good morning, everyone. welcome to a special edition of "squawk box" here on cnbc. i'm becky quick and this morning i am in a suburb of omaha ham, nebraska, called la vista. joe kernen is back at cnbc headquarters on the east coast. our special guest this morning is berkshire hathaway's warren buffett.

we've been soliciting your questions for mr. bust over the last several days and as always, he he didn't disappoint. you have e-mailed, tweeted, facebooked and shared your thoughts on linkedin. before we get to that, joe is going to give us a quick rundown of the morning's top headlines. >> hey, beck. i know the sequester is hitting everybody hard, but this is your new set up there with the boxes and the -- usually we can splurge a little bit more. this is affecting everyone, i think. >> this -- it is. but this was a purchase. berkshire never gave any numbers on this, but it was reported that this was a purchase of about $500 million. >> whoa. >> but it was what we twauts the company's most recent acquisition. he surprised us with another purchase since then, but yeah, when we were planning on this and putting everything together, this was what we thought was his

most recent acquisition. >> i was thinking about that sequester. buffett could take care of it himself if he really wanted to. does he have his checkbook with him? i mean -- >> why let this happen? loosen up. loosen up the pocketbook. >> i've never been known for that, joe. >> becky, i came in here. i'm going to get to these headlines. i came in here thinking i could kind of coast this morning. i was up late, i was watching the "walking dead." i'm going to till what happened. >> no, you better not. i am halfway through the second season. shut your mouth. >> all right. this is an interesting story, this top one. i don't know, beck, whether you got to watch what you were doing last night. "60 minutes." -- >> i did not get to see this story. i did see there was chanos comes

on thursday. i do want to watch this before he comes on. >> the first half was this female billionaire, this lady that was a wall streeter that is a big real estate investor. but the second part of the story, we all know how many of those cities have been built and we've heard they're empty but we've never actually seen just city after city, gleaming sky scrapers, all of them empty. i think she found every one. it doesn't add up. someone owns them, which is weird. people invest in these things, but no one then has enough money to move into them because they make $2 a day. i don't know what it means, but chinese stocks this morning are falling to their lowest close in six weeks overnight. the done came after beijing hit property developers with harsher than spented tightening measures to contain housing costs. this is all part of what we're

talking about here. japanese shares hit a 4 1/2 year high on monetary easing hopes and in europe, italy appears to be inching towards another round of elections. center left leader bersani issued an ultimatum to five-star movement leader grillo to support a temporary government or, in his words, we'll all go home. amid the gridlock, the expressed between the italian ten-year and the bund widened to an almost three-month high. there's a new piece that covers the "new york times" about this guy. he's classic, actually. jester no more. italy's gadfly tosses its politics into turmoil. they can't see a xheetdan he being elected to pop office. i guess they forgot about al franken. i don't know. in the u.s., president obama is going to nominate walmart's sylvia math hes-burwell as his next bucket director.

she serves add omb's deputy director in the clinton administration, also chief of staff through robert rubin, the current treasury secretary. she currently runs the walmart foundation. that's the retail giant's philanthropic wing. u.s. equity futures agoing okay last week, really, given that we were going into the kick in of the sequester and today, indicated down about 40 points, not too bad so far. now, back to you, becky, and mr. buffett. >> and, joe, by the way, you cannot snooze through this. you do not get an easy day off. >> i was up until 10:00. i'm tired. >> blah, blah, blah. >> i have a couple of questions. >> i bet you do. >> warren is ready for them. our special guest today is warren buffett.

we are here at oriental trading and we come out for -- this is the sixth or seventh year we've been doing this to come out and talk to you after you put out your annual letter so shareholders. you did that on friday. people have a chance to look at that and come up with questions that we have for you. why don't we start off how you started your annual report. kind of hard to match that all up. >> yeah, well, if it's going to be a disappointing year, i like the fact we made 24 million. i've regularly measured the performance of berkshire by the change in book value versus the s&p 500 with dividends added back. i mean, you can buy a -- an index fund, a very low cost index fund and get those results. so unless we're delivering something better than those results over the years, we aren't doing anything. and it's true now that our -- the real value of berkshire is

considerably greater than book value. but year to year, book value knot a bad tracking measure of how our intrinsic value is. some years we -- well, generally speaking, if the s&p has a big up year, we're going to fall short because they're 100% in stocks. we're a third in stocks and then we -- hacks affect our gabes. we take 35% off those gains as they occur. but ur job is to beat them over time. >> berkshire was up by 14%. >> 14.4% for me to be rounding there. is that a reflection, you think b, of -- this has now been four years running that berkshire has outperformed the s&p there.

is that a reflection of how big berkshire has gotten at this point? >> both. but it's beat us three out of four. and, of course, we've still never had a five-year period when we've fallen short. but if the market is up in this year, any significant amount, then our five-year record will get broken. but it's a function of the fact that we've had up markets over the last four years, but it is a function of size, too. >> what you've been doing along the way is make bigger and bigger acquisitions as part of all this. you said you were disappointed in 2012. you followed up rapidly with the recent announcement of the heinz acquisition. how do you get to these acquisitions? why does heinz make sense? >> heinz makes sense because we

have a business we like, a price that i like and a price that i variably like. but we've got a great business. that's the most important thing. then we have these terrific partners, georgie palo le mon i've known for a dozen years. you can't find better business people. and they will do the work. we are a financing partner. and we hope to own heinz 100 years from now. if you own great brands and you take care of them, they're terrific assets. >> we have a question that came in and we've been soliciting questions. this is question number 62. questions that have been coming in all along. this comes from someone named wilco shutzendorf. as an investor wes i think berkshire was a better investor than heinz. would it have been better for berkshire to buy back its own stock at wurnt prices than to buy hiepz at 20% premium to its

market value? >> we feel the value of berkshire is well over 120% of books. how many, nobody knows. we can't get chances to buy $12 billion worth of berkshire. we had that one piece from an estate that was 1.2 billion. but that's a big piece. but wunt doesn't preclude the other. we could buy heinz and we could buy our stock if it was in that 20% range. the surest way to make money is to buy your own dollar bills for 80 cents or 90 cents. it's not precise what that dollar is. whether our stock is worth 1138% or 125%, i don't know. i just know it's worth more than 100%. but, you know, if somebody walks in here, i don't have to know whether they way 300 pounds or 50 pounds to know they're fat. you don't have to be precise on these numbers. if we get chances to buy our

stock, we will be buying. but if we get a chance to buy another heinz, we will do that, too. one does not preclude the other. >> why don't we talk a little bit about the sequester. this is the first business they backed since the see zester took place. i flew in over the weekend and i was worried we would be facing long lines. that wasn't the case. how big of a deal is the sequester and what do you think eventually should happen? >> well, i think it could go on for quite a while. the sequester in effect reduces the amount of stimulus to the economy. they talk about stimulus and they say, well, this is a stimulus bill and they vote 800 billion and says this is stimulus. stimulus is when the government operates at a significant deficit. we're operating at a $1 trillion deficit roughly. the sequester reduces that a

little bit. but we're still operating at a deficit that is 6% of gdp. by keynes' definition, that's a fair amount of stimulus. so it has the effect of reducing stimulus. >> but it sounds like you think that's a good thing at this point. >> i think at some point reducing stimulus is good. i don't think a 6% stimulus in the fourth year, third though fourth year of a recovery that is recovering, i think that's still giving the county quite a juice. >> so you're not worried about the see kweter and pulling back on the economy because there have been a lot of people who said this is the end of days as we get to this point. >> we're going to bring down spending and bring up revenues. we may get there in fits and starts and everybody may scream each time we do it, but the deficit is going to come down.

i needs to come down and it will come down. we may be doing it in a meat ax way in terms of the revenue going up. at the start of the year when we increased the payroll tax by a couple percent, that hit all across the board, on poor people and people of moderate names. it was a lot of money. roughly an equal amount of the sequester, incidentally. so we have cut the stimulus from these two factors, but it's still 6% of gdp. and if you had asked me three or four years ago whether having a running deficit after a recovery that's been going on for three years was appropriate, i would say that's a fair amount of stimulus. >> so in getting there in a meat ax way better than not getting there at all? >> that's a good question.

i probably leads you to getting there at all. people look at their handy work and say, we have to do better than this. but we still are talking about spending 3.6 trillion and taking in 2.6 trm and that's a lot of stim use husband. >> joe, i know you have questions, as well. >> yeah. when warren talks about where we are, you have to extrapolate what ben bernanke said, as well. they're awfully stimulative at the federal reserve and i guess i was reading between the lines of what you said. i guess you would wonder whether they need to be quite as free and easy right now, too. >> yeah. it's an interesting thing, joe. because we're running, we'll see, very roughly at $1 trillion deficit and the fed is buying roughly a trillion dollars worth of -- and not necessarily government bonds, but mortgages. but government issued paper or

government papers. and so in effect, they are picking up our deficit and creating bank reserves with the money. and you might say you look at that and you say, this is wonderful. you might say why don't you have them buy 3.6 trillion of government paper every year and then you wouldn't have to have any taxes and the at the time fed would be run ago huge profit. they're running about 80 billion a year now. but then they would have this wonderful carry. you know, that 3 trillion of assets that they have are financed about a little over a trillion by currency and circulation. that doesn't cost them anything. so basically, you know, i'm jealous of the fed. i'd like to have a machine like that myself. but they -- it doesn't cost them anything. so if they can do a trillion

this way, why not do 3 1/2 trillion. >> you're being facetious. >> no, i am being facetious, believe me. it's something that can't go on. and if it was this easy, you know, we will be doing it centuries ago. and i've got enormous respect for chairman bernanke. i think what he did in the fall of 2008 saved this country. but i think it will be interesting when they get to the unwinding stage of a balance sheet. it's usually a lot easitory buy things or sell things. i saw that in my own job. >> i just have one follow-up on the sequester. i don't know whether you agree with me on this or not, warren. but i guess we feel like we've done something and we may be less willing to do more and we didn't do anything about the lion's share of what we're spending all our money on.

this camous of the discretionary side. it did nothing for the mandatory side. so those huge issues and the demographics of our population, all those things are still there. it's only 2.3 the% on the total, but if you take it at 2.3 of the discretionary, it is a pretty big cut for discretionary. it doesn't even get to the core of our problems. in that way, it misses the mark. it may cause some unnecessary, you know, ur lows and pain and it doesn't even help our situation. >> it's a ve dumb way of attacking a very serious problem. you have people on both sides rushing the television cameras on sundays and other days to you

have a number of people on management side saying i won't budge an inch from this and is then you had a whole bunch of people from labor saying i will not budge an inch, that does not set the stage for negotiation. enough somebody negotiating for management, say me and one union leader out there and i negotiate with him, timely we get in private instead of our television, and then he can't go back to his membership and get his position ratified. it's a terrible -- you wouldn't negotiate under more difficult conditions. and i think there's strong evidence that one or even perhaps both parties, but certainly one party, is in a position that you can't make a deal in private that you know is going to get ratified by the

minute. >> you mean he don't control their base? >> well, yeah. i always feel i'm at a disadvantage because when i say we'll pay $0 billion, we'll pay $10 billion. but the other fella says i have to go back to my directors and i have to get opinions from investment bankers and everything. there's an imbalance of commitment and who wants to lay out their best offer if the other fellow, when he says yes doesn't really mean yes. the key is to have a deal is to have two people who can speak with their constituencies and who when they say something you can count on them delivering it. and when you start moving away from that, and we've moved away from that enormously, television accentuates it, somebody says i won't give a dime on taxes and

than their tonightsies are -- they get locked into positions. few they were not off their staking positions and i'm not sure we have a constitution. if we had had a bunch of television cameras out on the side and a bunch of people who couldn't speak for their constituencies. >> and you have the same players in place that probably lost trust in each other after 2011. is there a way to get it back? have you ever seen a situation where the same activists, the same people in charge to get back to a position of trusting each other? >> well, the way you get a deal made is if obama and painer and reid and mcconnell, too, if they could actually go into a room, go up to camp david, wherever it may be, and many whatter something out with the knowledge that once they hammered it out,

they could deliver their constituency. that's the way deals are made, whether it's in labor negotiations, whether it's buying companies or it just isn't made by dealing with people who can't speak for their constituencies. >> okay. warren, if you'll bear with us for a moment, we're going to slip in a quick break here. warren buffett is with us all morning long. he's going to be answering your questions. keep sending them to us. we'll have more of his responses when we come back. plus, this morning this stories that are moving on the wire. stay tuned. [ male announcer ] ok, here's the way the system works.

