CNBC Transcript: Chairman & CEO of Berkshire Hathaway Warren Buffett Speaks with CNBC’s Becky Quick on “Squawk Box” Today

October 3, 2017 on CNBC’s “Squawk Box”

Following is the unofficial transcript of a CNBC interview with Chairman and CEO of Berkshire Hathaway Warren Buffet on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Tuesday, October 3rd. Following is the link to the video on

JOE KERNEN: Good morning, Becky.

BECKY QUICK: Good morning, Joe. We are here this morning with Warren Buffett, the chairman and CEO of Berkshire Hathaway. And, Warren, we want to thank you very much for your time this morning.

WARREN BUFFETT: Thanks for having me.

BECKY QUICK: You know, we’re just coming out of this story about Las Vegas. And– while unfortunately it seems that– we as a nation are becoming more and more inured to– to hearing about shooting stories, this one is different in the scale, in the scope of it, in the stories that are coming out right now. Do you have any reaction to what you heard?

WARREN BUFFETT: Well, you– you never forget or inure to this. And– the one thing I would say is that I– I heard that the shooter got off 200 rounds in 90 seconds or something like that. And I think the Las Vegas metro police did an incredible job in– in getting there. I mean– when somebody’s shooting at that rate– the police force may have saved maybe even hundreds of lives by reacting as fast as they did. But– you’ve got 325 million people in this country. And– and a certain percentage of ’em, their brains don’t work like brains should.

BECKY QUICK: And– and you see a situation like this develop. Obviously– our– our– our hearts and our thoughts are– with– the people of Las Vegas and the people who have traveled around to be there today. But we are talking about business, too. And as much as we should not become inured to this, if you look at the markets, it’s hard to see much of a reaction. The markets have ignored just about any potential bad news badly with the Dow setting another record yesterday and with eight quarters in a row now of gains for the market. Is that– a market that makes sense to you? Do valuations here make sense?

WARREN BUFFETT: Well, the valuations make sense– with interest rates– where they are. I mean, in– in the end, you– you measure laying out money for an asset in relation to what you’re going to get back. And the– and the number one yardstick is U.S. government. And– and– when you get 230 on the– on the 10 year– I think stocks will do considerably better than that. So if I have a choice of the two, I’m gonna take stocks at that point. On the other hand, if– if interest rates were– on the 10 year were five or six, you would have a whole different valuation standard for– for stocks. And– and we’ve talked about that, you know, for some time now.

BECKY QUICK: I was going to say, it’s been years that you’ve been talking about how– this is in relation to gravity, and pulling the market down, and how it’s not happening here.

WARREN BUFFETT: Yeah, interest rates are gravity. If– if we knew interest rates were gonna be zero from now till judgment day, you know, you could pay a lotta money for any other asset. You would not want to put your money on a zero. And I would have thought back in nineteen– I mean, 2009 that rates would not be this low– eight years later. But it’s been a powerful factor. And the longer it persists, the more people start thinking in terms of something close to the– the rates they’ve seen for a long time. So– the one thing I’m sure of is that– over time– stocks from this level will beat bonds from this level– you know? If I could be short the 30-year bond at 3% or something, and long the S&P 500, and just have it put away for 30 years, stocks are gonna far outperform bonds. And the question is: Which variable is gonna change? And everybody expects interest rates to change, but they’ve been expecting it quite a while.

BECKY QUICK: So does that mean– I mean, if the one factor is interest rates, we know that the Fed is looking at raising rates. It’s going to do so slowly and gradually over time. At least that’s what they’ve been telegraphing to this point. Would you bet on that continuing for the next couple of years? I mean, 2.3% to 5% is a long way when you’re moving—

WARREN BUFFETT: That’d be a long away.

BECKY QUICK: –when you’re moving in quarter-point increments.

WARREN BUFFETT: Yeah. Yeah, that’d be a long way. And my– I would– I would guess– I don’t try and guess the stock market. I just buy businesses, how I– but if I were to guess, if– if interest rates– if the 10 year moved up to 5%, I think stocks would be somewhat cheaper.

BECKY QUICK: If– but you’re not betting—

WARREN BUFFETT: But over time I—

BECKY QUICK: You’re not betting that that’s going to happen in the next—


BECKY QUICK: –couple of years.

WARREN BUFFETT: Over time I’ve owned stocks. I mean– it’s been so wide. I’ve written about it in the annual reports. I mean– stocks have been so much more attractive than bonds for a long time now. And– and– that’s partly intentional on the part of the Fed. I mean, they– they– they want assets to increase in value. And– and the way to do it was to reduce that gravity force of higher interest rates.

BECKY QUICK: The– the Fed has been sounding a little more hawkish. Even Janet Yellen has been sounding a little more hawkish. Does that concern you? Or are people getting complacent thinking rates are going to be low for an extended period of time here?

WARREN BUFFETT: Well, I think they expect ’em to increase. But the question is how much. I mean, if– if three years from now interest rates are 100 basis points higher, then the stocks– stocks will still look cheap at these prices. If they’re 300 or 400 basis points, they won’t look cheap. And– and Janet Yellen doesn’t know what she would do three years from now. I mean, she– she’s got– she’s got more of a job than that s– that s– simple factor of the stock market. It’s really interesting because the Fed has said that they’d like to see 2% inflation. I mean, that’s fairly recent. That– that– Paul Volcker would not have slept if he ever heard that in the ’80s. But if the– if the U.S. government is borrowing at 10 years from you at 2.3% and– and their own instrument, the Fed, is saying, “We would really like money to become worth 2% a year less,” they’re not promising you very much in terms of real terms for saving.

BECKY QUICK: Right. So– Janet Yellen, you said she’s got a big job. The question is: Does she keep that job? Or does President Trump appoint someone else? And it seems like two of the leading figures right now are either Kevin Warsh or Jerome Powell. As an investor do you have to spend some time thinking about who is running the Fed to think about what stock prices are going to do if interest rates are the most important factor?

