good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick reporting live from omaha this morning. joe kernen and andrew ross sorkin are back at headquarters on the east coast. we have the man of the morning with us, warren buffett. obviously, we have a lot to talk about with him including stocks, records, runs, the fed, bonds, the dollar and his deal for heinz. but first, before we get to all of that, joe and andrew have a wrap-up of the morning's top headlines and, guys, i'll send it over to you. >> okay. good morning. hi. >> hello, good morning. >> hi, warren. >> hi. >> i keep hearing you talk about me, warren. no one knows what the heck you said. so i don't know, it's like -- it's like one of the answers you give to a lot of questions. >> no. i was sitting right next to him and i heard him mention your name, too, and i'm not entirely sure -- >> nobody knows. >> he said what did he is and i said, i'm not sure and i actually said to becky, what did he say? >> he said something about him.

>> it was nice, i think. >> it was nice, it was a question about something you're always bringing up and it's not net jet. >> see my lawyer. >> that was a long time ago. >> here's the headlines. investors are going to return from the weekend today following a historic friday on wall street where the s&p finished above 1600. the dow briefly topped 15,000 for the first time since the blue chip index, nearly six year to cross the 15,000 mark after it first stopped 14 thousand and all three major averages turned in sharp gains last year. today i did the rant. i don't think you were here. i wasn't picking on him, he was only wrong for one day that day. >> i remember the rant. he was only wrong one day. it was everybody else for the past eight months. he foenl lie said, already, i give, i've thrown in the towel

about looking for a big break, but i'm not willing to commit any more money. the guys never have to throw in the towel because no one ever holds them to anything. kind of flat. the dow up above 15,000 briefly and had the s&p closed at 1514. in rash ya overnight, those stocks followed wall street's lead. hong kong shares soared to an eight-week high. and among the catalysts, that jobs report and the revisions, i guess. rising commodity prices as demand expectations improved in japanese financial markets. they're going to be closed for a public holiday and they will resume trading tomorrow. markets in the uk also closed for a bank holiday. but not that kind of -- it's an okay bank, it's a planned bank holiday. >> better than separate. >> as opposed to one of those unplanned holidays.

as for the rest of the early european trading, nothing is happening except for in italy which has its own set of issues. but i don't really worry about the economy there. do you? >> just meet the posse. >> out in the olive fields. bain capital and golden gate capital are erroredly nearing a deal to acquire bmc software. the price tag about $6.5 billion and an announcement could come as early as today. you're seeing premarket trading up about 3%. n intel security software division mcafee plans to buy stonesoft. the price tag there around $389 million in cash. and that represents a 128% premium to the company's stock market value based on friday's close. and finally, proxy firm iss is urging jpmorgan shareholders to vote against the re-election of

three board members. now, iss is arguing that david cody, james crown and ellen futter should not be re-elected. the first says they failed to properly oversee trading to losses. iss is renewing its premgz that chairman and ceo jamie dimon give up one of those two titles. >> let's say we didn't know anything about the rail and we look at the net income for the year, you think it's irrelevant? >> but you know what? you would know about it. >> why? if the net income was -- wouldn't be as much as expected because -- >> that's the only reason you wouldn't know, yes, if you didn't dig in. >> iss, i mean, i think that's ludicrous. >> we can ask warren about it because we're going to get back to omaha. >> ellen fudder?

>> i do know her. she runs a museum. anyway, we're going to get back to omaha. and let me just say, warren, because i -- and i just got back. warren and -- warren was probably on fire this weekend in a way that i don't think -- we've been asking these questions for now i think five years. and i thought this was one of the most substantive meetings and one of the most spirited of the discussions. doug cass through a couple at them, too. but i thought it was fascinating. >> warren, i've heard that people get to a certain age where they say whatever the hell they want to say. has it got anything to do with that? >> well, things like that. it's amazing how far it goes. >> yeah, it's true. i think, though, that you and charlie have been saying -- kind of speaking your mind, charlie in particularly. he may be almost 90, but i think he was talking that way 30 years ago and even 60 years ago. >> he was talking that way when i met him in 1959.

it's one of the things that attracted me to him. >> so he had a lot of things to talk about. warr warren, why don't we start off with the headlines, jpmorgan. you own shares of jpmorgan in your private account, not berkshire. >> right. >> so you get to vote on this, too i sk s is coming out with this information saying you shouldn't vote for them. they say the board appears to be largely reactive, making changes only when it was clear it could no longer maintain the status quo. what do you as a shareholder in jpmorgan think? >> well, i don't know the details. but if you're the director of a company like jpmorgan, you cannot know the details of was going on, the trading or anything of the sort. your key decision is whether you believe that you have the right c on. if you have the right ceo, the board has done its job and if you prevent the ceo from overreaching in terms of comp or something. and i've written about that.

and i think they've got the right ceo. so i think they've done their job. >> you told us last week that you think he should maintain both the chairman and the ceo -- >> i think it's fine. >> so you're on board. >> right. >> let's talk about this weekend. it was a big weekend. if you had to pick your headline from what happened over the weekend, what would it be? >> just that everybody had a good time, including me, the board members, the managers and essential the shareholders. i probably waved as many times as i went around. they all called me warren, which i like. certainly in terms of the sale, they all broke records. they seem pretty happy. >> some of the questions that jumped out to me as being some of the ones that were maybe some of the most persistently asked questions had to do with your investing style. the heinz deal is a different deal than we've seen in the past. it links us up with private equity. it's one that takes on leverage. there have been questions that

people have asked. does this signal that you're looking at things differently? does it signal that you'll be getting into deals you might not have in the past? and does it mean that you're not all that confident in where the market is headed overall? >> we took on leverage when we took on basf and we in no way consider our partners in this as private equity. these are people that buy for keeps. they run businesses. and they will keep running them. so this is not a private equity firm. these fellas are not planning on making their money on some override on people's money. they have big sums of their money in this deal. georgie, my main partner in this will keep the stock indefinitely, as will we. so it's a partnership. and our preferred stock introduced some leverage for our partners, but it's nonthreatening leverage. it's held by their partners.

so between the two of us, we have 16 billion of equity in this deal. and they have the more leveraged play because we have this preferred stock. >> there was a question over the weekend about a column that had been written about this deal that suggested the money that you had that wasn't in preferred shares and the common was dead money. >> if that 4 billion is dead money, i'll be very surprised. that's what our partners own. we each own 50% of the equity. and if it works out as we hope, the rate of run on that 4 billion are 4 billion of common. it will be higher by a considerable margin than the rate of return on the preferred stock we got. but that's the way it should be. it's not by a long shot. >> so are people wrong when they assume that you're looking at deals like this because you look at the stock market and you think it's not as cheap and you can't get as much value as you might have been able to get in the past? >> well, we always prefer to buy businesses and that's what we consider heinz to be.

we'll in in heinz forever and if a few of our partners decide to sell out at some point, i hope they sell to us. we would like to have bought 100% of heinz, but we love the idea of georgie being our partner. so he takes 50% of the equity to bring him in, that's fine with us. >> we talked to you about the jobs report on thursday last week, and you said you wouldn't put money on it, but if you had to bet, you would say it would be weaker. 168 is where it came up. wa do you think about that number and, again, your read on where you see the jobs market. >> it's a good thing i didn't bet on it, isn't it? i don't pay that much attention on numbers from month to month. we're seeing the same thing we've been seeing for four years

and that's gradual improvement in the economy. and we cut across the whole economy, so i think it's a pretty good -- a pretty good view of what's going on. wa you are seeing now is areas which didn't participate initiately coming back very strong. we had record sales last yeek during this week, 36 million. it looks like -- we will have another record, it will be about $40 million in one week. the retailers out there know what that is. our biggest gains, 30%, came in flooring. some people are biology carpeting. and that area is coming back. overall, the economy is moving forward, but at a slow pace. >> why? there's been a lot of questions about why businesses aren't investing more, why they aren't hiring. wa do you think is the problem? >> they hire in respect to dmapd demand. now, we had a record investment last year and another record this year. we have lots of projects going on that we think make sense.

but businesses responded to demand and demand is coming back, but slowly. now you see demand coming back faster than the residential area now than has been a year ago or 15 months ago. and that makes a difference and it filters down through our business and installation business. but it's not roaring back. >> i know that you're not somebody who looks at the market averages on a daily basis or cares about any of these things. but when you start seeing the trend that we've been seeing, which is almost a straight march up, it seems like we're hitting new highs almost every day and that's the type of thing that catches main street's attention. you've got a lot of individual investors who are sitting around wondering if they've missed everything, if they should get back in, if it's too late, if they've missedhetrain. what would you tell those people who are sitting at home wondering what the oracle of omaha thinks about -- >> well, they should pay more attention to the milestones on the down side. that's when the stocks are

getting cheaper. that's when stocks are going on sale. what i can remember when it was a big time when the dow cost 100 and -- and i surely remember well -- i mean, a thousand, that wamagi so in my lifetime and certainly in your lifetime, you know, you will see markets go far higher than that. the retention of earnings by americans, it will cost stocks to go higher over time. we're not getting everything out of stocks in terms of the dividends they pay compared to the earnings. retention builds it up the it's like having a savings account and you only took out part of the interest, your savings account would grow. i don't get too concerned about it given the levels. you will see numbers a lot higher than this in your lifetime, becky. >> you know, i know you watch the show and you probably have seen what joe has been talking about. for quite a while now, he's been talking about how this is something that reminds him of what he's seen in the past.