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welcome back to "squawk box." u.s. equity futures at this hour have gotten worse making headlines this morning. las vegas sands says it likely violated the federal foreign corrupt practices act. the act outlaws bribery or foreign officials in an s.e.c. filing and the ka seenny operator confirms it's under investigation. "the wall street journal" reports that the company's findings are related to deals in mainland china, led by executives no longer employed at the sands. harkening back again to that "60 minutes" piece again, the billionaire 47-year-old billionaire injanna said to do anything in china, you have to play by the local rules and

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>> announcer: the world's most powerful investor, warren buffett, on the economy and gridlock in washington. plus, he's ready to field your questions live. this special presentation on "squawk box" begins right now. >> good morning, everybody. welcome back to "squawk box" here on cnbc. i'm becky quick and, again, we are in a suburb of omaha, nebraska, this morning called lavista. joe kernen is back on the east coast. our special guest this morning is berkshire hathaway's chairman and ceo warren buffett. joe is going to dwifs a quick

run jan of the morning's top headlines. joe, take it away. >> what? again? okay. fine. are you going to make me do this? i will. really, i thought this was you. you've got warren buffett. okay. there are some -- i'm just kidding. there are some headlines. fed chairman ben bernanke once again warning that pulling back on aggressive policymakers too soon would pose a real risk of tajjing a still fragile recovery. janet yellen is speaking at 8:00 this morning. we will bring you her comments as soon as they hit the tape. more and more people said last week, you listen to the chairman. all this other stuff we heard, all the worries and consternation about whether there were negative effects, listen to bernanke and you'll see that the fed is going to do. a business survey finds sequestration is not the favored method to cut the u.s. budget.

more than 70% of economists polled opposed the 85 billion in cuts that were supposed to start taking hold last friday. most respondents said cuts should be focused, primarily, as we were just talking about not on the discretionary side but on the entitlement side. and royal dutch shell may be forced to shut down a 150,000 barrel per day oil pipeline in nigeria due to persistent steps. the pipeline is one of the most important routes for africa's top crude oil. u.s. equity futures have been weak so far this morning, now even weaker. down about 52 points and, becky, we have viewer questions. i know how you operate and you've got probably 14 hours worth of questions for your three hours. so i know that you don't need me, but i am ready when you are. i have so many -- you know, i even want to ask buffett about

herbalife. >> you know what? you would not be the only one, joe. we actually got some other viewers who wrote in questions about that, too. >> yeah. because it's big brand name. >> and there are those involved who are very vocal about where they're taking down with this. warren, stins we brought it up, why don't you weigh in. >> i don't have a position in he herbalife. i would like to see both of them make a lot of money because they're going to give at least half of it away to charity. >> so have you ever read throughthrough the holdings? >> no, i haven't. >> and joe just mentioned in his headlines that bernanke has warned about the risks of pelg back too soon, how that could damage the economy. and i would to go back to something you just told us in

the last break. you said, i think it will be interesting when they get to the unwinding stage of the fed balance sheet. when you say interesting, what do you mean? and i say that because you called 2008 interesting, too. >> that's a euphemism. the -- it's very easy to buy. you've got the treasury issuing securities like crazy and you just sop them up, you know, if you buy 58 billion a month. and you just credit bank reserves. the fed has about a trillion one or something like that of currency in circulation. you could just put more currently in circulation. but basically, you credit bank reserves. so if year going to have 3 trillion of assets, you need to create a trillion eight or trillion nine of bank reserves. they pile up. they don't like it because they're losing money. but they don't have good place toes put out a lot of money now. now, when you start selling, at that point, you start stopping up reserves.

and that is a much different action than buying. you saw just a whiff about, i don't know, who or three weeks ago, the wife of the fact they might start tightening up. >> with the fomc minutes? >> all over the world, everybody that manages money is waiting to catch the signal that the fed will reverse course. and, you know, there's a -- i think they're on a hair trigger. so i think the fed will try to get little signals here and all of that. but in the end, there are an awful lot of people that want to get out of a lot of assets if they think the fed is going to tighten the lot. and we've never quite had, in my -- listen, at least to my knowledge, we've never had the degree of dis-georgement that might be called for down the

line. and who knows how will play out. but it will be noticeable, put it that way. >> have you done anything differently at berkshire to prepare for that? >> no. it's interesting, becky. charlie munger and i have not buying stocks and businesses the for 50 years. in that entire time, we've never had a discussion of macroeconomic factors of whether to buy ourselves securities. it just doesn't get into our consideration. if i were to buy a farm, i would not be thinking about what the fed were going to do. if i were buying an apartment house or buying a business outright i wouldn't. but when i buy a piece of a wonderful business like coca-cola or american express, it is not a matter for consideration. charlie and i will get into businesses, but not talk about the government. >> but that may be because you run berkshire so conservatively. you are constantly making sure you have a huge amount of cash

on hand in case the 100-year problem comes along. >> exactly. >> you've already guaranteed against this, anyway. >> well, we don't know when a hundred year problem is going to come. it can come tomorrow, it can come a hundred years from now. we are always going to deal in strength. but in terms of making the decision whether to buy oriental trading today or pass, whether to buy heinz today, we do not get into macroeconomic discussions at all. everything thinks we do. they think we sit there and decide what emerging countries are going to be better. that doesn't get into the decision making. >> but just to differentiate what you do versus what everybody else does, that may not enter your conversation ever because you've guarded against it. >> yeah. and because we think the important thing is to be in the right business at the right price. price is all important. and if you read cheery headlines and you're willing to pay a much higher price, you're making a mistake. and if you read depressing headlines and you say i won't buy at any price, you're making

a mistake. that's why i wrote that op-ed in 2008. price takes care of the future. and it may be that you read terrible headlines for six months to a year, whatever it is. i refer in the annual report, i bought my first stock in the spring of 1942 when we were losing the war in the pacific, but i bought a very cheap stock and i thought we were going to win the war eventually. but i didn't -- if i had waited three months, as my sister pointed out to me, i could have bought it a lot cheaper. but that isn't the question. the question is whether i got a lot for my money and whether i've got to staying power to wait until things change. >> i know you don't look at the macro issues. i know you don't pay attention to where the stock price res. but you did look at that op-ed when you thought the prices were low, you look at where the indices are now which is near all-time highs. does it make you nervous, does it make you less likely to say buy, buy, buy, in terms of what

you're looking at in your port yol fello? >> if you ask me whether stocks are cheaper than other forms of investment, in my view, the answer is yes. we are buying stocks now because -- we're buying them not because we expect them to go up. we're buying them because we think we're getting good value for them. all right. joe, i know you have a question, too. >> i had a quick follow-up, becky. since we got such a nonanswer about herbalife. >> hey, wait a second. >> there is an expert on herbalife. his name is herba greenberg. and he messages that -- warren, you own a multi level marketing company called pampered chef. did you know that? >> yeah. it does not make money by selling to the people who represent us. >> right. but it's a multi level -- is there a problem with the whole notion dish mean, i guess they're all different, but you have some experience, at least,

with that business model or something similar, right? not exactly. >> yeah, no. i think where you look for problems is you actually make your money by loading up the salesperson whether they make any sales or not. but wall street has multi levels. you have sales, managers who will get a portion of the commissions on the -- on these sales representatives that work beneeth them. you have that in the mutual fund industry. you have tiered layers of supervision where people get overrides on that. you have life insurance. the real question is whether you have it so that if you sell the guy a kit of something and he never makes another sale, whether that's saef for the business that you've made your money on selling the kit. >> he's talking about tkting. >> and it sounds like you're saying that's what you're saying that pampered chef is different is that herbalife and herbalife might sell a bunch of stuff to people that might not sell it to anyone. >> i know that is not the case at pampered chef.

i do not know what the case is at herbalife. i really don't know what takes place at herbalife. >> because it did sound like you were almost calling it a pyramid scheme. >> no. i've never asked anybody in our direct selling operation what they are techniques are. >> you know, icahn can crush ackman but you could crush icahn if you just want to get rid of it. there's not enough -- ackman doesn't have enough to with stand this, but i think you could do the same. if you jumped in here, warren, this could be fun. no? >> shall we split the profit or loss, joe? >> i've already tried to get -- you know, now i'm get ago bottle of ketchup is the latest thing. and i'm waiting for it, by the way. >> just be patient. you may wish you hadn't gotten it if you get it. >> guys, we're going to slip in

another quick break. warren buffett is with us all morning long. up next, he's going to answer a number of questions. go ahead and keep sending them to us. as we head to a break, by the way, check out the futures this morning. as joe mentioned, they have been weaker this morning. policy right now, where things stand. as we head out to a break, red arrows across the board. [ man ] i've been out there o

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welcome back to this special

edition of "squawk box." >> welcome back, everybody. this is a special edition of "squawk box." we are live with berkshire pathway chairman and ceo warren buffett all morning. we've been soliciting questions from you and we have received plenty. we would like to take the chance right now to catch up with some had of those questions. warren, we did receive a lot of questions this year related to berkshire and some of the things going on there. let me start with one that comes from jay. he asks, you've been critical of lbos and private equity in the past, leveraged buyoutes and private equity in the past. yet you are partnering with 3g and is leveraging heinz. does this indicate a change in your view on lbos and private equity? >> this is a partnership that's buying a business to keep. and our partners like the idea of some leverage in it. we don't like leverage as much, so in effect, our preferred stock is providing leverage to their common. so instead of having loads of debt providing the leverage, we have our preferred stock, which

is equity and carries no threat to the capital structure. but there's not a private equity deal. this is a business to own. berkshire will own heinz a hundred years from now and there's no thought on berkshire's part of selling a share. there may be a few people in the ggg group that decide that they want to sell at some point. and if they do, i hope we get a chance to buy more of it. but heinz is forever as far as we're concerned. >> in your letter, you pointed out that the preferred shares have more than just the higher yield that they're bringing in. this is also something that brings you warrant to buy more of the stock. >> yeah. we have a 9% preferred, an $8 billion issue. we have a call price on that because the call is at a premium, probably provides another point here. and then on top of that, we get 5% of the fully diluted common

basically for nothing for buying the preferred. it's a deal that is a very fair preferred, but it does create extra leverage for our partners, 3g, meaning they only have to put up half the equity and they get the play. if heinz works out as we expect, they will get a return higher on that common than on the preferred. but we do very well on the preferred and by having that preferred in there, we minimize the amount of deaf leverage. so this is not something, whether it's debt to the ceiling on it. >> several people had written in about how this is different than your usual acquisition by partnering up with someone. normally, you look at a business where you want to keep the management that's there and you look at that and it's a long time add in. why do this with 3g? >> well, i've known georgegy powell for a dozen years. i've known him associates. i think they might be the best managers in the world. so -- and incidentally, they're getting no extra ride for

managing it. so there is a 3% carveout for management if they meet certain performance targets. but i would love to have that group manage any business that we have and so they are the managing partners. we're the financing partners. and to me, it's a dream. i mean, we get terrific management with them. management i couldn't buy. and they get somebody that can finance it with a phone call, which makes it very easy from their standpoint. >> is that 3% of annual net income or something? >> no. the ability to buy 3% of the common hits certainly performance levels. >> let's get to another question. this one is from jeff rodan. he writes in, are you worried berkshire will become too diversified and will end up having to sell off companies like other former diversified

companies likeco cocola and ge because they strayed too far off their core businesses? so no. we have gray able at the energy business. that is his core business. before this deal, we had eight different companies, each of which would away fortune 500 company if owned separately and they have fortune 500 type managements. and those people are managing the businesses they want to manage. that's the same situation we're going to have at heinz. so we -- we couldn't run berkshire from the top. it's not designed that way. it's designed to have a group of businesses that are run by people that love them and then now hoe to run them. it's their goal in life to run those businesses. their goal is not to run berkshire. their goal is to run the rare road or whatever it may be. it's an ideal situation. i just stay out of the way. >> let's get to another question. this comes in from bill breach. he writes in, regarding the

abdomen sigz, can mr. buffett describe berkshire's procedures to try and prevent premature leaks of insider information regardi ing prospective acquisitions is in the? there have been a lot of questions about that. >> we try and minimize who knows about it. but you're always going to try to have your lawyers know about it. our auditors don't know about it. we don't consult them. our cfo is going to know about it. my assistant is going to know about it. and that's true with the other parties, as well. in this particular case, you had four investment banking firms. you had two commercial bankers. and is you had people that are placed at 3g and a lot of people -- that's why i like to push these things through as fast as possible. and, obviously, i will guarantee thaw that person that bought it on wednesday, bought those options, that is inside trading. they're going to nail that guy and they should.

