Thursday, 12 Jul 2012 | 2:04 PM Et
is a transcript of Warren Buffett's Sun Valley live interview on CNBC's
Squawk Box, July 12, 2012, from 7:30am to 8:00am ET. In
his conversation with Becky Quick, Buffett says he now sees U.S.
economic growth slowing, but residential housing is picking up slightly.
He also says Europe has "been slipping pretty fast" over the past six weeks.
BECKY QUICK: Mr. Buffett, thank you for joining us this morning.
WARREN BUFFETT: It's good to be here.
It's great to see you. And we couldn't think of a better time to have
you on because there are so many questions about what's been going on
with the economy, what's been going on with the jobs picture. Why don't
you tell us what you're seeing right now in your businesses?
Well, I've got a little different story this time. (Laughs.) For a
couple years I've been telling you everything except residential housing
was improving at a moderate rate — not crawling, but not galloping
either — but that residential housing was flatlining. And the last two
months it's been just sort of the opposite. The general economy in the
United States has been more or less flat, and so the growth has tempered
down. But the residential housing, we're seeing a pickup. It's
noticeable. It's from a very low base. It doesn't amount to a whole lot
yet, but it's getting better. So you've got a kind of flip-flop on
What happened? When we talked in the past you had said that when
housing turned that would be when the U.S. economy would turn. What
Well, it hasn't changed all that much yet. But it is picking up. But at
the same time the rest of the economy is slowing down. It's not heading
downward but it's not growing at the rate that it was earlier. And
then, it's kind of interesting in Europe. For a year or so, in most
places, forget about Greece for the moment, but generally in Europe you
didn't have a big slowdown. You had a lot of worry and all that. But in
the last couple months in Europe, particularly in the past month, it's
pretty much across Europe, things have really started to slip pretty
We've heard this from a lot of CEOs who joined us in the last several
weeks. But what business lines in particular do you look at and you see
these things popping up?
All of the businesses that we have, and then I talk to people in other
businesses. It's pretty clear that's what's going on right now. There
are certain figures I can't tell you where I get them. Europe is really —
it's headed downward in the last, I don't know, six weeks or so. And it
wasn't going that way before. It wasn't doing that well, but it wasn't —
and then it hit the skids.
BECKY: Is that because of consumers or because of businesses, confidence really slowing down and spending slowing down?
Yeah, well, spending is slowing down and when spending slows down
business reacts. They're not seeing the same kind of spending so they
pull in their horns some.
BECKY: What, of the things you can talk about, the numbers that you do see, concern you the most?
Well, it's pretty general, Becky. Like I say, it has not turned down
yet in the United States. Our freight car loadings are up week-by-week. I
normally get them today but I'm not home, so — but last week they're up
— the eastern railroads were down moderately, but a lot of that's coal.
But nevertheless, just across the board, when you're looking at our
retail sales, jewelry or furniture or you name it — yards of carpet are
down, our carpet business is better. But on the other hand, if you look
at — we're the largest home builder in the country, Clayton Homes, and
that's up, brick is picking up, but these are from low levels. But you
are seeing — in our real estate brokerage firm, which is the second
largest in the country, pending sales are up by a reasonable amount but
from a very low base.
Well with everything else — not a reversal, a slowdown in the growth,
what happened? What happened six weeks ago to spook people, to spook
I don't know the answer to that. I know the result. You could argue in
Europe, why it was delayed so long? Because Europe has really been — you
could see this coming for two — it was two years ago we saw a lot of
our Spanish and Italian and even French bonds. We were overly cautious
probably. But that was two years ago. Europe, with all that's going on,
it probably kept it from having any kind of gains but it didn't really
seem to sink in. But I would say the last, well I know the last couple
months, with some acceleration, it's been hitting over there.
