. So I think

something like oil, six and a half million humans--or six and a half billion

humans are going to use a lot more oil than a lot fewer used 20 years ago or

30 years ago.

KERNEN: So that goes for metals, too? You're saying things that we can

grow, we can grow more of. But things that are in the ground are...

BUFFETT: Well, we--yeah, we're using--my son is turning out considerably

more bushels of corn or soybeans per acre than 20 or 30 or 40 years ago. So

land can get more productive. But oil is finite. There's actually some school

that says it isn't, but I think it's pretty finite. And, you know, we have

500,000 producing oil wells in the United States. The average production is

11 barrels a day. Five hundred thousand times we've actually hit. But if you

look at our production vs. 30 years ago, it's way down. And most, you know,

most fields are depleting at a pretty good rate. And with demand--if demand




grows a million or a million and a half barrels a day from year to year and

the present fields deplete and we don't find the elephants in the future...

KERNEN: Right.

BUFFETT: ...you know, who knows what the equilibrium price will be.

QUICK: Carl:

QUINTANILLA: Well, with that in mind, some of the biggest bets, Warren,

that get talked about on this show are from the likes of Boone Pickens, who

says that he likes wind. Or it's the tar sands or it's a play on water here at

GE. When it comes to energy, is there a next generation play, an alternative

play that at least has caught your eye?

BUFFETT: Well, we're using more and more wind. We have a big energy

company and--for example, in Iowa, we have a lot of wind farms and we're

going to have more. So sure, the world is going to attempt to do that, but

that is--that is not a big answer to the kind of energy demand that--that's

coming along. So I think we've got to do everything we can in alternative

areas, but I don't--I do not see that as a cure-all at all.

QUICK: OK. Warren, I'll try and get through several quick e-mails from

viewers. And guys, jump--follow with me in the control room. This is from

Ivan in Voorhees, New Jersey. He says, `We know there's a succession plan

for Berkshire, but will there be a succession plan for writing your annual

letters?'

BUFFETT: Well, my guess is my successor will have studied how much pain I

go through in writing it and decide he's not going to quite do the same

amount of work. But I hope that his goals are the same, which are to tell his




fellow owners as much as possible and as accurately as possible, really, the

things he worries about, the upside, the downside and accurately report, you

know, where he's flopped in the past and all that. I think we've set a tone for

that, I'm sure he'll do it somewhat differently.

QUICK: OK. Phil Nielsen from Durham, Connecticut, writes in, `Have you

ever bought and sold a stock on the same day?'

BUFFETT: Maybe sometime. In 50--I bought my first stock when I was 11,

so that's 66 years ago. I got a late start, but, you know, I've been making up

for it since. I probably--maybe I've done it once or twice. I don't remember.

QUICK: You don't remember ever doing it? Celeste from Bridgeport,

Connecticut, writes in and says, Àside from you, who's one of the smartest

minds in finance today and someone you would listen

to?'

EMAIL TEXT: Aside from you, who's one of the smartest minds in finance

today, and someone you would listen to? Celeste Pagano, Bridgeport, CT

BUFFETT: Well, there's some very smart people out there. Bill Gross is a

very smart person. Charlie Munger is about as smart as they get. I listen to

him even when I don't want to, sometimes. The--obviously these four

candidates that I've--I think are very smart.

QUICK: For the CIO job at Berkshire.

BUFFETT: For the CIO job. I don't know the 30 and 40 and 50-year-olds like

I did when I was that age myself, so I--I've got--I do not have the same fix

on the universe of investment managers I might've had in the past. I will




guarantee you there's some plenty smart ones out there. We have a number

of them that show up at our annual meeting, actually.

QUICK: Mm-hmm. And Warren, just thoughts for anyone who's watching the

market today, the futures have been under pressure. What would you tell

somebody? Do we need to worry about this?

BUFFETT: I would tell people if they worry what the market does on any

given day, they shouldn't be buying stocks.

QUICK: OK. Warren, I want to thank you very, very much for joining us forthese three hours on SQUAWK BOX. We've been getting e-mails, guys,

coming in, including from Jack Welch, writing in saying this is the greatest

SQUAWK BOX ever.

KERNEN: Yeah, great.

QUICK: So Warren, thank you so much for joining us today. We all

appreciate you being here.

QUINTANILLA: Although I think--I think next time he's on, he's going to

want to read headlines, he's going to want to do stocks to watch, right?

KERNEN: I just thought--Warren, your stock was City Service, that right?

BUFFETT: That's right. City Service--City Service Preferred.

KERNEN: Oil company. Yeah.

BUFFETT: It was a $6 preferred with a lot of--a lot of arrearages,$100 worth

of arrearages.




KERNEN: I remember hearing that story before. This is--this is awesome.

Great. Thank you, Becky. Thank you, Warren Buffett...

QUICK: Thanks, guys.

KERNEN: ...for so much of your time. It was great.

QUINTANILLA: Amazing, amazing.

KERNEN: Awesome.

BUFFETT: Thank you.

Documents

Ask Warren Buffett - Complete CNBC Transcript - March 3, 2008