we up to that point. if you looked at the heinz stock behavior, it did not outperform the market or anything. i thought we were going to get there. even on that wednesday, the day before we announced the stock, i believe, was actually down. but that option's trading clearly reflected something that knew something. it will be very interesting to see who it is. we've never had a big problem. we had the situation, but it was a different sort of situation. we've never had anybody at berkshire that, all the deals we've had that we've been involved in. >> very quickly on that point. let me bring in another question from a viewer. this is from harvey cohen, number 13 control room. he asked what was the total leagueal bill to close the sokol affair. >> that's a good question. i can't tell him the answer. more than i would like. we had our own legal bills. we had his legal bills and it's not totally done yet in terms of legal bills. if i had to guess, i'm really

guessing here, i would guess $4 million or something like that. >> have you spoken with dave sokol since the affair? >> i have not spoken to dave sokol for a couple of years. >> joe, i know you had some questions, too. >> yeah, i did. i was just watching warren with that answer. i mean 4 million is, you know, is not a lot obviously for buffett or warren, not a lot of money. but i saw the pain on his face. because $4 million to him, as he has mentioned, i mean -- there it is again. $400,000 would have, i can just see him just, anyway, warren -- >> you're getting closer, joe. keep going. >> in the past you have made the point that it's better to buy a great business for a fair price, than a fair business for a great price. and i know that heinz probably fitting into that again. but you know, warren, heinz has been -- when it was founded like 1870 or something, 1869.

>> 1869. they went broke, that happen, but the successor, that was founded shortly thereafter. >> it's been a great business for a long, long time. and i dent know about your price. i guess you probably paid a fair price. but i'm just wondering, you know, sooner or later you have so much money at berkshire that you have to deploy and you find companies like heinz. you could have made this acquisition any time in the last 20 or 30 years and probably gotten a fair price. i think that your partner definitely made a big difference here. >> yeah, he did. there's no question about that. no, we would not have done the deal if we hadn't been in partnership with jorge paulo. >> and it made sense just in terms of being a global, a brand that you can just leverage globally and he's a guy that can leverage it globally. makes sense to me that way. i got it now. it doesn't seem that profound to me to buy a brand name ketchup -- i can give you like probably 10 or 15 -- might as well buy twinkies, too, while

you're at it. get in the auction bidding for that, too. just as far as a brand name company at a fair price, there's, you know, you got a whole shopping list. >> yeah, there's not too many that are big. but you're right, you know, we've owned coca-cola but we've only owned 9% of it now for i don't know, 25 years or so. >> yeah. >> but, you're right, we would not have -- we would not have done this, we would not have done this at this price without being partners with georgie paolo. no question about it. >> will you throw bloomberg under the bus once and for all? you mention coke again for that ridiculous. you can't even order a pizza with a party and get a coke and a two liter bottle. i mean if that is not a, you know, an nanny state run amok, if you won't say that for me i don't know if i'm going to ask any more questions. >> there's 200 calories in that 16 ounce bottle that he will tolerate. but he doesn't want to tolerate

more than 200 calories. i have seen certain people, unnamed, but public officials, who have eaten more than 200 calories of dessert at one time without having to order a second serving. the real question, you know, i can eat 2700 or 2800 calories a day and i've been picking those 2700 or 2800 all my life and it seems to work reasonably well, and if i eat broccoli all my life i'd probably be in some mental institution. >> andy loves salt. and he flies around with a big carbon footprint. and it just -- it just looks like let them eat cake. it looks like, i'm here, like a king, and i'm looking at my subjects. >> don't let them eat cake. >> and my subjects have to live differently than i live because they're too stupid to make their own decisions. it galls me, warren. >> i think you should pick 20 -- whatever your metabolism rate is and you should pick 2700 or 2800 calories.

>> right! >> and you ought to have -- >> i'll eat fillet of fishes if you want. i'll eat 2800 calories worth of mcnuggets if i want or twinkies. >> or ice cream. some days i just go through a whole gallon. >> wow, all right. >> warren what are you eating for breakfast this morning? >> here i'm having a cherry coke here. and there are about 200 calories in this. but if -- oh, i got some oreo cookies. >> what size is that bottle, warren? >> this bottle looks like 16 ounces. yes. >> no, it's bigger. >> no, i think that's a 20 ounce. >> you can't have that! put that down! you know where you can have it? myanmar. but you can't have that manhattan. >> yeah. well we can have it in omaha. and we'll continue to have it in omaha. >> all right. >> gentlemen, we are approaching the top of the hour. 7:00 a.m. on the east coast. 6:00 here in nebraska. so we're going to slip in a quick break. when we come back, we are going to get warren buffett's take on

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you're watching a special "squawk box" presentation. >> we're going to bring down spending and we're going to bring up revenue and we may get there in fits and starts, and everybody may scream each time we do it, but the deficit is going to come down. >> berkshire hathaway chairman

and ceo warren buffett in his first television interview since releasing his annual shareholder letter answers your questions. investments. the economy. politics. and much more. hour two with the oracle of omaha begins right now. good morning. and welcome to this special edition of "squawk box" on cnbc. i'm joe kernen. andrew is on assignment and becky quick has made her way to la vista, nebraska, where she is speaking with one of, it says here, like maybe the greatest, i think, but we'll call him one of the greatest investors of our time, warren buffett. we'll get to here in just a minute. first a check on the futures which have been meandering around. they've improved a little. they're down more than 50. now down 38 or so. here are your morning headlines.

at least chosen for this batch. a new survey of economists say the u.s. budget deficit needs to be cut. but indiscriminate spending cuts are not the way to do it. the national association for business economics says more than 70% of its members are against the so-called sequester cuts that began taking hold on friday. and las vegas sands is lashing out at what it calls indiscriminate and misleading reports. it's calling out "the new york times." in particular, for a headline that said, casino companies -- company says that it likely cheated the story stems from an s.e.c. filing in which the company says it found likely violations of accounting provisions. and jack the giant slayer did debut at number one at the box office. 28 million dollars in north american sales. but there are those that said that it should have done double that to be a hit. it was lower than what warner brothers had hoped. the movie had reported a budget of $200 million, actually just under $200 million.

so, i guess if you had to chalk it up you'd probably call that about a four or five on a scale of one to ten, beck. >> yeah okay. joe, thank you. we're going to jump right back in with warren buffett. the chairman and ceo of berkshire hathaway. we've talked about a lot of things this morning but we have not gotten your take on the economy right now. we'd like to talk to you about this because your businesses give you a really good idea about what's happening across a broad sector of the economy. so, you laid out some of these things in the annual report. but why don't you talk to us about the powerhouse five. these are the five divisions of the company outside of the insurance holdings that are -- are the big, big, biggies in terms of what they bring in. burlington northern santa fe. >> that's the biggest by far. >> and the car loadings were up in january, car loadings were up in february. but our car loadings have been behaving somewhat better than the other three big railroads. so car loadings, for the four

largest railroads, have been fairly flat. they've been up in the intermodal. they've been down in the tradition traditional. coal continues to be down. in our case coal is pretty flat. but, i think you'll see a small increase in car loadings this year. and i think -- i think burlington's going to do quite well on it because we're well situated in respect to where oil has been found. >> right. >> so we are caring more and more oil. we're carrying about 10% of all the oil that's moving in the lower 48 continental united states. >> that's kind of unbelievable. 10% of everything produced in the lower 48? >> yeah. and we've got seven unit trains a day, and a unit train is about 100 cars. and there's 600 or 700 barrels per care. and we have seven of those a day

moving. but that number of unit trains is going to increase as production comes on further in the back, in particularly. rail has turned out to be a very good way of moving oil in this economy, because there's such differences in what oil is worth at given refineries, and oil is obviously far more -- rail is far more flexible than pipeline in terms of moving oil around. >> you know, you bring that up, and i'm looking quickly to try and find some of the questions that came in from our viewers. but the whole idea that rail is more efficient, that's something a lot of our viewers kind of caught on to and keyed in and wondered what your thoughts are on the xl pipeline and if you were opposed to it because you'd like to see more traveling on burlington northern on your own railroad. >> with the keystone pipeline? >> yeah. >> that will be bringing heavy oil down from canada. and there's plenty of places for pipelines. we're not anti-pipeline at all. but the oil producers are going

to figure out what is in their best interests. there's these huge differences in what crude is worth in different places. and, with rail, you're more flexible in that way. incidentally, oil moves faster on trains than it does in pipelines. that may be a little counterintuitive. and certainly moves in a more flexible manner. i think if you talk to the oil producers, that they're quite happy with the rail service they're getting, and we spent a lot of money on infrastructure to make sure that in terms of loading and all of that sort of thing that it's done very efficiently. >> but just to clarify what you said a moment ago you are not anti-pipeline. you are not anti-keystone. the key stone xl? >> i can't imagine -- you know, i'm not a environmentalist in terms of knowing what -- but it just seems to me that an awful lot of pipelines in this country and there hasn't been a lot of damage done, and the heavy crude up there, it's going to move some place. so i do not have any objection to the key stone pipeline.

>> beyond what you're watching in terms of the rail car loadings and what's been happening, what's your general sense of the economy based on what you see from housing, based on what you see from manufacturing? based on what you see from retailing? >> well, housing is getting better. i mean our brick business is better. i was just talking to people at usg wahlberg business is better. now this is from a very low base. and it's not galloping back but it's moving back. and what they see from real estate brokerage firms is houses are moving. so we're -- we continue to have a slow recovery that started in the fall of 2009. it's 3.5 years old now. it continues to be slow, and certain parts come on faster than others. it hasn't taken off but it hasn't stopped here. >> we spoke with sam zell recently and talked to him. he's in an interesting

perspective becausize been putting money into rental properties and thinks that in some ways this resurgence in housing may have been overplayed by the media a bit. he still believes rentals are a great place to be for some time to come, and he is investing in that manner. is there a way that both sides of this coin can be correct? >> they can both be correct, yeah. you have had the situation where five years ago, 69% of people were in single-family homes and that's dropped down to 65%. a fraction, i believe. so, the rental properties have gotten a disproportionate amount of the new household formation in terms of people going into them. but you're seeing it in single family homes now. and i still think for your viewers, anybody that's going -- knows where they're going to live for the next ten or so years and finds a house that they like, i think they should buy it today and mortgage it out for 30 years today. i think they will do very well. >> so that has not changed. there are several people who wrote in questions about that. we'll get to some of those a little bit later this morning. if you look at the other areas,

iscar, marmon, what are you seeing in terms of manufacturing, let's say on a worldwide basis? >> well, world wide, the united states is doing better than many parts of the world. so if you look at an iscar which sells, manufactures all over the world, the united states is one of the stronger places for an iscar, and the united states, it's not galloping at all. but we are making progress wit by bit. and everybody would love to see it faster. but it's not going into reverse. and i do not think the sequester will cause it to go in reverse. >> mid-american energy. you talked to us in 2008-2009 when you really saw the downturn. it was energy usage, energy demand was down. where do things stand right now? mid-american is in nine of the different states? >> i think it's ten states, yeah. we're, i think, maybe second in that in terms of number of states. electricity use has not come

back like you might think. i mean, there's no resurgence in the use of electricity. >> from the -- >> this is a slow recovery. >> is that from the consumer or from -- >> it's from -- you would think, with the growth of population and all of that, that you'd be seeing a little bit better trend in kilowatt hours for residential than you have. but, residential and commercial, none of it's been that vibrant. >> okay. so you're talking about a returning economy, not generally stronger, and does that different than you think ben bernanke's view of the economy is? >> i think that's why he's doing what he's doing. he's seeing the same thing and he feels it's his job to juice it a little. and he's -- he's doing it. now, i think he would feel, i shouldn't speak for him, i think he would feel that absent his juice, we might be dead in the water. >> would you agree with him? >> i think there's some chance he's right on that, yeah. >> no, i think very cheap money

makes things happen. it makes asset values higher. when asset values are higher people do have a greater propensive to spend. there's these second order effects. i think bernanke has sort of carried the load himself during this period. and there's no question that stocks are higher, because interest rates are essentially zero, than they would be otherwise. there's no question that there's even more activity on buying companies because you can borrow money so cheap. junk bonds are ridiculously cheap. so, he's having an effect. >> but even though you agree potentially with his assessment of the economy, and even though you think that he is probably holding up the lion's share of all of this, you don't necessarily think that he should continue expanding the fed's balance sheet? >> well, he's expanding his balance sheet right now. >> right. >> but, i would say that there are -- everybody that's involved in managing money is waiting for

the moment when they think that he's going to go the other direction. and so i'm sure he's going to try to do various things to sort of ease that in, and be a little -- a little confusing as to whether he has done it. there are all kinds of people with portfolios, not berkshire, but all kinds of people with portfolios who will take a signal from him that he's going to go the other direction, as a signal to them to do a lot of things with bonds and stocks. and you could see a big -- a big reaction. you saw this -- you saw this the other day when they sort of coughed a little -- >> the fomc minutes. >> and allful a sudden a couple hundred points. it will be a very interesting day when it becomes crystal clear that the fed has reversed direction. >> okay. we're going to have more from warren in just a little bit. but joe right now, i'll send it back over to you. >> thanks, beck.