We've watched the jobs picture and the last employment numbers at 8.2
percent from that government report last Friday. Is that a chicken and
egg cycle? Are people watching the jobs number and getting spooked by
it, or is the jobs number kind of —
Well, you're right. There is some circularity in it. I don't know the
answer to exactly why it's happening. And I don't know what it will be
three months from now or six months from now because three months ago I
didn't know what it would be today. The U.S. economy is doing better
than virtually any big economy around the world. This economy has come
back a long way, with the exception of housing, from where it was a few
years ago. And you can see it in corporate profits. I thought it would
take housing — I still think it would take housing coming back to move
us generally, significantly, upward and I still think that's true. But
so far the little pickup in housing has not been near enough to offset
whatever is going on in the world generally.
The Fed came out with their minutes yesterday. Obviously they're
concerned about the economy. They say that they could step in to do
something else. But I guess the question becomes what would it take for
them to step in and what do they do at that point?
Yeah, I— I have my own doubts. I'm sure Chairman Bernanke would
disagree with me. And he knows a lot more about it than I do. But I— I
do— I— you know, when you get— when you have interest rates down to—
to zero, not only here but— in the main— in the major com— countries
in Europe and— and you have the— you have a 15-year treasury
inflation— protected, so called TIPS, security selling at a negative
years, people are willing to put their money out at a minus rate— in
real terms. That— that— that— that— that's about as far as you can
go. I— I— I— now I— I'm— you know, you can talk about more easing
or that sort of thing. But— you know, the banks are sitting with
enormous amounts of money at the Fed. They don't want to be sitting with
that money at the Fed. I mean, it— it's— it's bringing 'em a quarter
of a percent or something. You lose money on that money at the Fed, just
from the bank standpoint. So they're not happy having that money at the
Fed. They just aren't seeing that much demand for— for loans.
Although they're picking up a little. I mean— but it's— nothing
like— people would like to see. I— I don't see— I don't see what the
Fed does that's— that— is dramatic.
BECKY: Is— does that mean we're in a "wait and see" pattern? And—
To some extent. And then it— it— it also means that— that— that—
(LAUGH) that they shouldn't be bicycling like crazy at the Fed while—
while— well— they— they may— maybe they should be bicycling like
crazy, but it— but while Congress sits there on the sidelines and—
and, you know— and— basically squabbles.
What should Congress be doing, at this point? I mean, we're gonna talk
more with Simpson and Bowles a little later this morning. But you think
that there's something that Congress should be doing right now?
Well, I think— I think people have a feeling that— that— that
Congress is— is inept. And— and— and— and sort of paralyzed by— by
the desire of each side to make the other side look bad. So I— I— I
think that has gotta be a factor in— in— in general confidence. You
know, if you see your government not functioning, (LAUGH) it's not—
it's not really the most— it's not the biggest spur to activity that
you can imagine.
BECKY: Yeah, maybe not a confidence booster, so to speak.
BUFFETT: Yeah, so— so I— I think— I think it's hard for the Fed to offset the Congress, in terms of changing public opinion.
BECKY: Okay— we're gonna have more with Warren Buffett in just a moment.
We are live in Sun Valley. And we are joined by Warren Buffett. And Mr.
Buffett— well, let's get back to what we were talking about with
Europe before. The spreads blew back out again. And all of the fixes we
thought we'd seen from the ECB— at this point, they seem to be lasting
for less and less time. Back above 7 percent for some of these bonds.
What's this mean? Where— where are we headed?
Well, it means that— that— a fundamentally flawed system was designed
some years back. And we've been trying to— or they have been trying to
patch it during the last couple of years. And— and— it's hard to
change— a very fundamental, important system with patches, particularly
when 17 people have a say in where the patches should go and what kind
of patches you should use. So it's— it's— it's— it's not an easily
Well, at this point, as you mentioned, it's really hurting the economy
there, as well, starting to drag down in— in a major way.
BUFFETT: Particularly in the last few months, yeah.
BECKY: So what's the end result over the next six months or so?
Well, ten years from now, Europe will be working fine. But they—
they— but the— and they will be consuming more there. They'll—
they'll get it worked out. But— but there's no obvious answer. And—
and— and that becomes more and more apparent as they go along. And—
and like I say, they're— they're— they're trying to put patches on
something that's got a lot of leaks.