WARREN BUFFETT: Yeah, I– I– I don’t spend time thinking about it. But it wouldn’t do me any good to think about it. I– I wouldn’t know the answer in the end. And most of the time the Fed is not that important. Occasionally it’s everything– it’s the only game in town— It can be the only game in town. There was only one person that in September of 2008– could walk out like the sheriff into the street and say, you know, that– that– that, “This isn’t going any further. We’re going to do whatever is necessary,” and have the power to do it. I mean, the Fed has got– is of enormous importance– during a panic. And it– people tend to hang on their every word in between– we don’t pay any attention to it.

BECKY QUICK: But you have said that interest rates are the most important factor. So anybody’s who trying to play the market and figure things out, maybe not as long of a term investor as you’re going to be with–


BECKY QUICK: –these things, should be thinking about this.

WARREN BUFFETT: Well, but if they really think they can figure it out, they might as well play the bond market. I mean, they don’t really have to get over to the stock market. So– but I can’t remember a decision we’ve ever made based on the Fed except for the fact that I felt that Bernanke, Paulson, and Geithner– but I– I felt the Fed would do the– the right thing in the fall of 2008. We had an incredible economic machine that was in the hospital. And the Fed could bring it out.

BECKY QUICK: I– I– I realize that interest rates are not something that you often think about other than on a very broad scale. You’ve also said that taxes aren’t something that you think about other than on a very broad scale. Is that the case this time around?

WARREN BUFFETT: Well, I think about them plenty right now because– we may or may not have– a change in the tax code. And– we have lots of stocks with lots of gains. And we have a few stocks with– with losses. And here we are in October, and if something happens that changes the tax rate significantly on January 1st, it would pay me– assuming that they would reduce rates on capital gains or corporate rates, it would pay me to sell the losses now and defer the gains until next year. And I– I think there’s a lot of that going on. Because I think there’s an expectation that if they reduce– that if they have– a tax act it will be– it w– they will cut the rates. Certainly corporate rates. And– and it’d be kind of foolish to have a gain now and pay 35% tax on it if by waiting a few months you were likely to pay 25%. So it actually very seldom enters into our thinking. On balance we’d rather sell things with losses than gains. But– but right now– we’re sitting and watching because– within three months– actually less than that we’ll know the answer on this, as to whether this was the year to take losses and not gains. And– we’ve got actions on both sides that we would take. I– I think the market-

BECKY QUICK: So you’re — you’re actually stopping what you’re doing as– as– at Berkshire. This is not just your personal account. At Berkshire you are actually holding off– potential losses—

WARREN BUFFETT: Potential sales.

BECKY QUICK: Potential sales or potential—

WARREN BUFFETT: And– and realizing–

BECKY QUICK: —purchases as–


BECKY QUICK: And realizing losses. So that’s an actual change in your behavior that I’ve never heard you say—

WARREN BUFFETT: It doesn’t happen very often that there’s– that you’re in the month of October with a major tax act being– a real possibility. Who knows whether it’s a 20% chance, 50% chance? But one thing I know about it. I’ll know the answer within a month or two. I mean, there– there are not that many days left to legislate. And– and– and I would feel kind of silly if I realized a billion dollars worth of gains to pay 350 million of tax on it if just waited a few months and would have paid 250. Now, if enough people are doing that, that may mean that the market’s being affected fairly substantially.

BECKY QUICK: Right. That’s what the– the– what– what– what is the broader play in the market as a result? ‘Cause if you’re doing it, you’ve gotta imagine lots of people are doing it.

WARREN BUFFETT: I think that’s true. I think that’s true.

BECKY QUICK: You’re talking about billions of dollars of potential sales.

WARREN BUFFETT: Well, maybe hundreds of billions here. I mean– I mean– and–. And you may be talking about people that– it would– it would tend to depress stocks that have behaved badly because people would be taking the losses now. And it would tend to defer gains and reduce the sellers currently that would be in stocks with very large appreciation.


WARREN BUFFETT: I can tell you it’s– it’s– it’s an actual factor at Berkshire. And it’s very, very, very seldom in my 87 years that it has ever been a factor.

BECKY QUICK: So what– what might we see if– but, first of all, what do you think the odds of a tax plan getting passed are? You–

WARREN BUFFETT: Well, I– I personally think they’re higher probably than most people think. Because I think that– that having had the health care bill go the way it has and– and just generally– and no infrastructure, if– if you take maybe the three big items, this is the only one left to do this year. And I– I– I would think the Republicans controlling both houses and the presidency, they would not want to have a shutout– in their first year. And of top priorities. And I think they can get it done. I mean, I– it’s not a tax reform act. It’s a tax cut act. And– and I– I think that any politician that– that can’t pass a tax cut– probably is in the wrong line of business. If you can’t pass– I mean, it’s a different thing with a health care act. But I think there could be a lotta compromise. And– I think it could be– bipartisan to a degree.

BECKY QUICK: Okay. I know Joe has a question. But before we get to it, Warren, I know we’ve got. Let’s get that back in before Joe asks his question. But, Joe– m– make sure that this is working before. Is that okay?


BECKY QUICK: Okay. Joe, go ahead. Try that out.

WARREN BUFFETT: Depends what Joe asks whether it’s okay.

JOE KERNEN: Yeah, you can f– if you don’t like the question, you can say, “Well-I don’t.” Hey Warren.

WARREN BUFFETT: I’m already practicing.

JOE KERNEN: Yeah, exactly. You know I’m jealous– envious. But– but I see– sometimes I see you do things where– I mean, I would– if I could buy Flying J, I wouldn’t care if I ever made any money. I would just like to own Flying J. I’d like to own– do you ever do things just ’cause you can, just– I mean, are you gonna make money on this? Or I like– see, like, you– with Dairy Queen. You buy Dairy Queen. I don’t think you’re trying to make money there. You like Dairy Queen. What about See’s Candies? You like See’s Can– and I want to own– why Flying J? I love those places. There’s showers. There’s restaurants. There– I mean, you’re out on the road. You’re like a cowboy and– and– with the truckers and everything. You do things just ’cause you can I think, right?