i'm -- forbes just is out with like 1500, the richest people on the planet. and i'm just looking through here. i'm on like number 200. it's really interesting. i'll tell you warren i think is three or four or something. he's doing okay for himself. doing well. and a lot of -- a lot of russians. a lot of chinese. a lot of indian people on the list. this is a global -- my favorite was steve ballmer is like $20 billion. he's like an employee, isn't he? >> wow. >> not exactly. >> owe got 10% of the company when he went there. >> jeff beezos like 10th or something. i mean, huge. i mean asked for that. but that was good. it's fascinating. i'm on david geffen now, 198. the prince was in here, bunch of hedge fund guys. tepper is in here, becky, in the top 200. >> i bet. >> amazing. >> all right.

>> i'm not envious at all, really, i don't think. >> you don't sound it. >> no. michael dell. 40 years old. >> joe, most of them -- many of them are not living as well as you are. >> they're not happy. they are not happy. money does not buy happiness. huh? >> for some it does, and some it doesn't. >> would it kill you to put me in the top 1500, buffett? that would be nothing. i mean all the philanthropic stuff you've -- never mind, i know -- >> how about just for a day. how about just for a day. >> check the futures. they're not happy. it's all about family. it is family, wives, kids, stuff like that. down 41 points or so. a lot more with warren buffett in just a couple of minutes. up next, i said it's about wives like you have more than one. it's about a wife and children. subsidiary of united technologies reportedly finds itself in a metal mess. that story after the break. >> got a comment or question about this morning's show with warren buffett? e-mail us.

squawk@cnbc.com is our address. you can also tweet your question to the show, @squawkcnbc is our handle, and be sure to include #askwarren. more "squawk box" and the oracle of omaha right after the break. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪

welcome back to "squawk box." more from warren buffett in just a couple of minutes. hsbc is reporting a full year pretax profit that missed forecasts which were about $23 billion. the shares are dropping in premarket trading. hsbc ceo stewart gulliver says that the bank faced a k45 edging operating environment in 2012, with low economic growth and changing regulations. and "the wall street journal" says united technologies unit, pratt & whitney uncovered a fraudulent scheme of testing engine parts by another unit of the company. pratt officials say metallurgical tests were doctored so engine forgings appeared to meet extra stringent standards. the faa has launched a formal investigation after being informed of pratt by its probe. united tests caramel fords unit in israel is the unit in question and metal parts were used in engines made by

pratt & whitney's canadian operations and apparently do not pose any safety hazards according to the "journal." beck, i'm in the -- i made it to the mere mortals here now. sumner, redstone is here, henry kravitz. >> that's considered mere mortals? how much money do these guys have? >> $5 billion. >> that's still way outside of our -- >> how about buddy lefrak? he was up in the hundreds, actually in >> yeah? >> i call these call these mere mortals. >> you're crazy if you call these guys mere mortals, joe. >> you know what you would be surprised, becky? how many are either guest hosts or guests on the show or write in or whatever. >> yeah. >> it's really weird how many of these people we actually know. there's les wexer in i see now. anyway -- >> it's like the seven degrees of separation. >> right. >> we know a lot of these guys on this list. >> here's someone from -- another that's a different heinz. but i'm sure the heinz heirs are

here. you know who else was on there, steve jobs' widow was way up there like $11 billion or something. >> oh, yeah, right. >> a lot of interesting looking through here. i will continue to monitor this, as you talk to like number three or number four. you got them right there. >> sounds like a plan. thank you, joseph. let's get back, warren, to some of the questions we've gotten from our viewers. there were, again, a lot of questions that come in. we try to put them into categories. what we've gotten over the years more than any type of question are those that fall into the investing category. people really want to know your views on the stock market, your views on what stocks you're looking at. we just mentioned in the headlines about the hsbc ceo saying that the bank is facing a really challenging operating environment in 2012. and one of our viewers, david perkins, wrote in and he wants to know if you could please comment on the banks. specifically those trading below tangible book value like bank of america, and citigroup. what's it going to take for these large banks to get above

book value like their peers at wells fargo, ubs and jpmorgan? >> well, a bank that earns one -- 1.3 or 1.4% on assets is going to end up selling above tangible book value. if it's earning 0.6% or 0.5% on asset it's not going to sell. book value is not key to valuing banks. earnings are key to valuing banks. and, you earn on assets. now, it translates to book value, because to some extent, because you're required to hold a certain amount of tangible equity, compared to the assets you have. but you've got banks like wells fargo, and ubs, that earn very high returns on assets, and they sell at a good price to tangible book. you've got other banks like maybe the two you mentioned, that are earning lower returns on tangible assets, and they're going to sell -- they're going to sell more book.

>> james, this is -- i'm throwing a curve ball, wanted to know what do you think of bank of america. does the stock still have room to run? you notice that you picked that stock a couple of years ago with the preferred that you got into. >> yeah, well i -- we have warrants that run for nine years. we're going to hold the warrants until the end of that period, eight and a half years. and, you know, we expect bank of america in eight and a half years to be worth significantly more than it is now. i have no idea whether it's going to go up or down tomorrow or next week or next month or next year. but, they are making progress in getting rid of a lot of things that they shouldn't have been in. they're making progress on cleaning up mortgage problems from the past. most of which came from country -- their acquisition of countrywide. they're doing the right things, and they've got a terrific low-cost deposit base. so over time, they will do well. but, no one knows whether that stock is, in my view, knows whether it's going to go up, down or sideways in the next six months. we don't do that sort of thing. >> let me ask you about another

stock. this is one that we got a lot of variations of this question. comes from muskegon, michigan, matt writes in, if you could give any advice to tim cook of apple and its shareholders, what would it be? should they give more in terms of a dividend? should they split the stock? is apple now a long-term growth stock that you would consider purchasing at its current levels? >> i don't own any apple stock and i haven't. i did talk to steve jobs a few years ago about what they did with the cash, as we talked about earlier. the best thing you can do with a business is run it well. if you run it well, it's -- the stock behaves fine over time. berkshire has gone from $15 a share to $150,000, now there have been times when it's four times what it's gone down 50% and there have been all kinds of times when people have criticized doing this thing or that thing. but basically we've just focused on running the business. >> you've never had to deal with a hostile activist investor like david einhorn who is going after apple right now? >> i would ignore him.

i would run the business in such a matter as to create the most value over the next five or ten years. you can't -- you can't run a business to try and run the stock up every day. >> but if you're looking at apple, i mean it has faced some massive fluctuations. tech stocks tend to be a lot more volatile than some other stocks including berkshire shares. >> berkshire has gone down 50% four times. >> wow. >> four times in its history it's gone down 50%. >> and at that point you just focus on what you're doing? >> yeah, if you've got money you buy it and you just keep working on building the values. but four times -- and i heard from people that those times that said why don't you do this or that and usually pay a dividend. they think it might go up because of that. would have gone down, actually. we just kept focusing on building value. i think apple has done a pretty good job of building value. one of the reasons they have that ash karnd is because two-thirds of it has not been

taxed yet. they don't bring it in because they don't want to pay the tax. when steve called me a few years ago i said is your stock cheap? he said, yes. i said, have you got more cash than you need? he said a little bit. and i said -- but he didn't do it. >> you just said what you told steve jobs a couple years ago and you just said yourself when berkshire went down if you have cash buy the stock. so you're basically suggesting a stock buyback. >> if you don't have uses for the money in the business. yeah. now, we're always looking to buy businesses. so, but we when our stock went from 90,000 or there abouts to 40,000 or 45,000 i wrote about it ten years ago. and we just didn't have any luck buying it. but if you can buy dollar bills for 80 cents, you know, it's a very good thing to do unless you have some needs in the business. >> mm-hmm. let's talk about another stock. this is one of your big four investments, coca-cola and chris

writes in, why do you not increase the coke stake, the name is near eternity, and this company seems to be a never-ending cash cow. you known 9% of the shares outstanding? >> we own 400 million shares. and we haven't bought or sold any stock for over 20 years. there are other things that i think are cheaper. you know, we bought wells fargo this year. i think wells fargo is cheaper than coke. i may be wrong. i think they're both wonderful companies. but -- and then now i'm giving some money to the two other managers. in fact i'm going to -- i'll make news for you today. last week i told them i was going to give another billion each -- >> you're talking about todd and ted? >> todd and ted. >> todd cones and ted wesler. >> yeah they're making me look bad so i'm going to give them another billion so they don't talk about it. >> how big are their portfolios right now? >> well they're just under $5 billion right now. and they'll be around $6 billion on march 31st when i give them the next billion. >> let's talk about what you said about ted and todd in the report. you talked a little bit about

their performance, which you said outpaced the s&p's performance last year by double digits. >> right. >> for each of them. why don't we bring up, i think we have a full-screen in the control room that tells exactly what you said in the report, because it was pretty interesting the way you laid this out. it says, todd combs and ted westernler are new investment managers have proved to be smart models of integrity, helpful to berkshire in many ways beyond portfolio management and a perfect cultural fit. you go on to say that each of them have outperformed, we hit the jackpot with these two. in 2012 each outperformed the s&p 500 by double digit marges, and then in much smaller print, again this is what you did in the annual report, they left me in the dust as well. you can barely read it from across the room. >> i'm disappointed that you can read it, actually. they did a terrific job. it's sort of interesting because here these two fellows are. they ran hedge funds before.

they want to work for berkshire. the standard arrangement in hedge funds is 2 in 20. with them managing out 6 billion they'd get $120 million each just for the two. now, look at their expenses. we have one woman, she takes care of three people there in terms of their -- here in omaha. ted has one assistant in charlottesville, virginia. todd has two people working in new york for channel checks and things like that. believe me you can cover that for a lot less than $120 million. they would have made last year $400 plus million under the standard 2 and 20 arrangement, and they would have gotten carried interest treatment on it, you know. but instead they get a very decent payment from us based on beating the s&p. and it's all ordinary income to them. so it's -- it's an interesting example of how the chips fall in this business. and they -- and they love working for berkshire. and they'll be working for berkshire 20 years from now. >> let me ask you another question that came in on twitter

from -- what's the likelihood of berkshire adding another investment manager to the two already on board? >> it's quite unlikely because i'm so happy with the two. i'd rather just give them more money. i know, you know, it's like getting married. you know more a month afterwards than you do ten minutes before. and this has worked out terrifically. in fact, there's tracy who does not manage money but manages businesses, so we've got the three trkzs, ted, todd and tracy and they're all home runs. they're not just smart, they are devoted to berkshire. they like -- they like being part of it. and they'll all be with us, in my view, 20 years from now, and they couldn't be better. >> one of the other changes you noted in the annual report was that of the stocks that you break out, and in the investment holdings, there was a new one added to the list.