But— patches on something that has a lot of leaks, you could have a
lot of different solutions to the end of that. Is the euro still gonna
exist ten years from now? Europe will, but will the euro?
I don't know. I don't know. And I don't think they know. I mean, it—
it— it certainly can't exist as originally designed. We've found out
that— that trying to have a common monetary unit, when you don't have
somewhat common fiscal policies and cultures and work rules and all
kinds of things— just doesn’t work. And— and— how they'll— how
they'll resolve that is anybody's guess.
Obviously, it— it depends on who's in charge, who the leaders are. And
the leaders there seem to get voted out every time— a new election
comes along. So if there's a constant changing set of players at the
table, how— how is there a good solution?
Yeah, well, I— I— I— I— I— I would not know the solution myself. I
mean— Henry Kissinger said a long time ago, you know, "If I want to
call Europe, what number do I dial?" And— and, you know, essentially,
that's the problem. I mean, they— the— when we had our crisis in 2008,
everybody knew the responsibility was on Bernanke and— and Paulson
and— and— with the president behind 'em. And— as long as— as long as
they knew where they were going, they had the will and the— and—
and— and the ability to do things that were needed to do. But exactly
who has the ability— when— when you don’t have a printing press, you—
it's— it's a different animal.
You know, we— we've been watching the headlines— over the last
several weeks. And the manipulation of Libor is just the latest in a
series of scandals— that has to break down the public's trust in what
happens with financial institutions, what happens on Wall Street. What—
what do you think about what's happened with Libor and how big of a
deal is this?
Well, it— it— it's a big deal. It's a big deal. I mean, it— you
know, you've got the base rate for the whole world— including—
including some— loans we have— in the past. And— so— the— the idea
that a bunch of traders can— can— start emailing each other or phone
each other and— and— play— and play around with that rate is— is an
important thing. And— you know, it— it is not good for the system.
BECKY: Does it shake your confidence in the system?
Well, I— I've got a lot of confidence in the system over time. No,
the— our system works. I— you know, we are sitting here in Sun Valley
in pretty good circumstances, compared to a couple hundred years ago.
So— we're— we're not working any harder than they worked 200 years
ago. We're not any smarter. But we— we live far differently. So our—
our system works over time. But— but— it sure shakes— (Laughs) it
shakes your faith in certain institutions, I'll put it that way. Not
the— but not the whole system.
BECKY: I know Andrew's got a question for you, as well.
I just— before Andrew's gonna talk about JPMorgan, I just, Warren,
wanted to quickly ask. But— Bob Diamond, very good executive— I know
that in the past— you know, we— Goldman had some P.R. and some— you
know, some ethics issues. You said— I mean, you wouldn't want— you— I
don't think you want— Blankfein to lose his job. I don't know what you
wanted to happen with the— the officers at Wal-Mart. And I'm wondering
whether you thought that this is an overshoot that— that Diamond is
just— unceremoniously dumped. And— you know, he was an American in—
in London. And— I mean, would you— don't— wouldn't you rather have
him stay, if you were a Barclay's shareholder?
Well, I'm not a Barclay's shareholder. But I— I don't think he had any
choice but to go. When— with something as big as Libor— you know, if
it happ— it— and he wasn't in charge of all of Barclay's, at that
time. But— but— there are a lot of things that went on in that trading
room— that— who knows who was aware of what? And I don't know
anything specific about it. But— that was not— that— it was not a
rogue trader. Let's put it that way.
JOE: You don't have different opinions based on whether you own shares in the stock, though, right?
BUFFETT: Well, I— no, not on this. But I— I may know less about it.
JOE: Sometimes— sometimes maybe, yeah.
BUFFETT: I haven't foll— I haven't followed Barclay's.
JOE: All right.
ANDREW ROSS SORKIN: Hey Warren—
BUFFETT: You know, at Salomon we had— you know, some problems in— and they had to go.