WARREN BUFFETT: Well– Joe, if you feel that way, I mean, bring money. I’ll– I’ll send you a map of all the locations. And you’re our kinda guy.

JOE KERNEN: I was just look– Aren’t those k– you– do you– you’ve stopped there, right? Becky, have you been in a Flying J? I mean– a lot of times–

BECKY QUICK: I have. I’ve been in plenty of them.

JOE KERNEN: it’s like an oasis.

BECKY QUICK: There’s– there’s one right on the interchange where you get off 295 in New Jersey and get on the exit seven. And there’s one right there.


BECKY QUICK: But I was just talking to the Flying J CEO, the Pilot Flying J CEO, who happens to be here and will be our guest in the next block.–

JOE KERNEN: I know. I just– he just buys–

BECKY QUICK: –about–

JOE KERNEN: —cool things.

BECKY QUICK: –about—-Indiana and back. Right.

JOE KERNEN: I don’t– so my question is: Does it have to be a good– a good investment, Warren? Or you just buy whatever the hell you want because you like it?

WARREN BUFFETT: Well– the thing– you know, they’re not mutually exclusive. I– I do like the I do like the products– of– of virtually all our companies. I suppose if we ever bought a funeral parlor or something I wouldn’t be as enthused. But the– but generally speaking, I– I like our products. So– but– I– I kinda like good economics to go along with ’em, too

JOE KERNEN: No, you do. I– I mean, obviously you’ve been– how smart are you– in terms of, like– I mean, how profitable is, like, GEICO? I mean, you do– you– you got an eye for things that are really, really profitable. But there are times where I just wish I had a lotta money. I– I’d just say, “You know what? I really like that place.” And you just– you know, I l– remember that guy Victor Kiam? “I liked it so much I bought” he– he bought the razors ’cause he liked the way they shaved. Maybe– you know, maybe when you get to a certain point you just do that, you know?

WARREN BUFFETT: Well, if you do– if you do it, you do it with your own money and not Berkshire’s. But I– I– I wouldn’t argue against that. I mean, if– if– if you have a lotta money, and there’s something you like, and it isn’t profitable, you buy it. But you don’t buy it with Berkshire’s money. You buy it with your own money.

JOE KERNEN: You– you– you– most of Berkshire you own anyway, Buffett. What are you talking about? How much of Berkshire is yours?

WARREN BUFFETT: Well– well– every single share is gonna be given away. And– and–

JOE KERNEN: I know. No, I know. I know, but– but it’s fun. You’re– you’re– you know, you get to do cool things with them.

WARREN BUFFETT: It’s fun. It’s fun.

JOE KERNEN: It is. That was my point.

WARREN BUFFETT: Absolutely. I mean– I mean, the high point are bricks, Joe. I sent you a brick.

JOE KERNEN: I know you did. I know you did.

WARREN BUFFETT: I– I’ve never wanted to say this publicly, but you really did not show the proper appreciation for that brick.

JOE KERNEN: No, I know. Thank you. It was not– you know, you own NetJets. And, I mean, the– like, would it k– like, would it really break the bank if you send me a few hours on a NetJet plane? Would it– you know, you sent me a brick instead.

WARREN BUFFETT: Well, I didn’t get any response from the brick. So maybe I’ll try a NetJets.

JOE KERNEN: Okay. All right. All right.

BECKY QUICK: Thank you, Joe.

JOE KERNEN: Can I get– if you send–

WARREN BUFFETT: I– I know– I could– I can’t see your face, but I– I–

JOE KERNEN: I think you did send me one.

WARREN BUFFETT: –I can imagine you responding– It just had my name, but it was not good for anything. It was, like– one of those– you know, like a Taco Bell card that’s been all used up. Anyway, sorry. Thanks, Becky.

WARREN BUFFETT: I (LAUGH) do have Dairy Queen cards.


BECKY QUICK: Good morning everybody and welcome to Squawk Box. We are live in Omaha, Nebraska this morning with two special guests. We already introduced you to Warren Buffett, who’s the chairman and CEO of Berkshire Hathaway. But joining us right now is Jimmy Haslam. He is the CEO of Pilot Flying J. And just this morning in the last 15, 20 minutes there was a deal that was announced that Berkshire Hathaway is buying a 39.6% s– stake in Pilot Flying J. Jimmy, thank you very much for joining us.

JIMMY HASLAM: Thanks for having us on, Becky.

BECKY QUICK: So how– how did this deal come together? What– what– what happened? Explain. How– how did you two meet?

JIMMY HASLAM: Do you wanna go?

WARREN BUFFETT: No. No, you do it.

JIMMY HASLAM: We have a mutual friend, Byron Trott, who– Warren has actually known– known longer than we have. And Byron’s company, BDT, owns 5% of our company. And he introduced the two of us back in May. And over the last several months we’ve built– we were able to put together a deal that we think makes a lot of sense for both companies.

BECKY QUICK: Let’s talk through that deal. A 39.6% stake that will then go to an 80% stake in the year 2023. Why– why that structure?

WARREN BUFFETT: Yeah, I think it’s 38.6.

JIMMY HASLAM: Yeah, 38.6–


WARREN BUFFETT: But I’d be glad to make it 39.

JIMMY HASLAM: –negotiated hard for 39, too.

BECKY QUICK: So w– why set up that structure? I mean, Warren, this is not a situation where you’re short of cash.

WARREN BUFFETT: Well, we– we’ve set up a lot of different structures that– that– what the managing party would like to have. And– you know, with the Bumpkins we did it in 1983. It’s the same structure. So their situation in terms of their family, and their partnership, and everything made this logical. And– and we have this two-step arrangement. We’ve had other two-step arrangements. At Marmon with the Pritzker family we had a three-step arrangement. So we try to fit what the seller would like. And, you know, families and everything you can– you can have different arrangements.