that was directv. you only put stocks on this list that you have over $1 billion invested in. this is the first time that someone besides you has invested enough money to make it onto that list. >> right. >> directv was the biggie again, because both todd and ted are putting money in this? >> they both have put money in there. i do not include the pension fund moneys they manage. there would be another one on there if that were included. there would be more directv because they had some of that in pensions, too. they concentrate their investments just like i do. one of them has, i think, only five stocks. the other may have 11 or 12. and they don't check them with me ahead of time. i've -- i look at some reports at the end of the month, and so i know what they buy or sell. but they -- we just make sure that things where we have to file a 13-d or something that that's coordinated. but other than that, they have total carte blanche. they could put it all in one stock. >> was it just a coincidence that they both invested in directv? they didn't check with each other first? >> i think they're both smart. no, i don't think they check --

>> they don't balance it off? it just happened that way. >> no, no. as you know, a small part of their compensation is based on what the other fellow does. >> right. >> so they've got every reason to be cooperative. but they do not -- they work quite independently. we all go to lunch on tuesday, and -- but -- they each have their own portfolio just like i've got my own portfolio. >> you tried to slip this through. you mentioned that there would be another stock that would have made the list of over a billion dollars if you were looking at the pension fund money they run as well. what was that stock? >> devita. >> devita? >> yeah, yeah. >> wow. okay. there's a little bit of news for us, as well. warren, if you'll stand by, we're going to slip in another quick break. >> great. >> and joe, we'll send it back over to you. >> what is that dialysis stuff? >> yeah, it is dialysis, right. >> who pays for lunch? >> i think -- i think we actually own maybe 13% of the company or something like that. >> did you hear what joe just slipped in? >> who pays for lunch on

tuesday -- those other guys pay, don't they? >> no, i pay for lunch. and berkshire does not pay for lunch. i pay out of my own pocket. >> whoa. whoa. can toy get an appetizer? >> it depends how they performed. >> more from -- well -- what is it did really wealthy -- it's just fun to call them cheap, isn't it? really wealthy people, and they like it. they do. it's like, yeah they don't, you know, they relish it. anyway, more from bucky and warren buffett in just a moment. here's a quick look at this morning's headlines. the dow ended last week about 75 points from its all-time closing high. so, we'll see where we open today. stocks gain ground in the just past week despite the failure of lawmakers to reach an agreement to avoid the sequester, which triggered a series of yeah cross the board federal spending cuts. but the sun came up both days over the weekend. an irish drugmaker elan is offering shareholders 20% of the

royalties from its best-selling multiple sclerosis drug. five six years ago all the controversy. that part of it that's part of an effort to stave off a 6.6 billion takeover bid from u.s. investment firm royalty pharma. and president obama will nominate walmart foundation head sylvia mathews-burwell to be his next budget director. she previously served as deputy budget director during the clinton administration. if you have comments, or questions about anything you see here on "squawk" e-mail us squawk@cnbc.com is our e-mail. you can also follow us on twitter @squawkcnbc. and keep those questions for warren coming. we'll try to do our best to get to as many as we can on the air. you say it there it will come out here. up next morning headlines and much more.

good morning again,

everyone. welcome back to this special edition of "squawk box." we are in la vista, nebraska, home to war enbuffet's off yentalding company. this is a company he acquired in the fourth quarter in november. berkshire never put out a price for this acquisition, it was reported to be around half a billion dollars. this is a company you probably know from catalogs if you have kids at home. does arts and crafts. again it is an omaha company that has been here for a long time. warren buffett is our special guest this morning. we've been fielding a lot of your questions for him all morning long things that have been coming through. and warren for the people who are just tuning in we talked in the 6:00 a.m. hour about your thoughts on the sequester, and where we stand right now. this is the first business day after the official sequester process. people may have not noticed a lot of changes yet but there could be some coming as soon as april 1st when things really kind of kick down. in your opinion is the sequester a good idea? >> well, it's probably -- it's a

terrible way to go to -- in terms of cutting experiences but that doesn't mean cutting expenses isn't a good idea. we've done two things this year to reduce the deficit. which means reducing stimulus. we've had huge stimulus in this country. we had a bill we called stimulus. but then, any time the government runs at a big deficit that is still his. keynes would be proud of us. we have increased taxes, the payroll tax went up a lot $80 billion to $100 billion and we've increased taxes on the very rich. now we're cutting expenses. so we've taken a shot of a couple hundred billion in terms of reducing the deficit. but we still will have a deficit of a trillion or a little less, if -- it's a terrible way to go about it. i mean, this idea that a year and a half ago you create some monster and then you say this monster is going to be so scary that we're bound to be able to work together with that hovering

over us and then you let the monster you cut him loose i mean it is, it is crazy. but the whole negotiating situation really is out of control when you have got people negotiating in public and when you've got at least one side unable to deliver for his any commitment he might make. >> there was a question that came in, number 180 control room, he wrote in if you could explain the explosive atmosphere in politics today as to what it was 10 to 15 years ago is it really worse than it was 10 or 15 years ago? >> it's probably worse. you know, my dad was in congress, you know, if you go back 60 years, and 70 years, it's always contentious. i mean, you've got people to believe that strongly in very different things. but now you seem to have got the position where the real goal of almost each side and certainly one side in my view is to block what the other guy wants to do. and you have -- you may have

four political parties. you may have the -- you may have the extreme right, and the regular republicans. you may have the extreme left and the regular democrats. and when contests are being fought in primaries and when people are playing to those primary audiences throughout the entire two years that they're there, it makes it very hard for leadership to deliver their entire party. it seems to me that's the real problem in the house. is that you don't have two parties, you have three parties. and, and john boehner, who i admire what he's done, but i do not think he can deliver his group, and we saw that when we got to plan "b" and all of that at year end. >> joe i know you have a question, too. >> a lot, becky. many as we have time for. warren, i think in the latest, in the latest results your puts,

the puts that you sold your you just got to be feeling like what a great move that was. not just on you -- not just on the s&ps, but you've done that around the world just betting on higher stock prices over time, i guess. and it ended up boosting your results by billions of dollars, didn't it? >> yeah, but net to this point, joe, has actually hurt them by a couple billion. if you take the cost of undoing those puts, if they had come due on december 31st, they would have cost us three and a fraction billion. but we put the liability up at six and a fraction billion so we still show a liability on our books. just not higher -- >> is that but what's your strike on those yurs -- your -- >> on the strike we would have a profit if they were settled today. >> yeah you know what you're doing. and you're just marking -- you probably did that for tax reasons or something.

i know how you operate. it -- would you write -- would you add to your positions on -- around the world in terms of just the -- staying long the equity markets around the world using that strategy using derivatives? >> we would except for the fact that now you have to post plat ral and berkshire will never get itself in a position where if the federal reserve is closed tomorrow, and the whole world is paralyzed and the stock exchange isn't open and there's been some kind of a nuclear, biological or chemical attack, we have to be able to operate the next day. and you saw on october 19th and 20th of 1987, on october 20th, the specialist firms were all broke. >> yeah. >> we just are never going to get in a position where we have to post a lot of money on 24 hours notice. so we will not -- we just won't engage in those kind of transactions, no matter how profitable they may appear. >> you need to add asteroids now, too. >> yeah.

well we can take an asteroid or too. >> not a big one. sinkholes. i mean, i'm afraid to go to bed. i'm afraid to get -- >> well, listen, you live up there where we had sandy. we had 46,000 cars we paid off on. that was -- that was 500 or 600 million dollars. >> my heart bleeds for you with your insurance operations, warren. i want to talk about that, too. i don't know how you're doing that with insurance. you know, you got to be charging too much because you're not paying out enough, because you're making so much money with your insurance operations, right? >> let me ask you this, then, people are calling us up at geico and we're now getting the highest closure rates that they've improved dramatically lately no money is calling us up and taking out insurance with us if their prices go up. so we are selling it below whomever they're insured with now and probably by an appreciable amount. if we're going to save them ten bucks they're not going to shift. >> great advertising. you've said that.

you've you've done this with a great ad agency and buying more commercials and it's paid off. it's like printing money. >> and low overhead. >> but the ads could get them to call us. but the only reason you buy is to save money. and, our closure rate right now is the highest, geico is shooting the lights out now, and we -- in february, we added net close to -- right at 165,000 or 170,000 policies. and you know, nobody else is doing that. >> geico is comfortable -- >> pricing is what does that. >> geico is profitable even with what you paid out for sandy, correct? >> oh, sure. >> how much bigger was that than katrina? >> three times as big as katrina. we are number one in market share in the metropolitan new york area. we were not number one in market share in -- in louisiana. >> i want to see -- i want to see you in the commercial like adding up the results and then dancing and then have those two guys playinghat saying well, happier than warren buffett getting a geico -- you know the

commercial that i'm talking about where the -- why won't you be part -- be in one of your commercials adding up the results? >> he is. wait a second. he does do a commercial with geico. you just taped one. >> i've done some things. but they seem to never make it past the cutting room floor. all right we will have much more with warren buffett right after the break. by the way, tomorrow on "squawk box," a special one-hour event with some of wall street's best investors. stanley druckenmiller, ken langone, former fed governor kevin warsh, and geoffrey canada will be on to talk the economy, the sequester and where they're putting their money to work at 8:00 a.m. eastern time tomorrow well oh, wait that's at 7:00 eastern time at 8:00 am eastern we welcome arianna huffington. stick around. >> got a comment or question about this morning's show with warren buffett? e-mail us squawk@cnbc.com is our address. you can also tweet your questions to the sh show @squawkcnbc is our handle,

and be sure to include hshs askwarren. more "squawk box" and the oracle of omaha right after the break. 0 television commercials. yep, there i am with flo. hoo-hoo! watch it! [chuckles] anyhoo, 3 million people switched to me last year, saving an average of $475. [sigh] it feels good to help people save... with great discounts like safe driver, multicar, and multipolicy. so call me today. you'll be glad you did. cannonbox! [splash!] ♪ there'll be the usual presentations on research. and development. some new members of the team will be introduced. the chairman emeritus will distribute his usual wisdom. and you? well, you're the chief life officer. you just need the right professional to help you take charge. ♪

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here now, becky quick. welcome back, everybody. again, we are with warren buffett this morning. we've been taking a lot of your questions that have been coming in. several of those questions include politics. people have been looking back at what's happened since the beginning of the year. we have faced some changes. as you mention there's about 700 billion dollars that have been coming in or are expected to start coming in in new revenue because of changes to the tax code that took place after the end of the year last year. some people have pointed out with all that you've done and said about what needs to change with taxes, with the buffet rule that had been proposed, there was one question that came in, which is a question we got a lot of different variations on. this one is number 32 control room with the end of the 2012 federal income tax changes will we now be paying a higher percentage in taxes than your secretary or your administrative assistant? >> yeah, i probably will. i'll make a study when we get the taxes, calculated throughout

the office. but, my capital gains rate will go from 15 to 23 and a fraction because of the 20% plus the 3 and a fraction percent. but if you look at social security tax, payroll taxes, plus, plus income taxes, i'll be a fair amount higher, say 8 or 9 points higher, but the differential between me and the rest of the office, not just -- not just my secretary, but the rest of the office, was greater than that. the payroll tax, you're talking 15 and a fraction% and then start adding the income tax onto that. so, i'll be glad to give you a report after we get all the income tax returns done. but it will be closer, but i'll probably be the lowest paying counting payroll taxes i'll probably be the lowest paying taxpayers in the office. >> so what happened? we raised marginal tax rate on the top 2% but it still doesn't fix the problem of the very wealthiest americans getting to

a position where they're paying more of their fair share, if you want to use that phrase. >> you will still have, when we get the figures a few years from now, you'll probably have the 400 largest people who might be making 200 million or 250 million a year, you'll probably have a quarter of those at least probably half of them paying less than 25%. and of course with the payroll tax 15%, you get over 25, and you're pay over 25%. and that's why i suggested a minimum tax to get to those. it wouldn't affect somebody making a lot of money and paying normal tax rates on it. but it would affect carried interest people and that sort of thing. it would affect me. >> was this a stupid change in the tax legislation? >> it was better than no change. and the minimum tax is still out there as a proposal in the senate. and i think it makes sense. i think that i don't want to name some of my friends that are in similar low rates, but i think they should be paying at the rates that the people who work in, you know, in this