joe, maybe you want to talk more about this, just what you've seen with the market, your theory about how things continue to climb and this feels different than what we've seen in the past. >> i don't know what -- there's two things that scare people. that's when you're -- and people do the same thing with human nature. they ride things all the way down and they think it's too late to sell. then when things are going up, a lot of times they're not on board and if they start out not on board, they never do get on board. and watching this happen, this time, every time we hit a new high, people say, well, i can't buy now. and that usually indicates that we're not near the end of something. and my other point, war b, i get so irritated with self-side people that they're always saying on constructive long-term, but, you know, there could be a pullback any time. i'm looking for, you know, 5% to 10% anytime. and they say that as they miss thousands and thousands of points and they're not committing new money. >> right. >> but you can never pin them

down on being wrong. that's what i think is the most miserable. it's sort of just having seen it for so many years, you just get a pet peeve of mine. and, you know, when it's just utilities moving and bond equivalents moving, it seems like you're not really at the end of a -- of a run, of a bull run. i don't know. >> yeah. yeah. but when people talk about -- you'll see a pullback, it's a pullback any day for the next thousand, ten thousand days, nobody knows what the market is going to do the next day. you shouldn't pay any attention to that. i bought a farm in 1958. i've had a quote on it since. i bought a piece of roadway e in 199 real estate in 1992, i have not had a quote on it since. maybe my real estate haas pullbacks and i don't even know about it. people pay way, way too much attention in the short-term. if you're getting your money's worth in a stock, buy it and forget it. >> go ahead, joe. >> i just got to -- sort of

exciting feeling because i'm not sure whether warren is -- whether this is going to happen or not, but he's given me a brick and he's given me, you know, some ketchup. and -- >> the marquis jet card, but that -- >> that didn't work. >> but there is a jet right behind him. is this a surprise today for me, warren? that one behind you? is that going to be mine? >> you're going to wait all three hours of the show. >> stick around, joe. be sure to stick around, joe. >> a big unveil going on at the end of this program. >> don't go -- warren, it's beautiful! it's beautiful! >> there's a -- there is a name on that plane, joe. we'll look at it later. >> i can see it from here. i'm not going to give it away, though. that is the global 6,000. we're going to be talking more about this, too. it's a new -- it's a brand new delivery. we're going to talk more about this later, too. >> but we can put you mind the

wheel, joe, don't worry. >> i'm not riding if joe is behind the wheel. can i just say that? warren, let's talk about the fed. the reason so many people think that equities have done so well, at least in part, it's not just the economy improving. it's also what the fed is doing to make every other asset class to look not nearly as strong as equities. >> sure. >> how much do you think the fed has done -- how much of this in stock do you think is coming from what the fed has done? >> well, when interest rates are low and people expect them to stay low for a while, it pushes up the value of all other assets. interest rates act like gravity to other asset prices. everything is based off them. so when there are high interest rates, there's a lot of gravitational pull do you know on the gravity of assets as we found back in 1981 is and '2when the rates got to extraordinary levels, if you guaranteed people that the long-term rate would be 1 is.7% or the ten-year rate

would be nothing, stocks should be, you know, selling at least double where they are now. the question in people's mind is how long it lasts. they have a strong feeling it doesn't last forever. but interest rates have a powerful effect on all assets. real estate, farms, oil, everything else, they're -- the cost of carrying other assets, the alternative of a yardstick. >> but if you had to look at it, would you say that 550% of the markets rise come 550 fers from the economy or 50% from the fed or does one side have a heavier weighting? >> i don't know the answer to that. if the economy had gone no place and interest rates had come down like they had, stocks would be cheaper than they are now. if interest rates had been somewhat higher during this period and businesses had come back, stocks would be somewhat higher. i don't know how to break up the two. >> if you were ben bernanke, and

we just heard from them last week when we got the fomc minutes, we heard they said, look, if this isn't enough, we're prepared to do more than 85 million a month. >> he's a gutsy guy. he said back in september of '08 he would do whatever it takes and he's been doing whatever it takes. he is a man and he can do whatever it takes. he is a man. it is his responsibility to get the economy going and to keep it going and he has used monetary policy in a way i've never seen before. but we face the situation i haven't seen before. so i'm a huge admirer of his. i don't envy the job of playing the hand out from here. but i think he's done very, very well in terms of what he's done for the united states. >> you've been very outspoken about how much you admire him and what a job you think he's done, but you've also said over probably the last year or so that you thought maybe if it were you in that seat you would

have taken your foot off the gas a little sooner. >> probably. i might not know how to take my foot off the gas. when he decides to sell -- to buy but signal selling at some point, if he calls me and asks me how to do it, i will tell him to call carly. >> put that in the too hard file. >> way too hard. >> bare with us, warren. we're going to slip in a quick commercial break right now. when we come back, we will talk more with warren buffett. he is spending the entire morning with us, so stay tuned. we'll get his thoughts on europe and is whether it is safe for investors when we come back. later this morning, we will be joined live by berkshire board member bill gates.

welcome back pop squawk. take a look at u.s. equity futures at this hour. it's a bit of a mixed bag. let's call it flat. dow and s&p off slightly. the nasdaq up slightly. it's all marginal for now. we'll see where it goes as the program progresses. making headlines, gasoline prices rising for the first time in eight weeks. among the reasons, crude oil prices climbed and profit margins and gas stations were being squeezed. a gallon of regular unleaded, that's now averaging $3.54. and disney's iron man 3 bringing

in more than $175 million. i'll say it again, $175 million in its weekend debut. i haven't seen it yet, but it's on my list. that's the second biggest start ever for a movie behind last year's "avengers." "iron man 3" has hauled in almost $5 million so far. coming up, we've got much more from warren buffett, including why he said a deal could be done in europe. there was a bit of a hint there. then at 8:15 eastern, bill gates is going to be joining the conversation. we've got an exciting monday still ahead, all from omaha. stay tuned. [ male announcer ] it's the little things. the little details. the little moments that make life truly amazing. that's why southwest worked hard

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what cyprus demonstrates is an old truth. you can't trust bankers to govern themselves. the bankers allowed the borrow money at x and loan it out at x plus y will just go crazy and do too much of it. if it doesn't have rules to prevent it. what happened in cyprus is similar to what happened in iceland. it's stark raving mad in both cases. and the bankers, they would do even more if they hadn't blown up. i do not think you can trust bankers to control themselves. they're like heroine addicts. >> that was charlie munger who sat down with us on friday. we are live in omaha with berkshire chairman and ceo warren buffett. you heard charlie's comments.

it started out with bankers and ended with what he thought about cyprus and europe. over the weekend, you disagree a bit about the state in europe just in terms of how great of an investment it may or may not be right now, how safety of an investment it is. you talked about how you see things -- you would potentially be interested in a deal coming out of europe right now. >> in the last 12 month, we bought a couple smaller businesses in europe. we bought some european stocks. and the fact that there are krubls in europe -- and there are plenty of troubles and they're not going to go away fast does not mean that you don't buy stocks. we bought stocks when the united states was in trouble in 2008 and it was in huge trouble and we spend 15.5 billion in three weeks between september 15th and october 10th. it wasn't because the news was good. it was because the prices were good. and if you believe that europe is going to be around, which it certainly is and it's going to have huge amounts of purchasing power with citizens and all that, then you actually look at troubles as possibly being --

offering you an opportunity to buy. i bought my first stock when the united states was -- or right after pearl harbor. i didn't buy it because i thought it was a great idea. i bought it because i thought stocks were cheap and eventually we would win the war. >> so you've been buying european stocks. has that been disclosed already? >> well, we bought some in our re-insurance company we have over there. we spent a couple billion euros a year or so ago and we would look at more. if you find a good business -- coca-cola was based in amsterdam instead of atlanta. we would love to buy it. and if it's cheap enough. we like good companies at cheap prices. >> would you buy in some of the southern european countries, too, and specifically in greece and italy and spain? and i ask that because we were joined recently and said he would be interested in making

deals in greece. >> i don't see it as impossible. i would there's a higher hurdle to clear in looking at businesses in those areas. but many of those businesses are international businesses, too. but, yeah, the answer is, if i understand the business well, and i trust and admire the management and the price is right, we'll buy there. >> charlie did crack on the stage on saturday that if it was in greece, you hoped you'd give him a call before you went ahead ask buy it. >> i'll do that, but he says no to everything i come up with, so it won't make difference. >> an rue, i know you have a question, too. >> warren, this is a follow-up from the meeting on saturday. and it came after you had commented during the meeting, we got a number of e-mails asking for the follow-up. so here is the follow-up. it was a philosophical question related to having a chairman and a ceo and where they should be the same person. he had commented about the

reasons for having howard be the inventorial successor, nonexecutive chairman to oversee things and be a check on the ceo. after you said that during the meeting, invariably, i got half a dozen e-mails from people in the audience who said follow up and ask should that be applicable across the board. i guess given the news related to jpmorgan, you could put knit that context. but more broadly, do you think there should be a separation between the chairman and ceo now that you're thinking about the future of berkshire, at least in that way a little bit. >> yeah. i think either system is okay. but one advantage of having the chairman separate from the ceo is that it becomes easier to change the ceo if you have the wrong person in the job. and the biggest problems for the ceo is not the occasional one. the problem is that you get somebody who is reasonably good,

but that you can come up with somebody better. we have all kinds of second and third string quarterbacks, they're very good, but you still want the top person playing in the position. and it's very difficult when you have the chairman and ceo and they're likable, then they have appointed you to the board. they're doing their best, they're doing a reasonable job. but you can get somebody better and perhaps you should. that is not an easy thing, when people come into board meetings six times a year, four times a year, have a lot of committee meetings and they get they want planes back out of town. it's not easy to change when you have somebody that's good, but not great. and so i -- that is a reason to separate the two. on the other hand, i don't think that it's key to do that. i do think it's important at berkshire because my son, howard, was the nonexecutive

chairman. he would have no function. you know, in terms of capital allocation or anything else that would just see if there's one chance in a hundred that we came up with the wrong ceo, it would be easitory make the change. >> is it almost a lead director position? >> it's similar to lead director. and one of the beneficial things that have come out of securities, regulation in the last ten years or so is the idea of having a meeting once a year of the board without the ceo there. i've been a participant as a director in a lot of situations and directors say a lot of things and subjects come up when the ceo isn't there that don't happen with the ceo. some important things. >> why isn't that preferable all the time instead of just -- >> well, if you do it once a year -- >> no, i'm sorry. that setup in that situation, why is it a situation that you think is only good in some cases

than in others? why isn't it is a r a good idea for berkshire now? >> berkshire does it now. we will have a meeting soon and they ask me to leave. it makes you a little nervous been but it's required at public meetings, i believe. >> how long were you out of the room the last time this happened at berkshire? >> i go back to the office and i hope for a post meeting chatter or something. ron olson will be the guy that usually comes around. he's come around as late as an hour later. for example, i don't like a lot of security or anything and the board -- i don't know, two years ago or three years ago said you're going to have more. and things like -- they won't talk to me directly like that when i'm in the room. it's embarrassing to be the one that bring it up. i've been on one board where a lot of change happened because

the ceo left the room. >> is the additional security the biggest thing the board has ever imposed on you? >> they made suggestion owes a few other things, but that's the most recent. it's the one i remember, yeah. >> guys, i think we're going to send it back to you 20 slip in another quick break, but we do have a lot more to come from warren buffett right here in omaha. >> that reminded me. war b said he gets nervous when he leaves that they may do something. remember romney said there were times in his life he thought he was going to get a pink slip? i've been worried about -- >> i'm not worried about warren. >> do you think those guys would ever -- warren, that's -- when i leave the room i have -- >> you should -- but fought warren. you took two weeks off to go to vietnam? not good. not smart. >> thank you. >> no. long-term contract. that's how i think about it. >> much more ahead, including

warren buffett take on the wealth effect from wall street that could run this year. u.s. equity futures, happy talk, happy talk. we'll see whether they turn around as the show progresses. >> announcer: still to come, we climb into the cockpit of buffett's next big bet. we reveal net jet's newest fleet tradition. climb aboard and buckle up. "squawk box" is about to take flight right here on cnbc. [ penélope ] i found the best cafe in the world.