BECKY QUICK: Jimmy, this is a situation where this is a family-run company for almost 60 years. We’re talking about the number 15 on Forbes’ list of private companies in terms of size. 750 retail locations in 44 states. Some of the metrics are pretty amazing. Fourth largest tanker fleet in the nation just by what you’re sending around to make sure you have enough fuel at all those stops. Talk about the company, how you built it, and why make the change.

JIMMY HASLAM: It’s– it’s– like a lotta companies Warren has bought, it’s a family-owned, family-run company. Started by my dad in 1958 with one gas station. We’ve changed over the years to gas stations, C stores, truck stops. And we’re now a huge distributor of fuel. Gasoline and diesel fuel. We sell more diesel fuel over the road than anybody in the United States. And it’s big logistics company. Every 22 seconds we drop a load of petroleum somewhere in the United States or Canada at one of our stops. Also a big food company. We’ll sell over a m– mill– a billion dollars in food and over b– $2 billion retail this year.

JIMMY HASLAM: We’re in 44 states and– U.S. and Canada.

BECKY QUICK: Well, you must have a pretty– good idea of what’s happening in the U.S. economy at eve– any given point given some of those metrics. How– how are things?

JIMMY HASLAM: Yeah, Warren and I were talking earlier. I think we’d say it’s pretty good. It’s pretty good. Particularly strong in– Florida. Particularly strong in California and of course Texas with the return of the oil boom and fracking is really strong. So it’s certainly better than it was several years ago.

BECKY QUICK: Two of the states that you just mentioned are states that have just been hit pretty hard by the hurricanes that came through. Do you see– a blip on the screen for that? Is it something that’s picking up? Or how– how do you work that?

JIMMY HASLAM: Hurricanes are obviously very unfortunate for the people involved. From a business standpoint it does create– more business. There– there are homes that need to be– be rebuilt. There’s new cars being sold, et cetera. So our business is up substantially in both Florida and in Texas.

QUESTION: Wow. Why– why does Berkshire seem like a good fit for you?

JIMMY HASLAM: Long-term investor. I think I’m right, Warren. Of the companies you bought, not equities, I don’t think you’ve ever sold one I think you told us. Is that right?

WARREN BUFFETT: Yeah, I think that’s– that’s right. We–

JIMMY HASLAM: So long-term investor. Hands off. He truly wants us to run the company— wants us to maintain the culture. And, of course, if there is an opportunity for us to grow the company substantially, he’s got plenty of capital. So just— a marriage that we thought made a lot of sense.

WARREN BUFFETT: Jimmy’s based in Knoxville. And we bought another company in Knoxville 14 years ago, Clayton Homes. Their employment has gone from 5,000 to 16,000. And they’ve seen me exactly once. They might have done better if they had– had one time. But– but– Jimmy knows– and the families know each other. And– and– so they’ve had a chance to check and see exactly how much we do interfere with operations. And truth is I wouldn’t know how to build or manufacture a home or a truck or a travel center, or– we depend on management.

BECKY QUICK: Right. Jimmy, you have seen some pretty phenomenal growth. I think you increased the number of stores you have in the last two years by 10%. Is that correct?

JIMMY HASLAM: Yeah, we– we’ve been a growth company like I said from the get-go. And we have a pretty large market position now. But we’re always looking for opportunities, Becky, to grow either organically, to grow– to buy a single stop. Or last year we partnered with Marathon Petroleum on 41 stops in the Southeast. Over the last couple of years we’ve added 71 stops. We still think there’s an opportunity to continue to grow the company.

BECKY QUICK: Where– where– where are you not right now that you’d like to be?

JIMMY HASLAM: We’re really– we’re in 44 states. We’re not in Alaska, and Hawaii, and some of the Northeastern states that are small or tough to get in from a truck stop standpoint. So I think the growth will continue really in all segments– of the country. Texas obviously with the natural growth Texas has coupled with the oil industry presents I think great opportunities.

BECKY QUICK: Great. Jimmy, we want to thank you so much for joining us today. And– hope to see more of you in the future. We really—

JIMMY HASLAM: Great. Thanks, Becky. Appreciate—

BECKY QUICK: —appreciate your time.

JIMMY HASLAM: you having us on.

BECKY QUICK: Welcome back to Squawk Box, everybody. We are live in Omaha, Nebraska today. And our special guest is Warren Buffett. He’s the chairman and CEO of Berkshire Hathaway. We’ve been talking about a lot of different issues this morning. Warren, I wanted to thank you for your time again. But while you’re here today, it happens to be the same day that Wells Fargo CEO Tim Sloan is headed to Capitol Hill. This has been a long, messy process of trying to find out what happened at Wells Fargo. Tim Sloan– is just the latest person who’s being called before Congress with this. But already– there’s been a lot of sound and fury before he gets there. I want you to listen to a sound– bite coming from– Senator Warren, who was speaking with Jim Crame– Cramer recently on Mad Money. Go ahead and let’s listen to what she had to say.
SEN. ELIZABETH WARREN: You know, we had a hearing a year ago when John Stumpf, who had gone on your program, first one out of the barrel and said, “Hey, listen. I take personal responsibility for what’s gone wrong at Wells Fargo.” And then it turned out what personal responsibility meant was firing thousands of people who made 15 bucks an hour. You know– so we got John Stumpf in front of us, asked a few questions. Stumpf is no longer the CEO of Wells Fargo. But let’s face it. There are still a lot of folks running Wells Fargo who were there at the time of the crisis.
BECKY QUICK: Again, that was Senator Warren speaking to Jim Cramer of Mad Money very recently talking about what he can expect coming in today. What do you think about what Senator Warren had to say on this front?