warehouse pay, and they still have a big break. the big break is they don't pay payroll taxes. and payroll taxes are, you know, if we take in 2.6 trillion this year, payroll taxes will be a third of that, roughly. they're not quite as much as individual -- >> are you suggesting there shouldn't be a limit on the amount of income for where the payroll tax ends? what is it $150,000? >> it's less than that. it's around $100,000. and it catches many of the people in our office have spouses that work, and they get paid -- they get the payroll tax, too. so on the first $200,000 for many families, 15.3%, you know, i mean that -- >> but is the unfairness that they shouldn't be paying that high of a rate or you think there should be no limit on that? >> i just think that that -- it depends whether you change the whole code in some way. but i think under the code as it presently stands a minimum tax on very high incomes is a start in getting more equity in the tax code. >> did we mess up, though, by

doing this in partway steps? does it make it much less likely that we get to some sort of a grand bargain like a simpson-bowles type plan because we are doing this in increments? >> i'm not sure we get there under any arrangement. it -- there should be a grand bargain. i think there was very close to a grand bargain 18 months ago. i just thinked problem was that when john boehner went back to his group, that he cannot get -- he cannot get his -- >> 18 months ago, though, it wasn't just boehner who couldn't get his side. the president changed what he was asking for because he couldn't get his base to go along with it, too. >> yeah, he's got -- you've got two people as we said earlier i mean and when you have negotiations, the way to get things done is to have somebody on each side that can deliver. if i'm in a labor negotiation, i want somebody from the labor union there, and when he says, this is what my -- my group will take, that i know that that's good. and when i say this is what i can deliver, he knows i'm not going to get overrun by a board of directors. you can make a deal that way and

you do it in private and you don't go out and make speeches, you know, about i won't do less than this and all that sort of thing. when you have tough negotiati s negotiations, you really need to get it down to a couple of people. and -- and -- that requires being able to speak for your constituency, and both of them have trouble. >> joe? >> thanks, warren, a lot of people aren't buying newspapers. and i'm trying to figure this out. you bought 28 newspapers in the last 15 months. 28 dailies. and it wasn't a lot of money. and you know it's not a huge business but you seem to really be into it. is that you doing that? is this personal to -- to -- to one of your interests? yeah? >> yeah. >> it is? >> right. >> okay. do you want to -- are you going to be like ran golf hearst, or are suddenly dailies local dailies that much better than the big nationwide papers which

have so i don't know whether you'd be long-term investors in those or not. i know you know "washington post" you're a long time investor. i didn't think you liked newspapers that much and i there must be a difference between the business model for these local newspapers. >> the business model for both is not good. the business model for the big metro paper in my view is far worse than for the local community paper. the local community paper, really is indispensable to the people of the community or many of the people in the community and that has a sensible internet strategy. i think has a much better future than the, the big, the big metropolitan paper. just to get to your the william randolph hearst approach. we had 12 papers that endorsed in the presidential campaign last year, i voted for obama. ten of our papers endorsed romney. two of them endorsed obama. so if i sent out a letter, nobody paid any attention. >> all those editors have been fired.

>> no, no, i will tell you -- actually i make a point of this in the annual report. i really do, joe. i make a point of this in the annual report because i don't want my successor to start thinking he's william randolph hearst. so i want to establish a pattern where our editorial people, you know, whether whether they're in virginia or omaha for that matter. the omaha paper endorsed romney. they endorsed in the senate race a candidate i was for the other candidate. i mean, i want to -- i want to establish a pattern because -- >> i know -- i've never -- i've never seen rupert murdoch or pinch, whatever his name, i've never seen them take any editorial license either, warren. >> well, you haven't been reading very carefully. but if you read our papers, the idea berkshire hathaway owns those papers. we've got 600,000 or so shareholders. probably more of those shareholders voted for romney than voted for for obama.

>> right. >> so it is not up to me. if i owned 100% of berkshire, i would, i would, i would control editorial policy. but nobody's going to own 100%. >> but that business is better. it's not just a, a, croppy business at a great price that you're buying. you actually think that this is a good business at a fair price. it's your same nan tra? >> i think it's a declining, i think it's a good business currently, it's declining. the rate of decline will depend on how indispensable we make ourselves. but it's not something -- it's not like buying the burlington northern. >> right, great. thanks warren. we'll have more. that i got guess i got like ten seconds. one more hour with the warren buffett. we know who he is, berkshire hathaway chairman. everybody knows him. if you have any questions or comments, we're taking them. via e-mail, or twitter. and there's the two things you need to do i'm not reading them again. you should know these by now. (announcer) scottrade knows our clients trade

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welcome back to a special edition of "squawk box." one more hour with the oracle of omaha. >> we would expect to beat the s&p in a so-so year or a down

year. we expect them to beat us in an up year. but our job is to beat them over time. >> plenty more to come from warren buffett. the third hour of "squawk box" starts right now. >> good morning, again, everybody, welcome back to "squawk box" here on krcht nbc. first in business worldwide i'm becky quick coming to you live from la vista, nebraska. that is just outside omaha where we are at a warehouse for oriental trading. this is a catalog-based seller of arts and crafts. berkshire hathaway bought last november. our special guest this morning is warren buffett. he's the chairman and ceo of berkshire hathaway. we have a lot more to get with him this morning over the next hour or so but first let's send it back to joe who is at cnbc headquarters. he's got your headlines. >> okay, thanks, beck. i the futures are improving as the morning goes on. fed chairman ben bernanke once again warning that pulling back

on aggressive policy measures too soon would pose a real risk of damaging a still fragile recovery. we've been talking to warren buffett this morning. i don't know if he'd necessarily agree with that. janet yellen says she sees no current cost to quantitative easing. no current cost. don't know what that means about future costs that would prompt her to curtail the buying program. those remarks came from a speech taking place right now. she also says the fed's easing policy does pose some risk, but, so does insufficiently forceful action. and president obama will nominate walmart's sylvia mathews-burwell as his next budget direct remember. actually walmart foundation that she runs. he'll make the announcement during a white house air many this morning. burwell served as omb's deputy director in the clinton administration. and also the chief of staff for robert reuben and she runs the walmart foundation, the retail

giant's huge philanthropic wing. and let's check the futures, just barely down more than 20 points now. 21 points after some weakness at the end of last week but nothing that significant giving -- given that we did hit the sequester. chinese stocks falling to the lowest level in six weeks overnight. the drop coming after beijing hit property developers with harsher than expected tightening measures to contain housing costs. fascinating piece on 60 minutes last night. in fact, about the residential market in china. meantime, japanese shares hit a 4.5 year high on monetary easing hopes, at least for more monetary easing than we've seen hit the yen but help the stock market. in europe, we're seeing not a whole lot happening. mixed results down a little bit, up a little. right now back to becky in la vista, nebraska, with our special guest, warren buffett.

hey, beck. >> joe, thank you very much. you go through the headlines like that and it reminds me how fortunate we are to have berkshire's chairman and ceo warren buffett with us this morning because just about every one of those headlines you just mentioned i'd like to get his thoughts on some of these things. warren first of all, sylvia mathews-burwell who is being nominated for omb, she's from the walmart foundation but you have some experience with her as well you you know who she is? >> i think she was the gates foundation, too, after she left working with bob rubbiin. she's just class. >> it's amazing, joe, as you sit here. buffett has thoughts or knows just about someone involved in just about every one of the headlines that you ran through. you spoke about janet yellen and warren we've spoken an awful lot about your thoughts on the economy this morning. yellen is just making this speech probably not a surprise to hear many of the things that she's saying that she doesn't see any cost right now to what the fed's doing. do you worry about future costs? >> well there's never a problem when you're buying.

i mean it's the selling that could be a problem. you know, to whom. and, it's got to be some kind of a problem when they unwind. how big of a problem i don't know. you do know that throughout the world, decisions are being made on the basis that money is basically free. and, when the signal comes that that's going to change in a major way, you're going to see a lot of activity, a lot of places. and it, it, how, you know, how extreme it gets i don't know. it doesn't have anything to do with what we do. i mean, if we -- if we buy heinz we know that's coming at some point. we're buying heinz to own at 100 years. but it -- this will be the biggest -- this will be the biggest economic event for market participants that they have seen in quite awhile when they get a strong signal that the fed is reversing in a significant way. >> you've made it very clear that you are a fan of ben

bernanke. you think that he saved the global financial system. >> absolutely. >> but you've also been saying i think for over a year at this point that you've been concerned about how much the fed is doing. are you growing increasingly concerned another 85 billion dollars every month just in qe infinity? >> it's easy to do. i on the upside. and like i say you could, we're returning a -- we having 3.5, 3.6 billion of expenditures or trillion, and let's just say he bought the whole issue. and we had no taxes. well we know that doesn't work over time, right? but the fed could do it. they could buy 3.6 trillion and they could set up deposits for banks and so on. that would have enormous problems. we're doing a small variation of that. not so small at 1 trillion. at it's -- it's an act that bernanke has said he doesn't want to carry the whole load himself. i think the guy has been just absolutely terrific. but i don't think it -- and i'm sure he's thought a lot about

how he unwinds this and all of that. but i don't think it's totally predictable what will happen. >> let's talk about the euro very quickly. it has come under some pressure recently. people including members of the ecb have told us on "squawk box" that they are concerned about what's happening in italy. this fellow grio who won 25% of the election there said he would like to see a vote from the italian voters whether or not they want to still be in the euro. where do you think we stand with the euro which is right at 130 right now? >> we still haven't worked out a sustainable system for the euro, we have -- stemmed the fear when draghi said that he would do whatever it takes. whenever a central banker who can print money says i'll do whatever it takes, that's very reassuring. but it doesn't solve the problem. i mean, you -- the inconsistency of the fiscal policies of people that were trying to hook themselves to a common monetary unit has to be solved in some form and we haven't gotten there

yet. europe is not going down the drain or anything. europe ten years from now will be producing more goods than it is today. but there are a lot of -- there's a lot to work through. draghi headed off the immediate problem when he said i'll do whatever it takes. >> let's get to some questions real quickly. all right, go ahead, joe. >> yeah, it's great to go to viewer questions. i had a big -- huge philosophical question for warren and how it's going to work its way out. seeing what we've been through for the past couple of months, with the -- with the prospect of the sequester, beck and i don't know how we should do it warren but you look at the deficits we're running a trillion dollars, and you see how hard it was just to raise taxes, you know as we did at the end of the year and then to do the 85 billion which this year isn't even going to be 85 billion and i just wonder, whether we're going to get to the point where we decide we want this much government and we just need to pay for it and that means rich

people don't have enough so we'd have to raise taxes on the middle class, i guess. i mean, do you see a way out of it as hard as it was just to cut $85 billion? we got another $900 billion a year that we somehow have to deal with, and it can't all be revenue. we can't raise taxes -- do you see a way to -- to do this? politically? >> joe, there's a way out of it. we found a way out of a civil war. and a country half slave and half free. we found a way out of two world wars. we found a way out of a great depression. this country has a lot going for it. you don't see it. you read about the headlines about what government is doing, but, we have had an economy that works very, very well. i mentioned in the annual report that i bought my first stock when we were losing the war in the pacific. and, since that time the dow has gone from 92 to 14,000 or so. i mean and it and the headlines were terrible. this country goes through all kinds of problems and we like to

talk about them when they appear and they're in the headlines but we've got such a basically strong and good country that we will overcome the 535 people do and it will work over time. >> but you're still -- sometime i think you're a democrat and other times i think you're a closet republican. you think that the size of government shouldn't be above 21, 20.5, 21% of gdp. you're not arguing -- >> that's -- >> that we should go to 25. maybe we should be at 25% to make it more fair and to give more entitlements and to take care of our citizenry sort of the way europe does. maybe we should go to 25. but you don't -- that's not -- you're not -- >> i'm not -- i'm not -- no i'm not there, joe. i'm at 21.5, and 18.5 on revenue. and incidentally that three points of gap will work out fine over time. i mean that will not take debt as a percentage of gdp up. so it's very workable. it doesn't seem like it day by day perhaps but it's very wrkable. >> maybe in a good economy we

don't need to cut maybe we come down and we -- with people need less assistance, so maybe we won't stay at 25 or whatever, maybe we'll get back down and get and then maybe the revenue goes up in a good economy, and both sides shrink. is that -- is that what you think finally and we do something with means testing or i don't know, maybe we solve our -- >> means testing -- yeah we are in the 25 right now. if you look at -- if you look at 3.6 trillion of spending and 16 trillion of gdp, that is not 25. it would be 4 trillion if it was 25. it's about 22.5. >> so we're getting there. all right. >> yeah, we're -- we'll get there. >> let's bring in a question from a viewer charlie silver which kind of plays in to what joe was just talking about. are you still as optimistic about the american economy and the stock market as you were when you wrote the op-ed piece in "the new york times" in november of 2008 maybe you were more positive about the stock market then. >> well stocks were cheaper. >> then and maybe you're more positive about the economy now? >> well, i'm always positive