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good morning, everybody. welcome back to "squawk box." we are live in omaha this morning. right noer, we are sitting on a global 6,000. this is part of a signature

series for net jet. you just started taking delivery of these planes in december last year. right. >> but this is a series of planes that you've specifically designed because he wanted certain things in these planes. >> people at net jet did it, but i made a suggestion or two myself. >> what was your suggestion? >> i like a wide bed. >> so that's in back there? >> that's back there. >> all the way back because these planes can hold up to 15 people. they also have special crew quarters where you can sleep with them and i guess that's so you can take longer flights? >> that's right, if you need a crew change en route. >> so you've got these planes here. one interesting thing is that this weekend happens to be a huge weekend for net jet. so many people are coming not only here for the berkshire hathaway meeting but also to the derby this weekend. when i talked to bill gates, he said he thought this were about

25% more private jets than at this time last year. i talked to lou simpson over the weekend and he thinks it's part of the wealth effect, people starting to buy into what they're seeing in the stock market. >> we are seeing in flying the people that own the planes or fractions of the planes are flying more hours than they were. when 2008 came along in the fall, people owned the planes, they were paying a monthly management fee. they had their homes, vacation homes wherever they might be, in florida or colorado. but the flying fell off dramatically. very, very, very rich people cut back in a significant way. it was like somebody blew a whistle and it's been coming back from that. >> was that in part, do you think, just because of the appearance of austerity or do you think that that was really that they just feel like this is a luxury that they can let go before everything else? >> i thut think they just felt poor. i don't think it's just that they were embarrassed getting

out of a plane, you about i think that they and their families in some way, they have the homes wsh they had the plane, but they just -- they changed their behavior very, very significantly. we saw it a lot of places, but it surprised me the extent to which we saw it with the planes. now, like i said, it's come back dramatically since then. >> again, what do you think about this particular plane? have you spent time on the global 6,000? >> i've flown it once and once is a very powerful sales tool. jordan will be working on me here in the next few months, i'm sure. and i think he probably has a -- >> okay. this is the global 6,000. we're going to go back outside and sit down withdan hansel who is the chairman and ceo of net jet along with warren buffett when "squawk box" right back. as we go out, why don't we take a look back. [ male announcer ] at optionsxpress, our clients really appreciate our powerful,

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good morning, everybody. welcome back. joining the conversation is net

joet's ceo jordan hansel. thank you so much for joining us here today. >> thank you. glad to do it. >> we were just talking inside the global 6,000 about just the idea of how many people are coming back and what the numbers are like. when i talked to bill gates this weekend, he said by looking around at the number of casual sdwrets on the runway, he expected something like 25% more in terms of people who were coming to the annual meeting on private jets. was he right? >> i think he's in the ballpark. >> what do you attribute that to? >> i think it's a fact of the economy coming back and people start to go feel optimistic and they want to be here to hear what warren and charlie have to say and they want to do it officially. >> is this the biggest weekend for you. >> terms of both the berkshire hathaway meeting and the kentucky derby when you add them up? >> it's a big weekend.

the biggest weekend for us is the sunday after thanksgiving. >> this iraqs up theranks up th. the kentucky derby, did you have a large number of trips there? >> we did. >> is it a situation where people who hadn't been buyin before are buying in? is this people who are just now feeling they can do something like this or sh a resurgence of all the old customers who were there and are coming back? >> it's both from our perspective. we have people who have been in the program flying nor and we're up year over year 55% in terms of new owners. people that have just come to the program for the first time. >> 50% in terms of that? >> yes. >> can you give us those numbers? >> i like to keep it secret unless warren tells me to do otherwise. >> so 50% in terms of new customers. >> we keep looking for joe's name, too. >> joe, have you jumped in with that yet? >> we haven't shown the jet from the other side. and andrew says that's where my

name is. but the more you talk about it -- >> they're going to pan around at the end of the show. >> the more you talk about it without doing it, i think i'm getting my hopes up. >> warren, i had a -- i was thinking about the period you had? can you explain. it was based on the dropping value of the jets themselves i think. and how does that work? it's all accounting. but there are a couple of really tough years. why are you in a business that you can't necessarily insulate against the next big break, or have you done something differently this time to make sure that doesn't happen again? >> we're not insulated against major down turns in the he economy. that's part of the business. incidentally, the burlington northern peak was 219,000 car loads. it got down to 152 car loads. all of our businesses, maybe with the exception of insurance. but all our businesses showed

declines of one sort or another. at some point significantly during the recession. and you would expect aircraft to be in that group. that doesn't mean it isn't good business. seized candy doesn't make any money eight months of the year. but christmas always comes around. and it comes around in the jet business. >> bill miller made the argument, at least in the question. becky asked during the meeting about airlines. given all the consolidation, whether you would be interested in those. do you think about net jets in that context at all in terms of a competitor tryino come in? you know, one of the reasons i think you said during the meeting you wouldn't want to buy an airline is there is always a new competitor. is there a moat around net jets? >> yeah. there have been dozens of

companies in fractional ownership arena. and i believe -- i think we have over 60% of the market in the united states. so people do come in one way or the other. but they really can't match, you know, the breadth of our operation, the service the safety precautions that we follow. so it's not like the airline business. there will be nobody come in, in my view, in the fractional ownership business and hosni kind of success. in fact, people have been going out of it for some time. and like i say, our market shares held steady. it's in the low 60s, i believe. >> that's right. we have steady market share for some time. unlike the airline industry, we have been differentiating quite a bit. the two behind us are signature series. completely different than anything you can get anywhere

else. it's not life line for delta, united. >> you start taking deliveries -- >> sorry, beck. >> go ahead, joe. >> you go and then i'll ask. i have a totally separate question. >> let me ask real quickly, let's talk about the signature series behind us. you started taking delivery of these in december of last year. how many do you have right now? >> eight on the fleet, two to provide the core. six fractionally. >> and how many more deliveries? >> another eight this year. up to 120 we can take over time. >> and this is part of that initial deal you got to help design. >> that's exactly right. the global 6000 completed with heavy input from the folks at net jets. >> they have the big one behind them, the global 6000. and the phenom holds seven. >> it holds seven. >> this holds 13. >> that's correct. >> and the distance. >> 2200, 2300 miles, in the

phnom. 6000 for the global. >> is it luck of the draw? >> i've been trying to talk warren into it a little while. if he ever takes that plunge he will get fit even more. >> he's check anything credit. >> hey, joe, what was your question? >> the air taxi business. i wonder whether it's viable. maybe not jets wouldn't play. they're in the low end. you buy honda jet that doesn't even have a bathroom. but there are people that want to operate between cities that are 80, 100, 200 miles away. and, you know, there's capacity but there's a way of booking these flights. i guess net jets doesn't play there. will that be a business some day? >> net jets has not played in that arena.

a lot of people have tried. it's very difficult place to operate. we have not looked at it in some ti time. >> i don't know if it's possible to do that. was it the small one, that one that holds seven. >> that's right. >> that's the smallest one. >> phenom will be the new one for us. it will replace everything we have had in that category before. it will be the smallest jet we offer in the fleet. >> jordan, when you look around, the biggest difficulty you face right now is what? >> i think waiting for the economy to come full stream. we are seeing it pick up in the united states. we have been working very hard. the team has done a terrific job getting ourselves in strong position to compete force. ly. and i think we're starting to see that in the united states already. >> you are hitting record numbers. we talked before how these are record numbers. does that mean you're 100% back from the down turn? >> no. we are still working our way

back. we are starting to see the early turns. some of our performances are at record levels. >> one of the things we talked about with housing, how it is up 20% case-shiller. where are you with the peak? >> roughly 20% down. in the industry is over that. 30% down or so. so we're in better shape on a comparative basis. >> the contracts are generally for five years. and so we have a huge amount sold in 2007. and they matured in 2012. there was quite a bit in 2008 before the crash hit. so you had people that made a lot of money, financial types particularly. and they might be in the frame of mind the same as in 2007. >> thank you for joining us this morning. we really riesch your time. >> thank you. jordan hansell. it's time for us to take a short break. when we come back, more from warren buffett.