WARREN BUFFETT: Well, I didn’t hear all of what she had to say. But– but– she’s absolutely right that you should– s– same situation at Salomon. I had 8,000 people and four or five of ’em that caused the problem. And the– the– the job is to remain as– remove the stain from almost all of the 8,000 and get it where it properly belongs with the people that either performed the acts or condoned them after they were performed. And– that’s what we did at Salomon. And I think that’s what they’ve been working at– at– at Wells. And– you can’t do that necessarily in a day or a week.

BECKY QUICK: Sure. You can’t do it in a day or a week, but it’s been quite a bit longer than that. Would you say that the actions that have taken place to this point, with John Stumpf getting clawbacks, with the– the other woman who was in charge of the– the bank getting clawbacks with some of those issues– John Stumpf leaving, and new position– new people being put in these positions, is– is that sufficient in your view of what happened?

WARREN BUFFETT: Well, I proposed actually in the annual report of Berkshire maybe four or five years ago, sometime after 2008– that– the problem is that– that the bank gets fined, and the shareholders are the ones that pay for it, and they didn’t have anything to do with it basically. And– and I– I suggested that– that probably more extreme actions than Senator Warren in terms of clawing back all the directors’ fees for I think five years. And– I– I– I think that you really want– you want– as much as possible you want the people– that were responsible to pay. And you– and ideally you would have the people that were innocent not pay. But it doesn’t work that way– in– in the American– judicial system. I think that– that if you have a company– very large company, Berkshire is large– you have a hotline. I think the CEO has to be very attentive to what comes in on the hotline. Now, m– most of it Is silly stuff. But there’s– there’s real stuff comes in, too. And you get anonymous letters. And– and– you’ve– you’ve gotta– you’ve gotta follow through on the ones that actually sound like they have real meaning. And– and– clearly you couldn’t have activity as broad as it was at Wells– without h– without the hotline here. And– and so somebody messed up. And the job is to find out who messed up and– and– ideally to make the penalties be such that it discourages other people in the future from– from doing similar things.

BECKY QUICK: You know, part of the concern has probably been how the news has dribbled out over time when it comes to Wells Fargo that– it wasn’t just the fake accounts that we heard about at the beginning. It turned out that was more widespread than we’d realized. It turned out that there were auto insurance– there was auto insurance that was being sold to people who didn’t need it. There was life insurance being sold to people who didn’t need it. That continual drib-drab– just eats away at the reputation of the bank.

WARREN BUFFETT: Yeah. Oh sure. And– and I– I say when you’ve got a problem– and you’re gonna have problems. I mean, if you had a very big– you can’t have 280,000 people working without something. And most things are minor. But– if you get something systemic, you’ve got a big problem. And once you find out about it, you’ve gotta get– get it right, get it fast, get it out, get it over. And– and getting it right is hard. I mean, because– you turn over rocks, and sometimes you find some things. And– and– and it’s very seldom there is just one big thing going wrong in a big institution if something like that’s going on. So you– you’ve gotta get it right. And– the one thing you don’t want to do is – and be wrong about it.

BECKY QUICK: A lot of the things that you just said are not exactly how things have gone at Wells Fargo. You’re the largest shareholder in Wells Fargo. Do they still have your– your faith? Are you still behind the bank?

WARREN BUFFETT: Yeah. Tim Sloan has my faith. And– like I say, it happened to me at Salomon. Well, Salomon had my faith. It — doesn’t mean every person at Salomon had my faith after I got there. And I got– and I had some surprises. I mean, I was worried about surprises every day. But the truth was that—99% of the people were perfectly decent people. They were just like the people working at Goldman or some other place. And– and somebody had gone off– totally gone off the– gone haywire. And– and other people didn’t report it as– when you find a problem, you have to jump on it. I mean, that is– that’s just basic.

BECKY QUICK: And you just said that Tim Sloan has your confidence. Is– have you– have you spoken with him before he goes before Congress?

WARREN BUFFETT: Well, I– I actually– I was in Las Vegas last week talking to about 400 Wells people. And Tim was head of this. It was their top group from around the country. I did the same thing about five or six years ago for Wells in Chicago. I did it for B of A maybe seven or eight years ago. I mean, every now and then they– they ask me to come around just so that people can see who owns a lotta shares. So I– I– I’ve– I’ve talked about– I must have talked for at least an hour– just last week.

BECKY QUICK: And did you talk to him at all about this– his testimony before Congress?

WARREN BUFFETT: I g– I– I mean, he knows that I testified many years ago in connection with Salomon both to the House and the Senate. And I– I told ’em something of my experience. But it’s all on tape in– in terms of being able to see it. Anyway– but I– I– I gave him– I– I told him what I would do.

BECKY QUICK: If– he has your confidence are we right to assume that you have not sold any shares of Wells Fargo?

WARREN BUFFETT: Only enough to stay under 10%, which was something that the Fed requires. And– and since Wells repurchases their shares and we were right up against 10%– fact, we– we went over because they repurchased shares, not because we bought. So we keep– we will sell enough to stay at around 9.8. But that’s– that’s– that’s to avoid becoming a bank-holding company–

BECKY QUICK: So if we see– the S.E.C. filings that show you’re selling, we should not assume that–

WARREN BUFFETT: No. No. You will find we’re just keeping a little below 10%. We’ve not sold a share except for that purpose.

BECKY QUICK: Okay. You are — a major shareholder in Bank of America, too.

WARREN BUFFETT: That’s correct.

BECKY QUICK: What’s your favorite bank?

WARREN BUFFETT: What’s my favorite bank? Well, I’m not so s– who’s your favorite child? But– Bank of America has done a sensational job under Brian Moynihan. Brian had all kinds of problems when he came in. I mean, they were not of his own doing, but he had a ton of problems. And he had a lotta rocks– turnover. And it cost a lotta money. And he just set out step by step to bring the bank back. And he’s gone from 280 or so thousand people down to 210,000. He’s gone from a run rate of expenses in the 70 billion down to 54 billion. I mean, he– he has really done a job. And– you know, we will be– we’ll be holders of B of A stuck for– for a long, long, long time.