about the economy. long range. i mean, this country works. all you have to do is look at, you know, just in my lifetime, six -- six for one on real gdp per capita. we have a, you can't see it but we have millions and millions of people out there trying to figure out how to make their lives better tomorrow and they create companies like oriental trading. this was created by a young fellow here that had a couple of parents that had come over from asia, and you know, look at it. 750,000 square feet and you know, it's -- we create things. geico was created by a fellow and his wife back in 1936 that had $100,000. i mean, so, the dynamism of america is not lost. >> we're always looking for the next big thing and jim cramer wrote in. he's got a question about whether we're at the golden age of oil and gas. and how burlington is cashing in on it in terms of the train to the refinery will bni switch to natural gas engines on its

locomotives? >> we've got a couple we're experimenting with this year. and we're probably not the only one. the railroads are definitely experimenting with converting to natural gas. it's not a simple matter and i can't tell you the technicalities of it. but, it's -- it's real enough so we're spending real money. in fact i think we ordered a couple of units that we're working with. so it's -- when you get natural gas, you know, 3.5 dollars and you look at where oil is, you've got to look at converting any kind of an engine to natural gas. >> you know, but jim brings up a point that we've heard from jack welch and others who have come on the show. jack welch has said he thinks oil and gas is going to be one of the next big renaissances for america, and that may be where we get a huge number of jobs from down the road. >> yeah, well, it's -- it's huge. the job -- the job factor is significant. it is -- it's not like -- i don't look at it primarily in terms of jobs although that's important. but it's certainly important in terms of the balance of payments

which is -- you know, i mean we -- we can save hundreds of billions of dollars on annually as we get more self-sufficient in oil and gas. so, it's got -- it's got big, big consequences. >> and you did mention a little earlier what this means for burlington northern but it's been a big boone for them to be coming from the -- to have so much around the oil formations. >> fortunately they discovered oil where the railroad was. it's still only about 5% of our shipments. we ship a couple hundred -- 190,000 ars a week in, and it's about 5% of shipments. coal is 20%. so what we've lost in coal we've more or less made up in oil. but it's a growth factor. there's no question about it. >> you know, real quickly, warren i've been getting questions about some comments you were making with joe talking about some of the newspapers and someone had written in steve williams this is number 55 says is buying newspapers like

collecting cars for you? or is there a real profit motive? >> oh, it has to pencil out or we wouldn't be doing it. it's smaller than the things we do normally but we spent the 350 or so million. we will get a decent return on that unless the business is way worse than i think it is and i would say this, in the year or so that we've operated we are meeting all the projections and the local salaries. we will never get superrich on it but i can almost guarantee you that we will get a decent return on them. we're buying them very, very, very cheap. >> another viewer wants to know if you'd ever something the chicago tribune or the "los angeles times" because it's been reported they're up for sale. >> no thanks. they're too tough. you know, i -- it's very hard to edit a paper like "the los angeles times," the chicago tribune. if you have a paper in grand island, nebraska, like we do, everybody there is interested in how the high school teams are doing, whether it's in wrestling or basketball or the state tournament or anything else, if you've got the chicago tribune, or "the los angeles times," you can't talk to people about

what's happening with their high schools. it just doesn't work. you need a -- you need a tight community. >> okay. we are going to take a quick break right now. when we come back, we'll have more from warren buffett. that's in just a few minutes. in the meantime as we head to that break. take a look at the u.s. equity futures. we started out with things in the red we saw at one point those dow futures down by more than 50 points below fair value. it's pared its losses right now. looks like right now in the markets were to open we'd be down by about 25 points on the dow. down by about 3 points on the s&p 500. "squawk box" will be right back. >> tomorrow on "squawk box," a huge lineup spanning the political spectrum. on the markets, the fed, and the economic recovery. hedge fund giant stanley druckenmiller. former fed governor kevin warsh. hope depot co-founder ken langone. the huffington post's arianna huffington. and a lot more. "squawk box" starts tomorrow at 6:00 a.m. eastern.

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welcome back to this special edition of "squawk box," live with warren buffett. here now, becky quick. welcome back, v. we are coming to you live this morning from la vista, nebraska.

that is just outside omaha and this morning we're live from a warehouse for oriental trading that is a catalog based seller of arts and crafts that berkshire hathaway bought last november. i'm here this morning with berkshire hathaway chairman and ceo warren buffett. we mentioned to people earlier that we were here because this was the most recent acquisition we thought when we were trying to figure out for the show. since then you've mentioned the heinz acquisition. but oriental trading is a really interesting company. berkshire did not disclose the terms of that deal. it's been reported that it was a deal for about half a billion dollars. we did have a -- >> you're exactly right. >> okay, so that's official then. we did have a question that came in from seth who i don't know if this was on e-mail or twitter as a berkshire shareholder i'm curious as to why you've purchased oriental trading he thought it was a business that was below the size requirement and wondered if you did it to save jobs in omaha? >> no, it would have continued no matter what. it's a profitable business. so somebody would have owned it. but i got a -- i got an e-mail i think on a wednesday and i was generally familiar with the

business. and got some figures and we made a deal on thursday. and the -- i had a little insight into it. when i did the bank of america deal you may remember iidt deal in the bathtub. after i announced that i got all kinds of rubber ducks and decided that rubber ducks were a totally missed trend that people were -- we could cash in on. so we now have some rubber ducks. i don't know whether you can see, we're having a rubber duck of myself, and charlie, sharely's is not selling very well. mine we've been able to maintain price on. charlie's has gone from $2 to $1 to 50 cents. if you just make us an offer. >> this is what charlie gets for not being here. >> then we got some other ducks we thought joe might like, some of those are sort of evil geniuses there. >> we collect those, i swear,

warren. and you did send me some and i love those. >> there will be more coming, joe. incidentally, here's a fruit of the loom tie with -- >> i'm trying to figure out. you got a couple of eveready batteries on your collars. is that tie going to light up -- >> those are not eveready batteries, those are heinz ketchup bought 8s. >> i'm going to pull a marco rubio, here we go. here we have your personalized ketchup. >> yeah. >> oh, no. >> ketchup. and we have preferred by hot dogs. i wonder what that means. >> oh, no! >> that's great -- >> i will get these off to you. >> oh, thank you. >> you know what? >> and we will accept orders for these, too. and we'll just see how big a fan base you have out there, joe. >> with my brick and i've got -- you know that's pretty cool. thank you. that is awesome. >> do you have a preference

between these two? >> you know, can i have them both? >> absolutely. >> wait a second. do i have to be the courier? am i carrying these back? >> no, you won't be able to take them on the plane. >> i can't see those pins. these are heinz bottles. >> i'll throw in a few pins, too, joe. >> all right. keep the rubber duckies coming. >> they'll be in the mail today. >> are we done -- >> warren there have been -- wait, wait. >> go ahead. >> let's not go away yet. but warren since we're talking about acquisitions and since we're here at oriental trading and since we're talking about heinz there have been a lot of people who've been speculating that maybe you're interested in another consumer products company. you've talked about how you're on the hunt already once again that you've got plenty of money to go. are there other consumer products companies that you're looking at right now as potential acquisitions? >> not right now. i mean i'm aware of all the consumer products companies, always have been. we owned a big chunk of general foods 30-some years ago. and we've been in coca-cola and see's candy and things like

that. so i like the business. and if something comes along, and it looks like we can make a deal and the price is right, we're ready to go. there's nothing right now that we would -- that -- that's on my plate. but, it's our kind of business. and at the right price, we'd be ready to buy more. i'd be very surprised if 20 years from now we haven't -- we don't have more. whether it's going to be 20 months from now, who knows. >> nothing on your plate in terms of consumer products companies that you're eyeing right now. is there any other potential acquisition that you have your eye on? >> there's one that has been mentioned to me that i'll be looking further at. but, you know, that's always a low probability whether it's a 5% probability or a 10%, who knows. but i get excited when i hear about that. possibilities. >> you want to tell us what sector it's in if it's not in consumer products? >> it's in business. >> joe, your turn.

>> i started worrying again, warren, i was happy we were getting down to 22.5% of gdp then i started thinking about obama care. have you thought about how much that's actually going to cost? that's a huge entitlement that we're not even dealing with at this point. all of our problems are with the entitlements that we already have. and i'm wonder as everyone gets healthier, and the number of people over 100 is going to double by 2020, i mean there's going to be so many people that are in the health care system that i don't see how we keep coming down from 22.5. you still think we can do it even with obama care. >> joe i think the real problem even something back further than that, the number one problem economic problem of the united states is the rising cost of health care. if you go back to 1970, there were about six countries in the world and they were all at 5 and a fraction percent, united states was one of them. six leading countries. now we're at 17 and a fraction and nobody else is above 11.

so that's a 6 percentage point, as a percentage of gdp, six percentage point cost we're bearing that our competitors around the world aren't bearing. people -- people say that the corporate tax is a terrible competitive disadvantage. well corporate tax last year was like 1.6% of gdp. but here's six percentage points, and we really have to do something about it. and i'm not smart enough to know how to do it myself. what i would like to do is get the heads of the cleveland clinic, and kaiser, and the mayo clinic, and just give them the task of tell them they've got a couple of months to do it, to lay out a plan where we can get to 15% of gdp as a sustainable cost of health care. or why we can't do it. but, this is a tapeworm of the american economy and obama care or anything that the government has to do with it reflects that underlying trend. but the real problem is the overall cost of health care.

>> you say that. i mean andrew brought one of those back from africa and i don't even like to hear -- >> tape worm? >> yeah. anyway, we got to go again. we'll be back with much more from the oracle of omaha. before we head to break, take a look at u.s. equity futures down about 24 points on the dow. i remember the day my doctor said i had diabetes.

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welcome back to "squawk box." among the stories we're following, a new survey of economists say that the u.s. budget deficit needs to be cut. that's why we need these guys. however indiscriminate spending cuts are not the way to do it. the national association for business economics says that more than 70% of its members were against the sequester, the so-called sequester, and those cuts that began taking hold on friday. as for now let's get back to becky in la vista, nebraska. if you don't know where that is, it's apparently, where is it northwest, east, south, it's a suburb of omaha? >> i only know based on we were driving in the dark, i think it's probably southeast of omaha? >> it's southwest. >> oh, i'm sorry. yeah, i knew that. we came out 480. >> the girl's in directions -- >> shut up i didn't drive myself. i did get my directions. >> this way. >> this way. >> how am i supposed to recover

from that? blah! all right, i am back again with berkshire chairman and ceo warren buffett. and warren, let's talk a little bit more about your letter and some of the things you put out this year. >> sure. >> you mentioned that you're going to be doing things a little bit differently this year at the annual meeting. last year you added a panel of analysts who asked a lot of questions at the annual meeting. along with the three journalists who asked questions and all the questions that come from the audience. thu say you're still going to have one insurance analyst but you've added another analyst who will be looking at the other berkshire companies. the other berkshire subsidiaries or units or businesses or whatever you want to call these and you're also looking actively looking for a bear on berkshire hathaway. why did you add that? >> make it more interesting. the crowd can hear somebody that thinks the stock's overpriced, or that it's a house of cards or whatever it may be. and we want the media to be interesting. so that person will get six questions. and we now have that person because i said it had to be a

credentialed bear, preferably one who was short the stock. doug kass is certainly a credentialed investor and he said he's short the stock and he'd like to do it. doug, you're on. >> does he know this? >> no, he just knows this now. >> joe, doug actually wrote in on friday or saturday after he wrote the note and we kind of forwarded that on. dog if you're watching this morning, you're in buddy. >> think of tough questions. see if you can drive the stock down 10%. >> why? so you can buy back more shares? >> yeah, that would be okay. >> let's talk about some other areas of things that you really brought up in the annual meeting. you talked about accounting. a long section on accounting. and you admitted that at the end you'd be putting down the dentist's drill. why did you get into accounting this time around? >> well accounting, i've done it before, too, accounting is a language of investment in business. and to some extent, it's not well explained in certain cases, and sometimes people draw the

wrong conclusions. so i like to stick in a little essay occasionally on where i think accounting falls short and how an investor or a business person has to think differently about it in going strictly by gap accounting. and when i have an example that fits that, i'll write about it. i know that isn't of interest to all of the shards. there's plenty of people that skip over that part but i also think it's important that people understand it. we have some peculiarities in our own accounting and i want the shareholders to understand that. >> the thing that brought it up this time around was the purchase of additional shares of marmon? >> we had a situation where we actually we bought originally 64% of marmon, then we bought some more. and we had to immediately write it down. if we'd just bought that amount by itself we wouldn't have had to write it down. but because there was a transition between two rules we had to charge off $700 million immediately upon the purchase of something that did not shrink in value $700 million. and we want to explain that.