. still ahead, the discussion at this weekend's shareholder meeting. and we'll talk about the business of berkshire and questions about succession. and 8:00 a.m., another squawk news maker. microsoft chairman bill gates will be joining us live. ♪

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the oracle of omaha joins us live after the berkshire meeting. from the economy to jobs to where he's putting money to work. we asked the question. you profit from the answers. the second hour of buffett watch begins right now.

good morning and welcome back to "squawk box" here on cnbc. becky quick is in omaha this morning speaking to the one and only warren buffett. more from oracle of omaha in just a moment. first, let's get you caught up on some of the headlines. look how the markets are setting themselves up. dow opens 7.5. s&p off 2 points. let's get you through some of the headlines. proxy firm iss urging vote against the reelection of three different directors. iss says those directors, cody, crown and fudder failed to wroefr see risk taking that tied to the losses of london whale. gasoline prices have risen. the rise was minimal. less than a cent. the average price now just over

3.54 cents per gallon. the senate is set to vote today on the internet sales tax bill. it would require companies to collect state sales. it is expected to pass the senate. it faces opposition in the house. let's get back to becky in omaha with our special guest in the morning. >> andrew, thank you. we have been speaking all longer long with warren buffett fresh off the annual shareholder meeting. we haven't spent much time talking about berkshire in particular. one of the things that was very strong were the insurance operations. you were able to get strong premiums and you didn't have to pay out a lot. people might be surprised when they realize hurricane sandy happened this weekend in this past year. what is really happening in terms of catastrophe? >> well, the first quarter usually is the one prone to most

catastrophe. we had a few hail storms and things like that. it was generally a benign quarter for the insurance world. our insurance business is doing really well. >> all in general? >> they really are. led by geico. geico is having a phenomenal year. >> you elected a new board member. >> right. >> she is a 51-year-old coming in. she is a general partner at eco capital, an investment partnership. you changed the board over the last several years. >> yeah. we're moving. we have now -- we have six directors over 80. the 660 are the ones for the future. and we have been adding in that category.

burke and merrill joining us. we have a terrific group of younger directors that fit our chess perfectly. we want them to be business savvy with a particular interest in berkshire. that's not the criteria that most companies set out. that's what we care about. they're the ones that care about the issues of succession and that are -- they're wonderful in terms of understanding the allocation of capital. so we have a great board. >> is that why you wanted merrill with her background, an investor overseeing what todd and ted are doing? >> just understanding how to pick the todds and teds of the world. merrill understands es. she's gone along with todd on various trips to various companies. she understands management. she understands capital allocation. a lot of people with very big names really don't understand

that part of the business. they understand medicine very well. we're in the business of capital allocation. we're in the business of keeping them happy. it's a different place than most. >> you didn't give away any secrets when it comes to succession. you tole past. the board knows there are three people who could step in and take over your job as ceo. you said in the past these are three people who are currently at the company who are men. normally the way it's set up is the directors sit on the floor directly in front of the stage, managers up on the left in the bleacher seating. i noticed three managers sitting on the floor with the directors. that was jane, rose, and abel. is that a coincidence that they were on the floor? >> certainly could be. but they were there particularly

because i thought there could be questions relating to the railroad or utility business that were technical in nature. i wanted where i could spot them easily and get a microphone to them. so i asked those managers to be there. as you notice, we did get one question -- they answered one question that i would not have known the answer as well. >> okay. in terms of other things this weekend andrew touched before on the question bill miller asked, his question, again, was related to the airlines. he has talked about his investment thesis. he points out that after the merger, the latest merger with usair to go through with american, the top four will be carrying 90% of the traffic. he sees that has a great reason to buy into the stocks right now. you were not as convinced. what was your reasoning behind

that? >> one airline that was carrying is as it console dates, that helps to some degree. as they go through bankruptcy it helps to some degree. but for 100 years, airline transport has not been a good business. if you got it down to few enough competitors it could happen. maybe four of 90% will get the job done. the increment al cost, this temptation to sell the last seat. unfortunately when you sell the last seat -- bill is a very smart guy. the airline industry may have finally gotten to the point that has it become a decent return on capital.

i have said before i'm skeptical myself. iowa hope it's right for the the airlines. >> another question was bill gross. an article in wall street journal talks about being bearish on bonds and says to this point it hasn't been an court deflection. your take is what? >> i don't know the exact specific comments. in terms of bonds, some day they will sell the yield a whole lot more than they are yielding now. i don't know when it will happen. it's going to happen. the question is always when. the question is to what degree it will happen. you can have them very significantly different than they are now. and some reasonable period in the future.

it's not a game i can play. i don't have any special insight other than it will happen. in terms of stocks, stocks are reasonably priced. they were very cheap a few years ago. they're reasonably priced. but stocks grow in value over time because they expand the companies underneath it. i like owning stocks. i do not like owning bonds. there could she conditions under which we own bonds. >> well, it's always been standard investment advice that you have some sort of a blend of stocks and bonds so you keep things -- just for -- the man on the street. the average investors. joe talked to a retirement is specialist who told him he should be 40% in bonds. i just wonder if this is a different time. >> my family -- anybody that

i've advised -- and they're typical people. they're not super wealthy or anything of the sort. bear in mind, they have a proper attitude. if stokes good down they're not going to be bothered. i would have productive assets. i would favor them over fixed dollar investments right now. and i think it's silly to have some ratio like 30%, 40%, 50% in bonds. they're terrible investments right now. >> so now. this is not your life long look on it. >> oh, it's now. i bought bonds back in the early 80s. we made a lot of money. we bought zero coupon bonds. the price determines its

attractiveness. stocks were cheap. news is better now. stocks are higher. they're not ridiculously high at all. bonds are priced artificially. that will change at some point. what it changes, people could lose a lot of money. >> and lee cooperman's point is this is like bending down to pick up a quarter in front of a steamroller. >> not sure it's even a quarter. >> it is a concern for you. the pension funds, a lot of them are being forced out into other places to try and seek yield because they have promised or they are expected to return 8% a year just to meet their obligations. it's much more difficult. >> chasing yield is crazy. just because you would like to earn 8% or 10% or 6%. the world isn't going to adapt to that. you have to think about what is the most intelligent thing to

do. that's the best you're going to do. to get enticed into some investment that is risky or that you don't understand because somebody promises you a higher yield. i can take it out of the waterfront. no problem. 15% or something. it just doesn't make any sense at all. but pension funds, you know, they haven't been that well manage over time. >> we spoke with the ceo of lloyds of london and spoke about the insurance business. he said he's a little worried about hot money getting into the insurance arena. he's not saying it's happened yet. he said as you see hedge fund managers and others looking for yield, they look at stocks and it seems a good place to put that. he is worried about that being "fast money" in the market and back out. and that's not good he thinks. >> money is capacity in terms of

insurance. you need to have money to get people to trust you to write insurance policies. it's just like bringing more steel capacity, auto capacity. it's likely to affect the supply side. if demand doesn't change, price come down. so he's correct in that. of course a number of money managers talk about something uncorrelated. they will sell what they can sell. if they put them together in offshore locations they can keep their managers from hitting the u.s. tax returns. so it's very attractive for the money manager to create it. >> warren, do you mind if we slip in a quick break. >> i think you should have a commercial. >> when we come back, much more

from warren buffett right after this break, including his thoughts on the railroads and jc penney. and microsoft chairman bill gates will be joining our conversation. everything from the third anniversary of flash crash to the future of microsoft. we'll cover it all when "squawk box" returns.

welcome back to a special edition of "squawk box" live from omaha with warren buffett. here now becky quick. good morning again, everyone. we're joined this morning by warren buffett, chairman and ceo of shire hathaway. we have been talking about some of the things that happened over the weekend. we have not talked much about the railroads to this point. when you look at burlington northern, where are in terms of carloads coming back. >> we're running 185,000 cars a week. the peak comes in the fall.

my guess is we will peak at maybe 205 or a touch higher. >> that's still below. >> it's below where we were in 2006, yeah. we're joining share this year. they likely will have record earnings at the railroad this year. it's been a terrific acquisition for berkshire. >> is it not back to peak because of the house something. >> that's part of it. general business activity. coal is down significantly from 2006. oil was up quite a bit. business has come back. it's come back year by year. it's not where it was in -- actually 2006. >> the oil situation, that's because burlington is the

largest player in the block and shale formation. >> luckily, they found oil where our railroads happened to be. >> how big of a "game change"er is that? >> petroleum products throughout the country l about 5% of car loadings. 2.5%. and that's a lot. nothing like coal or anything. but we are now carrying about 650,000 barrels a day. it was producing 5 million. it was a very significant part. and i have talked to a number of producers. we have spent a lot of money to have the facilities to carry this quantity. and we expect the quantity to grow quite a bit. >> there are people who have suggested that pipelines will eventually siphon away some of

that. how long of away of a change is that from happening? >> well, pipeline is carrying a lot of oil now. oils moves through. the refinery happens to be -- a, the pipeline may not fit perfectly. if it does, you can get it there considerably faster with rail. on the other hand, it cost more per barrel. it's a tradeoff. but it gives the producer a lot more flexibility in terms of refineries. than a pipeline system. >> there was a suggestion over the weekend from president obama that he would be in favor of exporting liquefied natural gas. by 2020 he expects the united states to be an exporter, significant player of that. are you a supporter of that? >> it would be good for the

short-term. in the long return, i regard oil and gas in terms of fracking -- it's a huge natural resource. my general feeling is that we ought to save that for grandchildren. in terms of a natural resource, although we found much more of it, although it's a finite asset. i don't think i would be in favor of it. >> charlie said in the past, the idea of american independence is crazy. american energy independence is crazy because he feels you should use up everybody else's resource other than your own. >> we have been using saudi oil through the 1930s. that's one of the arguments for having it developed in this country, in terms of having an energy source and time and

trouble. but in the '50s and '60s we should have been using the other guy's oeufplt we have a whole lot more than we thought we would have. it's finite. >> i have a question, warren. we have newspapers on the set. we had a number of people e-mail in after we had talked during the meeting about newspapers. and the suggestion i think you made and charlie made your acquisitions and investments you consider to be an exception to the rule in terms of businesses. would you ever buy additional newspapers personally? use your personal account and buy newspapers in the future? >> yeah. it would be pretty awkward if i got an offer now. if it happened to be better i would be criticized i'm sure. i could have started out and

just bought newspapers personally perhaps and south side this is a sideline. i can't do anything that looks like i'm in competition with berkshire. if it did better, i would be in trouble. if it did worse, i wouldn't be that happy about it. the newspapers do not meet our size criteria on a individual basis. they do meet it on a group basis. newspapers will decline in earnings over time. >> give it up. sell that dog crap stock and buy comcast. buy something moving into the future. just give it up. it's not going to happen for you. >> warren. >> he's doing it because he likes local newspapers. he has fun with them. your options are never going back, never going to be worth anything. and the stock you own is just going to zero.