BECKY QUICK: Okay. Warren, we’re gonna take a quick break right now. I will send it back to Joe and Melissa. We have much more to come– with Warren after this.

BECKY QUICK: Good morning everyone. Welcome back to Squawk Box here on CNBC. We have a special program where we’re live in Omaha, Nebraska this morning with Warren Buffett, who’s the chairman and CEO of Berkshire Hathaway. We’ve been talking about lots of issues today from the market to what’s been happening on Capitol Hill. And, Warren, we touched briefly on taxes earlier, but we didn’t dig deeply into what you think about what’s happening with this tax bill right now. This is an area that you’ve– written on, that you’ve spoken on pretty extensively in the past. You said earlier that this is not a tax reform bill. It’s a tax cut.


BECKY QUICK: What do you think about it?

WARREN BUFFETT: Well, I– I don’t think I need a tax cut. But– for example, the current proposal eliminates the estate tax. And it’s not a death tax. There are gonna be 2.6 million people dies this year in the United States. And there’ll be 5,000 tax returns that people– estates that pay tax. So if you start going to a funeral– every month, it’s gonna be 40 years on average before you go to one where there’s any estate tax (UNINTEL). It’s a very pejorative term. The truth is if they pass the bill that– they’re talking about– I could leave $75 billion to a buncha children, and grandchildren, and great-grandchildren. And if left it to 35 of ’em– they’d each have a couple billion dollars. They could put it out at 5%, have 100 million. I mean, is that a great way to allocate resources in the United States? Because that’s what you’re doing whe– for the tax code, is you’re affecting the allocation of resources.
So if they were lucky enough to come out of the right womb, have the right name, Buffett, they could sit there and build tombs for themselves like Egyptians– pharaohs never dreamt of. They could– they could– they could do anything. And– and capitalism was all about intelligent allocation of resources. Now, some people say, “Well, you don’t have to worry about that because they’ll blow it all.” But if they (LAUGH) blow it all, that means that they– you know, that they’ve done some done things with some important resources. And that’s– that’s not good for capitalism. I don’t think it’s good for the children. I sure as– I sure don’t think it’s good for society when there’s a ton of un– inequality– to start with. And– so I– I would– I think that’s a terrible mistake, for example.

BECKY QUICK: However– let’s play devil’s advocate here.


BECKY QUICK: You have three children who have foundations that each of them are running. Do you think that they’re a better allocator of that money than the federal government?

WARREN BUFFETT: I– I do. But I– I– I don’t think that setting it up so children, grandchildren– let’s say I died when they were 20. I don’t think they’d be the same individuals that they are. I didn’t– encourage that foundation program until they were in their 40’s and– and I’d seen what they’d done with their lives. And they– and they’d had a chance to live for a long time, going to public schools, living just like other people in Omaha live. But I– I just think that– I don’t think we should have our Olympic team 20 years from now be the eldest sons of the Olympic team currently. And—

BECKY QUICK: So it’s the dynastic—

WARREN BUFFETT: The dynastic–

BECKY QUICK: –impact of money.

WARREN BUFFETT: I don’t think– I don’t think– a dynastic system with huge sums of wealth– and bear in mind the wealthy are so much wealthier now than they were 25 years ago. We’re talking about the 400 now having 2.4 trillion against 90 billion. 25 times as much money. So you have– sprinkled around you have these children and grandchildren that– that just with those 400 could have two– 2.4 trillion passed down to them. That’s a lot of resources in this country with a $20 billion G– not even quite a 20 bill– trillion-dollar GDP. I think– I– I– I think it goes totally against what’s built this country, what this country stands for. And if those 5,000 people can’t stand to spend the 20 or 25 billion, they’ve got lots left over. Believe me. And incidentally it would be bad for philanthropy. I mean– people would– a certain number of people would elect to set their kids up with b– you know, billions and billions of dollars rather than– than have it go to philanthropy. But I don’t think that’s the primary reason. But I do think that’d be a byproduct.

BECKY QUICK: The estate tax is just one part of this. Let– let’s talk about the corporate tax first of all. Cut corporate taxes from 35% to 20%. What–

WARREN BUFFETT: Well, if I haven’t lost all my friends now– I’ll finish it off. We have a lot of businesses– 60 or 70. I don’t think any of ’em are non-competitive– in the world because of the corporate tax rate. I mean– American business earns a return on tangible equity under the present tax system that is extraordinary compared to history the last 100 years in America. I’m talking about tangible equity. But that’s the money actually invest. You could– and the five largest companies in the United States by market value, that’s almost 10% of the value of the market, they don’t need capital. And it’s not like the old days where big steel companies, and auto companies, and oil refineries where huge amounts of capital were needed. But– we do not– we do– we– we are among the high earners of the world in terms of return on tangible assets.

BECKY QUICK: But– just looking at the tax code, 35% is what we’re supposed to be paying– what corporations are supposed to be paying. Most of ’em don’t.

WARREN BUFFETT: A lot of ’em don’t.

BECKY QUICK: A lot of ’em don’t. And the ones that do are penalized because they’re not taking advantage or they’re not able to take advantage of the massive number of loopholes that have been built into the system. Isn’t there an argument for saying, “Let’s simplify this. Let’s level the playing field, make sure everybody’s paying the same amount, that you can’t snake way your way around into a lower rate”?


BECKY QUICK: “And let’s set up a tax code that, by the way, doesn’t incentivize companies to keep cash overseas. Bring it back here and potentially put it to work– right here in America.”

WARREN BUFFETT: Yeah. But if you– if you– if you make it very easy to take back money from jurisdictions in which you pay very low rates– that’s going to encourage even more investment over there. You know, ’cause you’d still have a higher rate in the United States. It’s– American– listen– as– on a personal basis and for Berkshire Hathaway shareholders I hope they do change it now. I mean, I– I would like it in the sense that it would be good for a million shareholders of Berkshire in terms of their net returns. But I do think some of the arguments– I think people may find their nose growing a little bit after they make ’em.