Warren, talking about trust— and a company that you do own a stock in,
JPMorgan— we're gonna hear from Jamie Dimon tomorrow what their
earnings are. And we're gonna try to hear some more about what happened
to that soured trade. Your views on— on the trade itself? Your
confidence in the company? Your confidence in Mr. Dimon?
Yeah, I— I think Jamie Dimon is one of the best bankers in the world.
And— if I had a bank— I— I like John Stumpf a lot too— incidentally,
at Wells Fargo. But if— if— if I owned a bank in Omaha and I could
get Ja— Jamie to— to run it for me, I would feel very happy. And— no,
Jamie— Jamie understands banking. He understands risk. And— and— you
know, it was— it's a significant loss. But you l— you— he— J.P.
Morgan lost billions and billions and billions of dollars on loans. I
mean, if you— if you've got a couple trillion dollar balance sheet,
you're gonna have some losses some places.
Do— do you have any different views as a result of this, about the
Volcker rule or some of the regulations that are part of Dodd-Frank?
Well, I— my partner, Charlie Munger is more Old Testament than I am on
this. But I— I do think that— I think there are good reasons to
restrict the activities that banks can be in.
ANDREW: So the activities that led to these losses, you would preclude JPMorgan from participating in, in the future?
Well, it— it's— it's hard to say what they— those acti— I mean, if
they're truly hedging risks— you know, I— I— there's— there's
certainly a lot to be said— if— if you're running a bank and you—
you— you want to hedge interest rate risk, hedge foreign exchange risk,
I mean, that— that— that's perfectly proper. We do it in our— in our
energy companies. We— we have— we have transactions all the time to
somebody goes off the reservation and— and starts— turning hedging
positions into speculative positions, you know, you may have a problem.
But that— that was not policy at JPMorgan. That— you know, that was
one fellow's — near as I can ascertain that— that— that went very,
very big in a position that was originally designed as a hedge position.
And— and then he put a hedge on a hedge and— and— pretty soon he had
what they call a Texas hedge.
BECKY: Hey, Warren, can we go back to Libor for a moment, too?
You mentioned that you have some contracts and some— some things that
are based off of Libor that have been there— I— I'm guessing
derivatives and some other things that have been in that?
BUFFETT: Well— yeah, we— we own some auction rate— municipals, for example, that are priced off Libor — a couple billion.
So what happens? If— if Libor was manipulated, do you have a case to
go back and have a complaint, to have— a lawsuit, to have anything that
comes up with any of this?
Well, I— I think— there certainly will be a bunch of lawyers that
will think that. And— and— it— if you can pin down the person that
did something to you. And they had— and— there may well be some kind
of a case. I mean, we— we bought these securities in the market auction
rate. Municipals that have— they're tied to Libor. I have a feeling
that in— for any one entity, the amount might be very, very small,
but— but it—
BECKY: It's over $3 trillion of things—
BUFFETT: — but it's a huge mark— oh, it's a huge market.
BECKY: — that are priced against this.
BUFFETT: I mean— it— it's— the— the numbers would stagger you.
BECKY: So— how big of a problem could this turn out to be down the road?
It could turn out to be a big problem. But we don't know what banks did
what, at this point. But— but— well, go back to our Salomon
experience. You had one fellow with one bo— a couple of bond issues,
and— it— that caused a lot of trouble. And— and you get Libor, then
you're talking about the whole world.
BECKY: Right. And everybody associated with it.
Everything is— everything's tied in. And of course, you're in this
terrible position, if you— if you have— millions of contracts based on
Libor and one side profits from— a given price being out of line, and
the other side loses— you're not gonna collect from the fellow that got
the benefit. If you're in the middle of the trade, you're just gonna
have the people on the losing side of each trade— come after you. So
it— it— it's very asymmetrical for the person that's got a bunch of
trades on it.
BECKY: Okay, so it could be a potentially huge can of worms.
BUFFETT: It's— it— it is a can of worms.
BECKY: It is a can of worms. (LAUGH)
BUFFETT: I will guarantee. It's— it is a can of worms
BECKY: Okay. Warren, we're gonna have much more in just a moment. We want to thank you for your time.
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