give it up. >> thank you. i have to the try, warren, right? >> geez. i can't believe you're asking about newspapers. what else can we ask? do you know what one buggy whip company. do you have an opinion on it? >> i'm trying to buy it. >> are you? >> national buggy whip. you will see it in our portfolio. >> i really want to know the answer to this and what you think. larry summers, zero interest rates. do all our infrastructure improvements we need right now. just on the surface sounds like a slam dunk. but we would be bothering more money from china. we would still be -- it wouldn't be deficit neutral. is there a payoff -- you got a brand-new bridge. does gdp grow fast senator does

something happen because you do all those improvements? is that something we should do while we can? >> certainly the country should have a first class infrastructure. incidentally, we have those in the railroads. the railroads have never been in better shape physically than they are now. they are in dramatically better shape than they are. >> warren, in the private -- >> mostly. >> well, yeah, that's great. >> overwhelmingly. >> that's great. >> yeah. >> is it a good investment for tax payers? i know you would like to bring percentage of gdp. i figure you think we're still too high. should we take it from somewhere else to do this? should we not do it right now i'm talking about airports. all the big, heavy things that only the government can really do in a public/private partnership. really government spending. should we do that? >> well, it depends what you do.

you know, you have a congress that might appropriate the money and have bridges to nowhere. you might have them do the interstate highway system, which was a stroke of genius back in the eisenhower years. you want a great highway system in this country. and you want a very sensible, well-controlled airport system. and then the question is, do you recognize gasoline taxes, for example, and devote it to highways? there are a lot of ways to go. it doesn't have to be done by bonds. it can be done in effect, what are user fees. >> yeah. so i'm trying to figure out whether you're giving me an unequivocal yes. it would create jobs. at least we couldn't be digging a hole and filling it back up. at least we have something to show for it when it was all said

and done. >> and actually in the 30s. tba. there could be a lot of useful projects. the question is whether they are bonds or user fees is the question. you have to look at the specifics of the program. there was no better investment than the interstate highway system. >> we have to take a break now to pay for our infrastructure. thanks, warren. still to come, why he backs jamie dimon. go to e-trade and find out how much our advice and guidance costs. spoiler alert: it's low. it's guidance on your terms, not ours. e-trade. less for us. more for you. it's guidance on your terms, not ours. are you still sleeping? just wanted to check and make sure that we were on schedule.

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welcome back to "squawk box" this morning. first, let's get you through some of the morning headlines. the big one crestwood and energy. $7 billion midstream energy partnership. also this morning, private equity firms bain capital and golden gate capital, reportedly a deal to acquire bmc software. $6.5 billion. an announcement could come as early as today while "squawk" is still on air. the net is scheduled to vote on

a bill that would collect state sales tax over the internet. a lot of opposition in the house. over to joe. >> thanks, andrew. we are speaking to warren buffett fresh off this weekend's big shareholder meeting. can i ask a question, becky? >> yeah, yeah, yeah. jump in, joe. >> i've got a shopping list here of some companies. because i don't understand you sometimes. i'm bored with ketchup. they're great businesses the things you buy. i understand that. i'm just trying to get you to expand your universe a little. and i still don't understand. i'm not talking newspapers. but big media. and i've got a list of companies that tell you why you have never gotten that interested. do you like disney? you have theme parks, movies, cable. you have comcast, the parent here.

you've got news corp., viacom, cbs, time warner, even google or facebook. this is the future, warren. i know sometimes you think you don't understand technology. but what makes you hesitant to do something that's so ubiquitous. and as we get more advanced as a culture media gets bigger and bigger as a percentage of where we spend our leisure time doing? >> no question it's going to get bigger. i just don't know if i look out 10 years which of those companies you named will be doing the best. it is an industry subject to a lot of change. it's much easier for me to predict it will be doing well in 10 years. some undoubtedly outperformed. it's just i don't know which ones. >> if you don't know, how is anybody else supposed to know?

do you think you are like an old dog with new tricks or something? does someone know how this is going to work itself out? anyone on the planet that knows how it's going to -- >> sure. >> really? >> sure. there are all kinds of people a lot smarter about those companies than i am. that doesn't bother me. as long as i can make money with ketchup and coca-cola and i don't think i know which of that list that you ran off, there will be a couple big winners in that list and a couple surprisingly on the down side. you know enough about the history of the stock market to look at the tech companies that have fallen by the wayside, for example. >> but who knows? who does know? >> there are people in our office that would buy some of those companies. >> directv both todd and ted put money in.

>> one of them put money in viacom. >> warren, do you feel any better -- do you feel any different about ibm? they have had a couple tough quarters. >> i think we'll be right about ibm. i said at the meeting in terms of the certainty of conviction, i feel more certainty in terms of where coca-cola will be in 10 years or highs for that matter than i do about ibm. but i feel enough conviction to put a lot of money in it. and i like very much their financial policies. i like their position in the world. but i don't think it's as bulletproof as something like coca-cola. >> you said the other day that you have bought more ibm shares, though, right? >> pardon me? >> you said you have bought more ibm shares this year. >> yeah. we bought a few, yeah. >> i'm trying to understand. i don't know what the landscape looks like.

warren probably doesn't necessarily. does it look like the pipes, warren, eventually become more commodotized? people have been saying content is king forever. and then it's hard -- content is a creative area. it's so hard. it's so specific to the people running it or the people that you bring in that are creative. i guess that makes it difficult too if you're going to invest just in content, that's hard. >> yeah. >> and you don't know whether to keep the distribution. andrew brings up the disenter mediation of all of these technologies. >> well, distribution was incredibly valuable when there were the three big networks. you could run a test pattern on one of them and get a reasonable audience practically. when it was limited -- when distribution was limited, it was really valuable. there were a couple of big vhs

stations in the big markets and the profit margins were fantastic. but as distribution became more ubiquitous, content is where the money is. it will always be where the money is. sports players will make millions of dollars a year. you can remember when dimaggio was playing for 25,000 a year or the sort. distribution fact guys the value of content. and you want to be -- unfortunately, i don't have any talent, so i can't cash in on that. talent usually gets its share of the revenues. if you own distribution and there's very little in the way of competition for your distribution you can make a lot of money. that was shown by what the networks and the tv stations did in the past. >> you know, this was a big weekend at berkshire. there were a number of events that took place. joe, you know andrew was out here. the new issue this year was the

5k race that brooks running shoes put on sunday. warren, you showed up for it. >> i participated in a big way. i shot off the gun. >> but you showed up. andrew told us he was going to show up. so we were there waiting to shoot him. there's warren shooting off the gun. i was not there. i said there was no way i was getting up early. >> is that burke? >> steve burke did show up for the race. andrew didn't. >> steve did very, very well. >> he is a board member. >> he beat every board member. i think he might have beat most berkshire employees. under 20 minutes. he's the boss. i didn't want to have to -- >> you were hungover probably. >> you would have lost so badly. >> i would have lost so badly i couldn't bring myself. >> did you say you were going to be there and then you didn't? >> i said i was contemplating. >> he did say he was going to be there because they were looking

for him with the cameras. >> i waited to shoot the gun. where is andrew? where is andrew? burke ran a 2:39 marathon. >> that's scary. >> thank you for raising that issue. >> you're welcome. tattle tale sister over here. >> a good excuse to talk about the wonders of steve burke's running performance, which was outstanding we should say. >> was it under 20 minutes? >> yeah. that's what i heard. >> he's fast. >> i want to say 18. >> under 21 i'm told. i'm told under 21. a lot faster than andrew or i did. very quickly before we go to a break, i want to ask you about jc penney. a story about how goldman sachs

had been potentially lining up a line of credit for them. it's got to be a company you're following too. fruit of the loom is a supplier. >> i worked for a considerable period. i have an interest for them. i would like to see jc penney succeed. >> do you think they're going to? >> i think it's very tough. they obviously alienated a significant part of their customer base in the last 18 months or whatever it's been 37 . and retailing is -- it's a tough game. and you've got very, very smart competitors doing smart things every day. when you lose momentum and when you turn off a significant part of your customers, sit a big job to get back. i hope they pull it off. i'm for him. and i think they've got a good man in there to do it. but i'll just have to wait and

see the numbers. >> they have been burning through cash quickly. >> sure. >> has it ever gotten to a point where as a supplier you're worried. >> no. but you worry about your retailer getting to that point. when your suppliers get worried, you're in trouble. >> so you have never worried about it? >> no. >> if you let us, we will jump in for another quick break. when we come back, a looking at the week ahead for the markets. also coming up at the top of the hour, these two ping pong addicts, yeah, these two right here willing to put it all on the line when it comes to risk taking and building successful businesses. we will add bill gates to the mix coming up at the top of the hour in an interview you can't afford to miss. "squawk box" will be right back. a simple question: e how old is the oldest person you've known? we gave people a sticker and had them show us. we learned a lot of us have known someone who's lived well into their 90s. and that's a great thing. but even though we're living longer,

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welcome back to "squawk box". a quick look at the futures to see how the markets are setting up today. a bit of a mixed picture. flip the screen on there. dow will open up 6.5 points. s&p down 2, nasdaq up marginally. another busy week of trading.

tomorrow disney's earnings report after the bell. wednesday, same thing from toyota, aol and news corp.. thursday, weekly jobless claims coming out. and expect fed speak from jeff lacquer on that same day. finally, on friday, fed chairman ben bernanke will speak at the annual conference on bank structure taking place in chicago. when we return, much more from warren buffett. all leading up to the 58 a.m. hour. much more from becky and warren live from omaha when we return. l shareholders meeting. ♪ 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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welcome back, everybody. we are speaking with warren buffett this morning. been talking about a lot of things. the annual meeting is a place where you see a lot of people -- it's just an mazing place to people watch. you have seen huge successful people from business and beyond. some of the people i ran into were bill ackman, lee cooperman. and kathy ireland. >> she beat me. >> she beat you in mini golf putting. one of the people who was here that really caught my attention was bowles. we spoke about his new plan.