BECKY QUICK: Melissa has a question, too. Melissa?

MELISSA LEE: Yeah, Warren, I– I completely get your argument that a lot of companies don’t actually pay– the going tax rate. But Wells Fargo, for instance, pays a tax that would be higher than the proposed corporate tax rate of 20%, right? Their effective tax rate as of the second quarter was 27% or so. So it would benefit. So broadly speaking, what do you think that tax rate to 20% would mean for the broader market? Would that mean– you know, a 5% increase in stocks? I mean– what’s your estimate?

WARREN BUFFETT: Well– a decrease in taxes would mean an increase in profits. It might– it might not be totally the amount of the decrease in taxes. But it would– it would increase earnings. There’s no question about it. So the question is whether that’s already built into the expectations. I doubt if it– it fully is built into expectations. So, no, the lower the taxes go, actually– if you had a negative tax rate for corporations, it’d really be great. But– you’re right about banks incidentally. Banks tend to pay– a pretty full rate– unless they– they– you know, they own some tax-exempt bonds. But that’s not a big item. Some of ’em do some low-income housing tax credits and that sort of thing. But the tax rate on banks is right up there– among the top of– of various industries. Berkshire– most of our income is taxed at 35%, but we do have– a lot of unrealized appreciation in securities. Close to 100 billion that hasn’t been realized yet. But– if we were to sell all of the stocks we own today, we would– we would pay 35% on about 80 or $90 billion. But– so it– it– but I can say this. The banks are doing okay. They’re not doing as well as they were– eight or 10 years ago. That’s primarily because of capital requirements. Capital requirements can kill the return on equity– and banks. And they’ve reduced it significantly from what was available– 10 or 12 years ago.

JOE KERNEN: So– so, War–

BECKY QUICK: Joe, you have a question?

JOE KERNEN: No, I’m just trying to just get exactly what– what you’re saying, Warren. So– if the money came back, it would be a good thing. But you don’t want it to go– you don’t want to induce them to send it over there in the future. So if you really did go to 20, and you really did bring it back, and because you’re at 20 and there’s no longer an inducement to go over there, why can’t you just say outright that’s a good thing? Why do you have to say, “Well, people are hyping it,” and, “Their noses are grow–” why– why– why can’t you just say, “If we did it, 20% would be better here, and it wouldn’t go over there anymore. So the money might stay here and the jobs might stay here”? Why isn’t that a good thing? Why don’t you give– give us an endorsement of that if they could do it.

WARREN BUFFETT: Well, let’s just say– let– let’s just say the– the– the rate in some country was 2% and you charge people 10 perc– 10– 10% for bringing it back, and you had a domestic rate that was 25 or something like that–

JOE KERNEN: Well, it’s not 2%–

WARREN BUFFETT: –it still– it would still pay–

JOE KERNEN: It’s not 2%. It’s– it’s– the lowest is 12 probably in Ireland. You think there’ll be a race to the bottom if we do this? Is that– is that–

WARREN BUFFETT: Oh, there’s– there’s rates lower than 12. You’re right about Ireland, but there’s– there’s rates a lot lower than 12. And I– I–

JOE KERNEN: Okay, so then– then your argument–is then it’s a race to the bottom. You think it’d be a race to the bottom then at this point.

WARREN BUFFETT: Well, there’s some of that. And– and one thing in– interestingly enough, Joe. The money is coming back– to some extent. When Berkshire Hathaway sells a bond issue, guess what? The– the foreign subsidiaries of– of certain very cash-rich American companies buy those bonds. So the money comes back to Berkshire Hathaway. We pay interest to the foreign– subsidiary of the cash-rich country over there. But that money ends up in the– United States.

JOE KERNEN: Right. But there–

WARREN BUFFETT: Think of it this way.

JOE KERNEN: There’s trillions over there–

WARREN BUFFETT: Think– think–

JOE KERNEN: –though, right?

WARREN BUFFETT: Think of having–

JOE KERNEN: I’d rather have the tri– isn’t there–


JOE KERNEN: –2 or 3 trillion? Can’t– I’d– I’d much rather have that back here. Do some infrastructure.

WARREN BUFFETT: Let’s say you have– let’s say you have two companies, company A and company B, and they both have– a trillion dollars over there. And company A borrows a trillion from company B, and company B borrows a trillion from company A. Now you’ve got all 2 trillion back here, and it– it’s available for investment.

JOE KERNEN: So you’ve got– you’re so smart. You know how to do all these things before they actually get done. That’s why you love that second-to-die insurance. You don’t care about estate tax, is because you’ve got more things going on to get around it than– you– you’re just too smart. You’re too smart– if we had– if everybody had you running their money, we wouldn’t need any– we wouldn’t need any tax reforms.

WARREN BUFFETT: I– I can tell you exactly the secret of not having any estate tax. Just give it all away.

JOE KERNEN: Right. Right.

WARREN BUFFETT: It’ll– it’ll eliminate all estate tax.

JOE KERNEN: Exactly. That’s true.

MELISSA LEE: So Warren. Just one– one follow-up just to underscore a point you said that a lower corporate tax rate will increase profits. Does that mean that you also believe that a lower corporate tax rate will cause the markets to go higher?

WARREN BUFFETT: Well, anything that increases profits tends to push stocks. I mean, there can be 10 other variables happening, you know, for other– but– but as a single variable in the, in the equation– for profits, and profits determine stock prices over time– no, it’s– it is a plus for American business. And, you know, like I say, I’ve got a million– I got a million shareholders at Berkshire Hathaway. And– and they would all love to see a corporate tax cut.