i would want that explained to me if i was a shareholder and my management did it. i want the facts to be there, and admittedly, get kind of tough sledding there for awhile for some people, but it's there, it's there to explain what goes on. we get into it in terms of amortization of intangibles, and in the end, i, you know, i've got two very smart sisters that have most of their money in berkshire and i want them to understand things, and that affect the value of it, and i'm talking with them. >> okay. warren, if, if you were to look around, question we got again and again, and i know we've talked about this a little bit, but for people who are just tuning in, there have been people who have been writing in who want to know if you look at the s&p 500 right now do you think that stocks are undervalued or overvalued? >> well i think they're undervalued relative to other assets. in other words if i had a lot of money today i would rather own beingties than own fixed dollars, long-term government bonds, junk bonds, farmland, you

know, reits, they will be affected, if interest rates go up dramatically, all assets will go down in value. interest rates, to investments are like graphty is, you know, basically to physics. everything goes along with interest rates. but the cheaps thing around -- i wrote that about a year ago. i've been writing it for year after year. they're not as cheap as toy were four years ago. but you get more for your money and that's why we like buying businesses and like buying stocks. you get more for your money there than you will get the one thing that the dumbest investment you know, in my view, is a long-term government bond. single family shows a good investment for people where it fits their living pattern and what they're going to do, i think. and you can finance it extraordinarily favorably, and i think that makes sense for people. >> okay, great. warren we're going to continue this conversation in just a moment. joe? >> all right, beck, we're going

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welcome back. among the stories that we're following, fed vice chair janet yellen says she sees no current cost, no current cost to qe that would prompt her to curtail the buying program. those remarks come from a speech that's taking place right now. you can see that is live at the nabe. she also says the fed's easing policy does pose some risk but so does not doing enough insufficiently forceful action in her words. >> -- evidence of trends such as rapid credit growth, a marked build up -- >> she's saying she's not -- we've heard some of the other members of the fed talk about perhaps a little bit of a bubble inflating in credit. she just said she doesn't see that rapid growth currently. i could actually tap in and start listening to this. but nah, maybe not. the dow begins the new week

about 75 points from its all-time closing high. stocks gained ground last week despite the failure of lawmakers to reach an agreement to avoid the sequester which triggered a series of across the board spending cuts. much more from warren buffett is still ahead and don't miss "squawk box" tomorrow. this is pretty amazing. we have a huge lineup to talk markets, the economic recovery, and deficit reduction. including hedge fund great stanley druckenmiller, who i saw on that list i was talking about on forbes earlier, langone, i think, is on there, too. and kevin warsh, the former fed governor, also arianna at 8:00. investor. yeah, i'm a serious investor

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welcome back to this special edition of "squawk box," live with warren buffett. here now, becky quick. >> welcome back again, everyone. we are here this morning with burke share hathaway chairman and ceo warren buffett. we're live in la vista, nebraska, just outside of omaha at the warehouse of oriental trading, and warren, i wanted to ask you a question that comes from andrew. he's on assignment today but he's been speaking with a lot of private equity people this

morning and they had a question that they wanted to pass on to you. he said that over the years you've been critical of private equity and the dangers of adding leverage to companies. your partner in the heinz transaction 3g is a private equity firm and includes considerable leverage. have you changed your views on private equity and would you consider partnering with other firms like kkr in the future? >> it is a partnership. it's a permanent partnership. we will not sell our interest. so it has no connection with the private equity people that essentially buy and then resell businesses. so we are not in the buying and reselling of businesses which private equity is. we are not charging anybody a fee of any kind. there's no 2%, there's no 20%, there's no nothing. we are getting no cut on anybody else's investment. the people at 3g, most of that money is probably their own money. so it is not primarily designed to get a return on other people's money. it's a design as a place to put their own money and if you know

georgeny paolo lehman he has plenty of money to put it in. so it is a partnership. and it we put 18 billion of equity in and there's 12 billion of debt basically. it has no relationship to the kind of enterprises where people take funds, have to get the money out or getting two and 20. imagine if we were getting 2% on our twelve 12, you know, that we're investing $240 million a year just for staring at ketchup bottles. that is not what we're doing. we've got our own money up. getting no carry on anybody else's money. >> we've got some other questions that have come in. some of these are general business questions. just some of the things we've been happening in the headlines. david from puerto rico writes in. i'm a big fan and a regular attendee to your shareholder meeting in omaha. last year i made an investment

in jcpenney stock and bonds despite being aware you once said when a management with a reputation for brilliance tackles a business with the reputation for bad economics it's the reputation of the business that remains intact. what's your take on the new ceo ron johnson? is this a turnaround or a fuel your? >> i work for jcpenney. i sold men's clothing. i sold men's furnishing. i sold children's. i've worked there in high school and college, got the minimum wage, 75 cents an hour. but, you know, when you start arguing with your customers about what they want, it's not a good idea, and, you know, it's, they've got a very, very tough game to play from this point forward. they obviously turned away a very significant percentage of their customers, and the thing about retailing is your competitor's always moving. so it isn't enough to just catch up from, you know, some distance behind, because he's moving all

9 time. amazon is -- they're moving all the time. and so i think it's a very, very tough game ahead of them. that quotation, incidentally, when i met the ceo of bill johnson runs heinz that's the one quote he remembers from -- i wrote that 30 years ago. every business person remembers that quote, because it just gets demonstrated time and time again. >> okay. another question came in on twitter from@matt solen who says what are your thoughts on the decision by mar us yeah mayor to end telecommuting? >> i read about how she's got her own nursery there right next to her -- i -- you know, i don't know the specifics of how yahoo! operates. almost all of our people would work in the office. i mean we've got 24 in our home office. but on the other end, ted wexler could operate from charlottesville. he's there three days a week or two to three days a week with

us. i do not care whether charlie is in the office or not. he's thinking about berkshire all the time. >> how often do you talk to charlie, by the way? not as often anymore. about once a week. we've been married so long that we know each other's thoughts. we used to talk every day for hours. but now we just grunt at each other and that takes care of hings. >> let's get to another question that came in from camilo ramirez who asked if you could travel in time to when you were 20 again starting to build your partnership and you could meet yourself and tell him that you would be successful in business as you dreamed at some cost what aspects or decisions of your personal and professional life would you advice young buffett to change? >> i wouldn't change much. it worked pretty well and it worked well for the family. i feel very good about my three children, and so i certainly worked fine for me. so i do not think i would change. >> okay. another viewer on twitter wrote in, this is @rbridge4 have you

ever been fired or laid off and if so, how did you bounce back? >> was i fired? i wasn't fired from pennies. i when i worked for graham newman, they were closing down the place to some extent. but i quit there ahead of time. i wanted to come back and i mainly work for myself and i don't fire myself. >> you're pretty good at staying in with that. >> i really like my boss. >> warren, we're going to take a quick break. when we come back we'll have many more questions. joe? >> so he wouldn't change anything. he's only number four in the richest man in the world. no mistakes, warren? you -- >> well -- >> nothing you could have done better? nothing you could have -- >> if i had to give -- if i had to give it away the 18 billion i'd be a little higher i guess. >> and then becky that question from sorkin was the same -- didn't we have that exact question in the 6:00? did he not get up -- you've answered that -- >> first of all i will give

andrew a break because he is in a different time zone. and the difference -- this was a slight -- >> some average viewer asks -- >> slight variation -- >> what was the -- >> warren's -- >> because it asked specifically if he'd do deals with other private equity firms. >> he better get up earlier. i mean some viewer already asked that same question. all right. when "squawk box" returns, some final thoughts from warren buffett. stick around. >> tomorrow on "squawk box," a huge lineup spanning the political spectrum. on the markets, the fed, and the economic recovery. hedge fund giant stanley druckenmiller. former fed governor kevin warsh. home depot co-founder ken langone. the huffington post's arianna huffington. and a lot more. "squawk box" starts tomorrow at 6:00 a.m. eastern. ♪ [ male announcer ] help brazil reduce its overall reliance on foreign imports

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welcome back, everybody. let's get some parting thoughts from our guest today, warren buffett. warren, we're here because of the annual letter to shareholders you put out.

reading through that letter over the weekend, what jumped out is what you said about insurers. berkshire has several insurance businesses, but what you pointed out are the low interest rates we're in right now. those could pose a serious problem for insurers down the road. >> they do. >> can you talk a little bit more about that? >> insurers either make an underwriting profit, and they make money from the investments they hold, which is partly their own capital. when interest rates go down and they own a lot of bonds, like most of them do, they may get decent rates from the bonds that they bought a few years ago, but they keep rolling over. generally speaking, insurance companies don't own long-term bonds. so they get them rolled over fairly fast. when you roll over bonds, whether you're a life insurer or property casualty insurer, you get a whole lot lower rate than a few years ago. so in effect, the profitability will go down because of that. >> do you think investors have figured that out yet, in the

valuations for these insurance companies? >> i think the professionals in the insurance field probably are pretty cognizant of it. it affects us because we do less conventional things with our money. but it still affects us. the $47 billion we had around at year end was earning nothing. and six or seven years ago, it would have been earning 5%, that's a couple billion dollars a year, just in terms of that money that we have as a reserve fund. >> let's get more questions from viewers, because we are getting towards the end of our three hours. this is a question that comes from connor keyhoe in ireland. if you could keep one company that berkshire owns, either a wholly-owned subsidiary, or that berkshire owns a common equity in, which one would you keep and why? >> i would keep geico. it goes back to the -- 62 years ago it change the my life. it's also a wonderful company. i would have both things going for me. but that -- if i hadn't of gone to geico when i was 20 years old

and had a fellow there explain the insurance business to me, my life would be vastly different. so i just have to -- i'd have to choose geico. >> let's get another question. this is number 200, from steven in texas, who's writing about with all the continuing airline industry consolidations, do you see the potential for a berkshire acquisition of one of the u.s. major passenger air carriers? >> well, i have this number i call, if i wake up at midnight with the urge to buy an airline, i call up this airline anonymous and then they talk me down. no, the airline business has been a terrible business over time. if they ever got down to where there was one airline, it would be a very good business. maybe they could get down to where it's two. it's got all the ingredients of a bad business. >> this is number 42. it's from someone named c fisher. there's been a lot of talk about average investors, average retail investors feeling like they can't get a fair shake.

part of that comes from concerns about the flash crash. fisher writes in and says, please comment on the high-frequency trading in the flash crash. what are the implications for main street investors? >> it doesn't mean a thing. if you own a mcdonald's stand, would you be worried someone would come along for five seconds and say the stand is going down 50%? no business was affected by that. every business we own, it didn't make any difference. if you own things on margin, then you've got a problem. but if you own things outright, if the stock market closed for three or four years, it wouldn't make a difference. the fact that you can get quotes should be an advantage, but people turn it to a disadvantage because they think it's telling them to do something all the time. so, you know, they can have a flash crash every day and i'll just put in orders to buy and we'll see what happens. >> but do you think, and i ask this because there have been so many scandals, that people think about libor, and a lot of the deals behind the scenes that

have been dragged out. and a lot of main street investors think that they can't get a fair shake on wall street. can they? >> well, they pay a lot of expenses in many cases. they don't need to. they with buy a low-cost index fund and participate in the growth of america over the next 20 or 30 or 40 years and they'll do fine. but if they're paying high fees to achieve that same result, they're going to get hurt. and they should look very carefully at costs. but they should own a diversified group of high-class companies which you can do by buying an index fund and then pretend the stock market closes for five years and shouldn't look at prices every day. >> did you see a story over the weekend from "the new york times" that focused on jpmorgan and their wealth management business? >> yeah. >> it took a look at, or at least it talked to some disgruntled former wealth asset management bankers, who said that jpmorgan was kind of pushing them into their own products instead of