this is 2.0, where he's coming back at congress again saying we still have a lot that needs to be done, that the sequester was stupid. he said it was three times stupid because it's dumb cuts the way you use it and it's not attacking what we should be attacking which is really the entitlements. where do you come down? >> well, congress said we're going to propose something so dumb that we can't do it. and then they did it. you know, it is a stupid way to enact a cut in the budget. it was designed to be stupid. at some point they will face up to the fact that their job is a responsible, long-term budget plan. and some things immediately that make sense in terms of where the economy is now and where expenditures should be made,

whatever the case is. we deserve a congress better than that. >> the biggest issue that you talk about for a long time is health care costs, something that irskin has talked a lot about as well. >> we are a very rich country. so we can get away with things like that. we can mismanage in significant ways. health care costs are the biggest factor that make us noncompetitive. we have anywhere from six cents on the dollar to eight cents disadvantage in costs from that one item against the rest of the

world. imagine if we faced six percentage point disadvantage in terms of the cost of our steel or something like that. it would be a national emergency. but health care marchs on. >> the affordable health care act is being brought more into play. does that help or hurt? >> i don't know how to answer that. but we are not addressing the costs overall. and it isn't government the problem, it's the whole system. and we need some very, very good minds to tell us how we can get to perhaps 15% of gdp going to health care. if the rest of the world is anywhere from 8 to 11 or anything of the sort, we ought to figure out how to have a good system for all americans, 15% of gdp. and i would love to get may co, kaiser, cleveland clinic, give them that task to design a

system. >> the head of cleveland clinic was here. he was talking how they are rolling the program out, looking for a lot of ways to try to get that there. the idea is getting down to 15%, how do you that without crushing innovation and hurting the quality of care that people receive? >> 45 years ago we thought we had reasonably good health care. the gdp has grown like crazy. i don't know enough about health care to design a system. but there are very smart people that i really think if you gave them the responsibility, actually just looking at the whole system. why do we have this run away situation.

we have this huge cost. we are spending 2.6 or 2.7 trillion a year on health care. it's as big as the government. and those dollars all have a constituency. we'll attack it and solve it. but there is no real incentive to bring down the costs. in terms of the research we're doing, nobody is doing research that will phone us, at least i don't know of it, that's focused on bringing down costs of health care. they're looking for ways, and maybe very expensive ways, to deliver better care. and i applaud that. but when you have these kind of expenditures going on, you have to have somebody focused on bringing down costs. >> the way washington has gone about this, we have brought down the rate of increase for spending shy say. bringing down the rate of increase over future years. that's what the sequester is trying to do, strip out the

costs. people say, hey, we have done a much better job. maybe we have already cut enough. what do you think of that? >> well, we are so rich we can afford a lot of slop. but that's no reason to have it. we apart so rich that we can afford all kinds of slop. there are choice that are going to have to be made. i admire irskin and allen enormously. nobody likes it 100%. to have dick durbin to vote for. that's a monument al achievement. >> everybody said, oh, this is an easy fix. if it is, why haven't we done anything about it? >> in the end nobody wants a vote recorded that effects any

vote negatively. they worry about losing in primaries. they don't worry so much about the general election. and the fact that primaries have become the important primary for most people in congress drives them into more and more in tractable and inning fringe type positions. >> andrew, you have a question too? >> yeah. warren, where do you stand on repatri repatriotating, or a long term corporate tax plan that works globally. >> well, if we have a tax holiday, a ton of money will come back. they might have already borrowed money to repay dividends. they will replenish, take care of the money they borrowed. there will be more money invested abroad. if you think you can get back

into this country it will push investment abroad. companies now have tons of cash and are bothering money in the united states and will use it to repurchase shares. it's somewhat disingenuous, the argument that's made, that this is a terrible thing. it forces companies to keep their money abroad. we just have to pay a normal tax of 35%. the tax that was paid originally. and the tax to bring it up to the u.s. rate. people can bring it back. they just don't want to bring it back. they will start accumulating again. >> if they were to overhaul the corporate tax code, would it be something you think would be okay if they lowered to 28% like some suggested the first time around?

a lot of companies don't pay 35%. >> something to bring the rate down 28%. every single company, if it's revenue neutral, some will pay more, some will pay less. everybody that will pay more will go straight to k street and the lobbyists will make the proposal because it drums up business for them. it will be very hard. that doesn't mean i'm against it. i'm just laying out the revenues. >> we can continue this in just a moment. we are up against the end of the hour. right now we're going to take a quick break. when we come back, microsoft chairman bill gates will be joining warren in a special interview. from philanthropy to the global economy and microsoft. >> and steven rattner tomorrow

and mare cory booker. a lot more to cover today. make sure you join us tomorrow too. "squawk box" will be right back. [ male announcer ] they say that hard work is its own reward. but there's nothing wrong with enjoying a little extra reward.

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ready or not, the third hour of "squawk box" starts right now. welcome back to "squawk box" here on cnbc. i'm joe kernen. becky has been spending the morning with warren buffett in omaha. they will be joined by microsoft chairman bill gates. that's right. two of the world's most revere said businessmen in the same room. and it can add up the -- that's 100, right? >> over 100. easily over 100. >> yeah. that's just a few minutes away. such a talked ryed tory way to .

andrew has your morning headlines. it's a lot different than the two of us sitting here too. >> we're wonderful. but we would like to be more wonderful. >> u.s. equity features there. we do have red arrows. dow off 6.5 points. a little over a point. nasdaq up two points. you saw the chart coming on the screen a little ahead of time. jpmorgan chase shareholders, if they vote against the election of three directors, if they fail to oversee risk taking tied to the so-called london whale. bain capital nearing a deal to require bnc software. $46 a share.

$6.5 billion. could get an announcement early today. shares of tyson are under pressure this morning. the largest u.s. meat processor posting weaker than expected revenue. restaurants have switched to cheaper chicken from beef to save money. becky has both of those gentlemen on the set there. becky? >> actually, we have bill gates joining us in just a little bit. >> oh, i'm sorry. >> we are live in omaha. 8:15 is the time he's scheduled to be with us. berkshire chairman and ceo warren buffett talked to all types of people. 40,000 shareholders here this weekend. we had a chance to sit down with you and talk about the perspective of where things are headed in this stock market right now. people look at you. you're called the oracle of omaha because they think you are one of, if not the greatest investor of all time. we have been watching where the

markets head. the new numbers. the dow 15,000. and the s&p above 1,600. people are worried, eager. what do you see to those people looking for any sort of advice. >> no one knows what comes next. >> they retain earnings. berkshire will build over time. you go up and down the list and they will. you never know what they're going to do next week or next month. anybody that tries to buy and sell actively and buy is making a terrible mistake. anybody who owns a cross-section of these businesses will do well

over a 10 or 20-year period. >> you said you remember when the dow went 100. >> 1942. it hit a low of 92 on the dow. and i bought some stock. and i watched it go down. and then it went up finally. the dow crossed 100. and it was before i got out of college that -- or right when i got out of college it crossed 200. and i watched it cross three, four. it will go far higher over time. just because businesses have become more valuable over time. it's going to happen. you think you can buy and sell stocks based on current news. you're giving away an enormous advantage. i bought a farm in 1985. i haven't had a quote ever since. i know it's worth more money

now. if i had gotten a quote every day and somebody said maybe you ought to sell because there's clouds in the west or something, it's crazy. >> on friday we spoke with charlie munger. he talked about how bankers are like heroin addicts. they get addicted to leverage and different things. the biggest thing they have in stock is wells fargo. not all bankers are created equal? >> that's true. a lot has been taken out of the system. you hit right on it. you said leverage. leverage is like heroin to people. in investments. people start saying i can make a little more money if i leverage up. that's what they thought about housing. when it went down a little bit, they had negative equity. so leverage is catnip to people

in finance. and it's particularly troublesome in banking because you can issue a government guaranteed piece of paper. so there is no market system that puts a limit on the leverage that you can obtain. in effect, people will give you all the money they have. you have leverage of 100 to one if the depositors is guaranteed by the fdic. so they have the ability to leverage up. they had special purpose vehicles and derivatives. and it's just tempting. that's phau freddie and fannie got in trouble. they were on a different mission. so anything the government is behind particularly, you need someone that can put their foot on the amount of leverage they have. >> the last time we spoke you said you were still buying wells fargo. >> that's right. >> are you continuing to do that? >> we bought wells fargo probably every month this

career. >> moody, you're not buying. you have been selling. >> we sold some last week. >> there was a filing on that. are you going to keep selling that? drop down? >> i guess the obvious answer is i don't tell. if we sell we have to announce it as long as we have more than 10%. if we get to 10%, we don't have to announce it after that. >> so there would be an advantage to owning less than 10%. >> yeah. but we have done -- we're selling moody's what we paid for it. >> joe, i know you have a question too. >> more of a comment. i was thinking about -- andrew has written a book on this. warren, charlie was saying, you know, they're going to do it. and they're going to leverage to the point where they blow up. and that will be fine. and in any business if you mess it up and you throw up you

quickly learn you don't do it next time. it's either the government backing or being systemic so you take down a country like cyprus. we're back to -- if you're too big and systemic and taking everyone down you can't fail. you can do these things. but in a perfect world is it better to regulate these guys or just make it so they can fail? it seems like it would be self correcting. bankers wouldn't be able to act like that if they were going to go out of business. somebody else, who is more prudent would obviously take the place of those guys. but as long as they can't fail we need regulation. >> one of the problems is when they failed the people at the top often went away rich. it isn't like their calculus when they leveraged up they would lose everything if it went back and they needed society to bail them out. so it was the shareholders that

lost 90% or more in certain of the banking institutions. but the management -- i don't know a ceo of one of the really big institutions, whether freddie, fannie or aig or a number of the banks where the ceo went away in any kind of financial distress at all. they went away rich. they have a different calculus. in the case of the banks they were able to offer government guaranteed deposits. in the case of freddie and fannie, that enabled them to leverage to the sky. and i think it's perfectly appropriate they be regulated in terms of the amount of leverage they can have. >> warren, would you put berkshire and the insurance businesses given the size in the systemically important category that sometimes we put some of the big banks in? >> no. we can't issue government

guarantee paper. if you look at our resources, our earning power, it's an incredible percentage of anything bad that can happen to us. >> for you specifically, aig got us in a lot of trouble. >> we are regulated. >> but the states, instead of buy the federal regulators who look after the banks. >> yeah. aig got in trouble basically in terms of derivativeship they have. if the rules of collateral it would have been a somewhat different story. it was a recklessly managed institution. >> i guess my question gets back to the idea, though, how safe should americans feel if an

insurance company can get us into that position, derivatives, if that's taken away, do you think that can't repeat itself? >> i don't think aig will be the type of problem. berkshire itself, we have 200 billion of net worth. lehman has hundreds of thousands. >> so the big weapon is something we haven't thought of. >> we will have another bubble and it will burst. it won't be the sale as the last one. that's been the history. you don't have one internet after another. you have housing after the internet. >> hey, warren, a lot has been made of the fact that you had a bear, short seller there asking questions. i want to get a postmortem. how do you think it went?