JOE KERNEN: And you– you– you also–

WARREN BUFFETT: So on behalf of them–

JOE KERNEN: –said, “If my–” you also said, “If my kids had grown up quicker and become mature quicker, then– then I would want ’em to– to keep it and not give it to the government.” I mean, there’s all these qualifiers in– in some of your arguments, Warren. So if– if– if you could keep it in the pri-if you
could keep it in the private sector but you didn’t have crazy 20-year-olds blowin’ it on God knows what, then– then you would– so you see what I’m saying? Like, and you– maybe there should be–


JOE KERNEN: –maybe we should have a wealth tax on you. Maybe we shoulda taken 20% of what you have right now because you’ve got too much right now. You can’t possibly use it. So maybe we should just take– you know, just start reallocating it now. You don’t need that much.

WARREN BUFFETT: Well, we’re– we’re d– we’re do– I– I– I’m with you, Joe.

JOE KERNEN: Okay. Oh, not a wealth tax. Actually, I’ll be safe.

WARREN BUFFETT: I– I gotta tell you. If you can tell me how to have your kids mature at age 20, send me– send me the secret.

JOE KERNEN: How about maturing at age 60? I’m– you know, I don’t–

WARREN BUFFETT: Neither have I.

JOE KERNEN: Well, yeah, there’s no–

WARREN BUFFETT: It’s no fun the other way.

JOE KERNEN: There are no guarantees.

WARREN BUFFETT: There’s nothing like an immature billionaire. I mean an old one.


BECKY QUICK: Hey Warren. Let–

JOE KERNEN: Get to do whatever– get to do–


JOE KERNEN: —whatever you want like buying Flying J because you like their truck stops.

WARREN BUFFETT: We’ll put one right next to your house, Joe.

JOE KERNEN: Love those places.

WARREN BUFFETT: That will really make it convenient. We’ll give–

JOE KERNEN: I love them. I can shower there.

WARREN BUFFETT: We’ll give new meaning– yeah, we’ll give new meaning to the term convenience store.

BECKY QUICK: Hey Warren. Let– let’s talk about the markets again. Because you have a long-running bet that’s almost up. It’s in the final stages, the last year of the bet about what does better: the S&P 500 index over 10 years or someone who you made a bet with for a million dollars who got to go pick five hedge funds–

WARREN BUFFETT: Fund of funds. Fund of funds.

BECKY QUICK: He– he created a fund of funds based on five hedge funds. And– between the two of you, the S&P 500 index has been the massive outperformer over the nine and a half years of the bet.

WARREN BUFFETT: Yeah. Yeah, it’ll– it’ll– it’ll absolutely kill every one of the fund of funds. And bear in mind each one of the fund of funds had a strong financial incentive to pick the best funds they could find 10 years ago. I mean, it meant real money to ’em.

BECKY QUICK: Right. Five – fund of funds.

WARREN BUFFETT: Yeah. So it– it– it was overwhelming. And– passive investment– you know, I’ve– I’ve written about it. Passive investment in aggregate’s gonna be beat active– active investment because of fees.

BECKY QUICK: You– you did this as a result– because you wanted to show people that they didn’t need to be trying to beat the market all the time, that they could just be investors over the long haul and that would be a way to make money.

WARREN BUFFETT: And– and that they didn’t have to pay 2 or 3% a year to somebody– to get those. And average results were going to be very good. And they were good– they’ve been good all my life. And in these 10 years they’ve been good. You’ve done perfectly okay with passive investment.

BECKY QUICK: Actually, you’ve done great with passive ingr– investment, especially the last seven or eight years. There are people out there who are saying, “Oh, he just got lucky. He picked the right 10 years. He did it right before quantitative easing came around.” There’s a guy, Mark Yusko at Morgan Creek, who’s been saying he wants the 10-years bet and thinks he can outperform in that time. What do– what do you say to something like that.

WARREN BUFFETT: Well–if they’ll put up a substantial part of m– their net worth. I get letters all the time from people who say, “I’d like to do it. I’ll put up $100”– you know, or something. They’ll become famous. So they– they’d love the idea of– of me giving them a lot of publicity. If anybody wants to put up a significant percentage of their net worth–

BECKY QUICK: A million dollars? Does that cut it still?

WARREN BUFFETT: It– it just depends on their net worth. But if they– if they want to put up a significant percentage of their net worth, their family’s net worth, and they want to make a bet on 10 years on– on active versus passive– you know, maybe my estate has to be the one to settle with ’em. I mean, at 87 anything involving 10 years is kind of– a triumph of hope over statistics. But the– nevertheless– the ones that have written me– they really want to get their name in the paper, you know, basically.

BECKY QUICK: But you’ll– you’ll take anybody who puts up a substantial portion of their net worth? You’ll take that bet?

WARREN BUFFETT: They can– they can pick a group. Gotta pick a group– you know? ‘Cause I’m picking a group of 500 in the S&P. And– they can pick the date of the start. The date of the start has nothing to do with it. And– and the truth is the market behaves fairly typically in terms of– of aggregate return for the decade. This is not some extraordinary period in the least. There’s nothing unusual about this. The thing that was unusual was the size of the fees. And that’s ate him alive basically. The managers of these funds did very well during this period. And the managers of the underlying funds did very well. And their investors got killed compared to something they could have done.

BECKY QUICK: You know, one quick story– that’s picked up around this week– that Oprah may be considering a run for the presidency. I know you know Oprah. Have you talked to her about this?

WARREN BUFFETT: No, I– I haven’t. I haven’t talked to Oprah for quite a while.

BECKY QUICK: Have you had any Democrats who have come to you who are looking to fundraise to run in 2020?

WARREN BUFFETT: Not– nobody’s come to me– to– to fundraise. I’m not a great prospect on that either. Yeah, you know– no– no– no solicitors allowed, you know, or something on the– on the– the door. No. It’s gonna be a very interesting run-up to 2020. I mean, there are gonna be a lotta people that think about getting into this race. Because when you have somebody come from totally outside politics to get elected president, it starts the– the wheels turning with a lot of people.

BECKY QUICK: It does. Warren, I want to thank you so much for your time today. It’s really been a pleasure.

WARREN BUFFETT: Thanks for having me.