what was the hardest question you got? >> well, i don't think we got any particularly hard questions. >> we tried to throw some zingers. >> we'll give the best answer we can. i don't have an answer. if you asked me what the stock market is going to do next week, i don't have any answer at all. i thought the questions were good. >> warren, you invited a guy who short your stock after you knew you were going to report a 51% jump in net income. >> that's the danger of being short. >> bring it on! you knew you were going to -- 150% increase in net income. and you have a guy who short your stock. he should have stayed home. >> he wants to come back next year. >> i'm sure he does. greatest thing in the world. you're not going to give 100

million? charlie said no? >> i don't think we give 1 million. maybe a dollar. >> double what he manages? no, i'm kidding. i'm just joking. >> all right. guys, we're going to take a quick break. when we come back, warren buffett and i will be joined by a legend in the world of business and technology, microsoft chairman bill gates of bill and melinda gates foundation. ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim.

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welcome back to "squawk box". back to becky quick in omaha. i don't recognize this other guy. actually, i do recognize him. becky, you're back. >> joe, thank you. you know, we've been spending the morning with warren buffett. now we are joined by another very special guest. microsoft chairman bill gates. bill, thank you very much for being here this morning. >> great to get up. >> we are thrilled to have the two of you sitting here with us together. people watching this realizing

that you are two of the richest men in the world because you are two of the brightest businessmen. we have been watching the markets, we have been watching what's happening. this is not something a lot of you spend time worrying about. but our viewers will have a question just what you have seen the markets heading. i realize you don't look at the numbers every day. but people want to know what you think about this. >> well, i know less than warren does. >> you're in trouble. >> there's this question of what is going to happen with interest rates. certainly you could say equities are a good deal relative to bonds at this point. but, you know, if interest rates go shooting up you would like to sort of stay short, stay liquid. and so it is definitely an

overreaching figure that people have to think about as they are investing right now. >> in terms of what it could mean, what we haven't talked about this morning with either one of su the currency markets. it seems what central banks are doing is chaotic. particularly with the bank of japan and the yen and what that means around the globe. have either of you spent much time going through any of those maneuvers? by big thoughts? >> we talk about currencies. >> there have been times in the past between world war i and world war ii where there was an effort for people to depreciate currencies. this in terms of simultaneously people stimulating their economies by having low interest rates. and weakening their currencies. it's pretty unique. they can't relatively get their currency much below. in eu they have given up that tool altogether.

>> it's easier to predict interest rates will go up than to predict which will gain versus another one when that happens. >> i guess the big question is when. when these things will run. today happens to be the three-year anniversary of the flash crash. since that time there have been a lot of things that have shaken investor confidence. libor and the rigging scandals. just look through some of the issues of things they have been talking about at the cme. friday i spoke with charlie munger. look to what he said in terms of who was comparing it to. we don't have the sound bite. but at the time he said this is legalized front running. >> i agree.

that's why these exist and spend enormous sums on the speed of transmission faster than the other guy. it is not contributing anything to capitalism. whoever gets the information can run faster than anybody else. >> it raeutsd the question whether average investors can get a fair shake on wall street. i don't know that this is a whole lot different than others. my dad looks at the market of a vegas in terms of being able to at. >> if you buy a stock and hold it many years, the percentage

effect, assuming you didn't sell during the flash crash or some of those got reversed, you still have a bet fundamentally based on that business. i don't think trading in and out of the market with high frequency makes sense for most people. and these costs just add to the fact of how crazy it is. you might as well go to las vegas. >> okay. so the buy and hold is solution to a lot of these? >> yeah. the primary function of the market is to have people provide capital to businesses, drive the valuation of those businesses. that works just fine without this high frequency or even day type trading. >> the flash crash didn't hurt any investor. you're sitting there with a stock. and the next day it's gone past.

the cost in investing for somebody that does it in a real investing matter are peanuts. so unless you turn it to your disadvantage by trying to do amount of trading it's a very, very inexpensive market to proeut in. all that knows should not bother you at all. forget it. >> hey, bell, we talked with warren earlier this morning about how once a year he leaves the room for the berkshire board meetings. and they sit around and talk about things. he doesn't know what they're talking about. you do. can you give us any insights as to what types of things it brought up? >> i agree with warren. this is one of the great improvements in boards is you get that person who is so wise,

knows the company better, has a relation with everybody. get him out and say, gosh, part of the function is our ceo doing the best job possible, the right person, could we support in a different way. in warren's case we have talked about security. health. you know, make sure that we're performing our fiduciary duty. i think that's a great thing. it gets the board to think, boy, we are supposed to be, in certain cases, an independent voice. and we sit and talk about it. we welcome warren back into the room. >> i want to ask bill some questions about his philanthropy. based on something warren said

earlier. first, bill, i think we have to just ask you about all these tablets and pcs. everybody is writing off the pc. microsoft still does 80 billion a year. i don't know what it does. there is something going on to do revenues like that. what's the world going to look like? how does the cloud factor into what microsoft will do in the future? >> well, the cloud is a gigantic opportunity because now there are so many things you can do in computing that wouldn't have been possible before. so you have a lot of the top companies going to seize that opportunity. in terms of the devices themselves, windows 8 is revolutionary in that it takes the benefits of the tablet and the pc and it's able to support both of those. so, you know, if you have surface, surface pro, you have that portability of the tablet

but the richness in terms of the keyboard, microsoft office of a pc. so as you say, pcs are a big market. it's going to be harder and harder to distinguish products, whether they are tablets or pcs. with windows 8, microsoft trying to gain share in what has been dominated by the ipad type device. all of those users are frustrated. they can't tie it. they can't create documents. they don't have office there. they are not giving up what they expect in a pc. >> bill, what do you make of what's happened to apple stock price and a view frankly that people have compared apple to microsoft suggesting they may grow more slowly? >> well, with tech companies the leader is always questioned. they say is this the end of them? there's more times people think

that's the case than really is the case. eventually they're right. they remember, okay, we said these people would have challenges. we've got some amazingly strong companies, apple, google, microsoft, companies coming up like amazon, facebook, samsung,. if you do deep software on the client and deep services, if you have things unique for businesses, which is a particular strength of microsoft, the software business is an amazing business to be in in terms of growth and the profitability dynamics. >> how big of a problem is china when it comes to that? >> well, china has been a disaster if you say per unit of your product that gets used, how much do you get paid. it's been over 10-1 versus united states. and even like 4-1 versus india.

and so it is uniquely high market. the number has been coming down somewhat. the place we have piracy in china and we don't in most of the world is in government institutions, state-owned enterprises and large businesses. all over the world you have challenges down to the consumer, even small business. but here we have a challenge with the large entities. it is improving but fairly slowly. so there's a constant dialogue with the companies, the government, about how to get compliance rates up to be higher. >> we're going to continue this conversation. squawk will be right back. [ male announcer ] you are a business pro.

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making headlines, shares of apollo jumping in early trading. asset management company reporting a sharp increase in interest income. a different story, tyson shares the largest u.s. meat processor taking a hit. posting weaker than expected earnings and revenue. shoppers and restaurants switched to cheaper chicken instead of beef to save money.

let's get back to becky quick. omaha, a figure that's good news they must love beef. have you eaten at a steakhouse? >> i have not yet. >> we went to two steakhouses last night. >> warren buffett and bill gates here with us. bill, i wanted to ask about something you wrote in your annual letter. just in terms of measuring innovations, things like for the next seed that's out there. oregon immunization, getting those to the people who need them. you talk specifically how you need to measure how that is working.

i read through it three times. >> it works best when things can be measured. and you may have government owners or philanthropic owners. and picking which seed to improve and you improve it, does the farmer really use it. does it give productivity. have you created something which requires fertilizer which they can't get or tools they don't have available. so there's all this well-meaning thinking going on. but the actual benefit always ends up being so much less than people with tools might theufplt the only way to get around that and to see where it's hard and what you need to do more is measure the health improvements and the agricultural productivity. you would be amazed how weak the

numbers are. most are huge in term hraeugzs where they measure less than 1%. they sort of assume that the rest is the same. even population numbers, gdp numbers. it makes the normal statistics that you look at, which are so much more. we have had to invest in satellite maps to look at the crops and see what's going on with them. how can we use regular surveys to ask about regular health type things. >> you pointed out this is something necessary particularly in times of tight budgets. and we have seen tight budgets all the way around the globe. we have gone through a very difficult point where charitable giving suffered in a way too. have you seen with your globe

trotting efforts to raise philanthropy. has it improved? there is this trend of being more rich people, billionaires or whatever level you take. is that will lead to philanthropy going up over time. and is it something that people consider that lots of people are doing. i'm optimistic that's going up over time. so you had the blip of the financial crisis that hurt a lot of things. the government budgets are tough. fill hand throw my is fantastic. when you look at buying bad nets and all the different aid activities. and most countries, as they have squeezed their budgets, have cut back on those things. a few like the united kingdom

have gone up despite big budget cuts. it's hard tore raise money now than it's ever been. >> joe, i know you have a question too. >> based on something warren said earlier i want to address it to mr. gates. warren pointed out basic science and money that goes into sciences is directing towards extending longevity rather than figuring out a way to pay for it. and it's very expensive. a lot of things we have come up with, whether drugs that cost $200,000, $300,000 a year, organ transplants, we can't afford for everyone to live forever. are we not funding this proper? just as a throwaway, ray kerswall thinks we may be able to do something in terms of living much longer than we live right now. how are we going to do this?

>> if that ratio stays the same it's all okay. your contribution is scaling up with the extra length of that retirement period. the other thing that's interested, the global burden of disease is the chronic diseases where you're sick but staying alive, like a par kin son's or diabetes or acute disease like lung cancer where you don't live very long. the rise is chronic disease is a big challenge. and we need to get our innovati innovation, risk takers. we need big incentives to go after chronic diseases. only by having lots of solutions

there, do you avoid the reduction in the cue, which gives you longevity, throwing things completely out of whack. overall, i'm optimistic. i'm not optimistic like kerswell. >> 2045. immortality by 2045. i don't know what we do with the brain. that makes it a little more difficult. we might make it. i'm optimistic. but it's going to be expensive if no one dies. >> warren? >> bill and i talked a lot the last couple of the years. the incentives are not to bring down costs. they are actually, not perhaps by accident but they are actually going to produce more and more increased costs. >> right. >> somebody goes to work on a solution on a given problem the cost of that solution is not

really part of the calculation, or any significant part. it's just getting the answer no matter what the cost is. >> we want that but we can't pay for it. >> that's the problem. >> that's the problem with it. >> andrew, you had a question too. >> the last hour, bill, we talked to warren a little bit on tax policy. there is a talk on capping charitable deduction. i want your thoughts on what you think the impact of that will be. if something like that existed, how might it have changed the way you approached your philanthropy? and the same for warren. >> well, the answer is knowing when to change when i do in terms of charity. if you give away 90% of your money the deduction is not beneficial to you. in any meaningful way. i think having an estate tax, where giving to a foundation is exempt from that. and having charitable deduction

is a very good thing. limiting it to 28% rate, i don't think will have a dramatic impact. it probably would have a slight negative impact. but i don't think that would be super dramatic. if they were going the get rid of that deduction altogether, i think that could change behavior and would be unfortunate. >> well, yeah. in the case of bill and myself, i got to use less than 1% of what i gave away in terms of charitable deduction. less than 1% showed up on the income return. bill and i -- mine is $10 billion or $11 billion. >> 98 expired unused. >> 99% of mine expired. anyway, it's not a factor. i would say this.

of the people at the high end, i don't think it would make a lot of difference. i think in the intermediate of wealth and income it could make a fair amount of difference. >> when we're going to take a quick break. much more from warren buffett and bill gates. look at the u.s. equity futures. this is coming after some big gains for the markets on friday. this morning basically nothing is budging. s&p futures are right at the flat line. dow down 3.5. [ male announcer ] with free package pickup from the united states postal service a budding artist can ship like a big business. just go online to pay, print and have your packages picked up for free. we'll do the rest. ♪ the ocean gets warmer. the peruvian anchovy harvest suffers. it raises the price of fishmeal, cattle feed and beef.

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welcome back to "squawk box", everyone. i'm becky quick. we are live in omaha, nebraska. we are joined by berk higher hathaway ceo warren buffett. and microsoft ceo bill gates. we haven't touched on what has happened with immigration. you do believe immigration laws need to be altered. it looks we are closer than ever to getting something done. how important is it in terms of what it will mean for technology workers, though? >> well, i think there's two issues here. one is the high-skilled worker part where this group of eight has come up with something that looks pretty good on that. bipartisan. and the overall issue where you have this great injustice of a

kid who is undocumented, not being able to get scholarships, not being able to participate in a lot of things. so i think it would be fantastic to get this issue resolved. as you say, it looks more hopeful now than in the past. >> the one question people have is whether the situation in boston would make it much more difficult than to get through the house in particular. the boston bombing. >> it shouldn't, no. take one case and extrapolate it and say that should affect all of immigration policy does not make sense. we ought to be attracting the kind of people we want to attract. we certainly do not want to kick out of this country millions of people that are here. and i think it's in both parties's interest now, which is more important to, pass an

immigration bill. so i think you'll see it. i mean, it's in their self interest. >> you think because of the voting patterns. >> yeah. they are scared silly of losing more and more vote in the future. the democrats are for it based on principal. >> the online sales tax being collected by online retailers. that, again, is something i think the senate is expected to vote on today. is it fair? is it right? and should online retailers be protected in a way they hadn't been before, either one of you? >> the bill that asks them to collect these taxes makes a lot of sense. it's very unfair to the person who has got a physical store not only do they have those expenses, but that the other person isn't collecting the

sales tax. so it's a good thing for state budgets. it's a good thing for fairness in terms of the competitive framework. >> yeah. i think the fairness argument is compelling. we have thousands of merchants here in omaha. to have people walk into the stores, look at the item and order it from somebody out of state and not have say sales tax is just -- it's just unfair. >> joe, you have a question as well? >> yeah. i mean, as long as gates is -- the big issues that i'm thinking about. this is something that was in the news next week. i'm going to can it a certain way. bioethics, is it keeping up? i'm talking about the bird flu together with the swine flu. do you think of technology and things like this. you talk about a brave new world that we're in. are we safe? can we trust all these different countries to abide by prudent

science when we've got this stuff at our disposal? a very contagious bird flu virus would not help anyone. >> well, certainly the whole area of genetics gives us a lot of ethical challenges. if you want to think about a nightmare scenario that's even worse than a nuclear bomb going off, bioterrorism is the area that you've got to be concerned. because the right sort of con trust either intentionally created, or unintentionally created, could do so much damage. in the scientific committee there has been this debate should scientists figure out which mutations would cause, say, a flu to get worse. then they can see that starting to happen and be more alert. or should they not try out those things because that might get into the hands of somebody who misused the information. a lot have disagreed about the

right approach there. but it is an area, you know, we're lucky we haven't had a bad flu pandemic. and the fact we had a scare and it wasn't that bad made us get a little more prepared. but it would still be a huge problem. >> warren, you spent amount of money trying to prevent nuclear bombs from getting into the wrong hands. >> yeah. nuclear, chemical, biological. there are people in the world that wish ill on their neighbors and would like to kill as many people as possible. the choke point is not so much knowledge anymore, not spreading so much but materials. i think we have been fortunate and vigilant. but the biological, as bill

says, is probably more of a danger than the nuclear. >> we're going to go to a quick break right now. joe, i think when we come back, we'll have some final thoughts from warren buffett and bill gates. yeah. i was going to say if we have a global pandemic you're not going to want to be long. it will not serve us very well. that could change warren's long-term outlook. it's frightening. first, more today's top stories ahead of opening bell. tomorrow on "squawk box", newark mayor cory booker will talk jobs, immigration, and the economy. we'll ask him about his potential senate bid. but we can still help you see your big picture. with the fidelity guided portfolio summary, you choose which accounts to track and use fidelity's analytics to spot trends,

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coming up on squawk, we'll get parting shots from our special guest hosts for the hour. we will talk and get the last word from warren buffet and bill gates. that's coming up next. ♪ on the road ♪ and we know that it goes on and on ♪

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where just one touch creates the perfect coffee. where every cappuccino and latte is made at home. and where i can have exactly what i desire. ♪ nespresso. what else? welcome back, everybody. right now we have more from berkshire hathaway, chairman and ceo warren buffett and microsoft chairman bill gates who is board member at berkshire hathaway. gentlemen, i was thinking how much berkshire has changed and you've written about this in the annual letter. when you look back about eight

years ago you can look at the biggest businesses, and it's bnsf and four of those companies were not part of berkshire just from when bill joined the board back in 2004. >> we had one of those then. >> how has your strategy changed and why? >> we've with always bought businesses, but we've had a fair amount of success in the last five years. you named four of those companies and we had 400 earning and now they're making more than 10 million. we're transforming berkshire. it's a work in progress. >> from the perspective of being on the board has your job changed in that period of time? the business just looks so different? >> the key role of the board is supporting warren and talking about the succession plan and so that's pretty much the same. it is more about wholly owned

businesses and less about trading stocks. in that sense the value is very enduring because those business franchises are, you know, just amazing assets. so it's a really great maturation process that bodes well for the future of the company. >> the future of the company. how will the board's role change with the next ceo that comes in. my guess is things are going to be run a little differently. >> you'll certainly have a period of supporting the new ceo where we'll have some institutional memory and want to make sure he gets into the job very well. so i think things will be more intense then than they have been, you know, there will be a lot of questions about the company that all of us that are on the board will lend our time and our reputation to talk about what an enduring, incredible company berkshire is and make

sure that's what's happening. >> you talked about how succession is the number one topic that the board talks about. you have a board meeting that starts in an hour and a half from now. is that going to be the topic of discussion today, as well? >> it's always the main topic. warren is good about letting us bring up anything we want, but we all know that that's the main thing we're there for, and we go through it even when there isn't that much of a change. we make sure nobody in the room has new information or new thinking because it's such a critical decision. >> andrew, joe, i'll give you the last 30 seconds if you have a question you want to ask. >> hey, bill, you have a special friendship with warren and i never like to think about this. in a post-warren world ten years old do you imagine you'll still be a berkshire member? >> absolutely.

absolutely. that's one of the things that i can do as a favor to warren. >> we've got no time, warren. are you going give me a jet or if you have a ceremony that you have planned? you're not going to, are you? >> no, no, i was planning to do it until he said ten years out. if you'd said 25 years out. >> that was cold, man. that was cold. >> what? people don't live past 92. >> no, warren will live at least to 100 or 120. ten years after -- ten years after. >> i heard what that question was. >> that was cold, warren. >> i heard that, too. >> that wasn't the intention at all. >> sorkin will live forever because he's in his 30s. >> no, warren will live forever. >> we're very happy about that. >> guys i'll let you in on a secret very quickly. even if you think i never do anything for you. we're in a big hangar, and one

pooped on our head ten seconds before we came back to air. look. it's there. >> only in omaha. >> indoors. holy smokes. that was great. thank you. thank you. thank you both very much. >> it was good to see you both in person over the weekend and we thank you for a great show and make sure you join us tomorrow. "squawk on the street" begins right now. okay. only becky quick can get away with that on live television and still be adorable. it's monday, may 6th, 2013 and welcome to "squawk on the street." i'm carl quintanilla with jim kramer and david faber. that's a surprisingly good jobs number. we do have one last push of earnings this week. one dow component, 46 s&p companies and europe is the topic of much discussion if you