we'll let you hear it straight from the oracle. and it's leap day. kids waiting for a birthday. you do stay young. it's monday, february 29th and "squawk box" begins now ♪ good morning. welcome to "worldwide exchange" right here on cnbc. i'm andrew ross sorkin with joe kernin. becky quick is with warren buffett. >> take a look at u.s. equity futures at this hour. dow jones looks like it will open off 90 points. nasdaq looking to open down as well, down 45. s&p 500 looking down 12 points off. overseas in asia, japan's nikkei fell from 1%. hang seng 1%.

and the shanghai cut its service requirement ratio by 0.5%. european equities at this hour. you're going to see, red arrows across the board with the dax down more than 1.5%. the cac up -- almost,.25%. in corporate news, valeant ceo michael pearson returning from medical leave. shares of valeant trading right now, before the open this morning, you're going see actually, oddly perhaps even, marginally down about 1%. we should also tell you that jpmorgan fired the head of its government dead trading for failing to file. the two employees left in early january, but the reasons for their departure were not disclosed at the time.

a resounding win we should tell you for hillary clinton in south carolina over the weekend. clinton beat democratic rival bernie sanders by 48% points. it was clinton's third win in the contest. a dozen states will vote tomorrow on super tuesday. we're watching gold prices. precious metal is on track for its best month in four years as investors have been seeking a safe haven. take a look at the price of crude, down today. not a huge story. 32.69, it's when it looks like it's going to break under 30 again that we worry. shanghai is back 2700 now. right now, let's get to becky quick. i don't know how much sleep she got. she's in omaha with our special guest this morning. you know, becky, the oscars, golly, everybody wants to watch. but then i was conflicted because the finale -- >> you liar. >> the all-time finale of

"downton abbey" was on, two hours i think. and "walking dead." i said, i'm not going to choose. i'm going to bed. i went to bed before 8:00. so i have no idea -- >> i was with you. i was with you on that. i went to bed. i have no idea what happened on any of those things except for the brief clips i've seen. >> i got a stone that says "tranquillity" with chinese letters. i'm reading about stuff this morning. there's a lot of conflict going on in the world right now, even at the oscars. i feel good that i'm sort of in my own place. i feel tranquil. i'm going to toss it up to you. >> i'm with you. and you're a wise man, joe. i follow your ways all the time. >> you're with the wisest. >> i am. let's get straight to that. we are in omaha this morning, live with the oracle of omaha, warren buffett. he's the chairman and ceo of

berkshire hathaway. warren, great to so you this morning. >> great to be here. >> we haven't been able to speak to you since september. since september, the markets have gone haywire. people have been wondering what's going on and people have been clamoring wondering when we were going to get the chance to talk to you. what do you think has happened in the last four or five months since we talked to you? >> well, in a sense, probably not that much if you measure where we are versus september. >> well, weaker. >> yeah, you never know what markets are going to do. there's never been a time in my life -- i know what markets are going to do in long period of time, they're going to go up. what's going to happen in a day or a week or a year even, i never felt that i knew it. in ten or 20 or 30 years i think stocks will be a lot higher than they are now. >> you know, i know you look at

things like that. i also know that you look at stocks and try to decide if they're fairly valued or looking cheap. we have been looking for collection in an awfully long time. that's finally come. do stocks look cheaper to you. >> as far as i'm concerned, i like it because i'm a net buyer of stocks. i've been buying stocks since i was 11 years old. when stocks go down, it's good news. just like when hamburgers go down or coca-cola. but the stocks are going to value. you can probably look up what percent of the days since i've been born have gone down. maybe 30% or something like that you can't predict what stocks will do in the short run. but you can predict that american business will do well over time. take the 20th century, stocks went from 66, the dow average, 66, to 11,497. and you were getting three times as much in dividends as the

whole average was selling for at the start. and you had would world wars, you had a great depression, flu epidemics, all kinds of things. american business will do fine over time and if you own a piece of it and if you don't beat yourself -- the only person that can cause you to get a bad result in stocks is yourself. >> unfortunately, that's the biggest problem trying to fight yourself in some of these situations. have you been buying more stocks lately because prices have come down? >> we're almost always a buyer of stockings. we have bought more stocks since end of the year. we earned $17 billion and a fraction last year. and $4 million additional money available. we're almost always a buyer of stocks. i feel much better when they're going down. but it's hard to think of very many months when we haven't been a net buyer of stocks.

>> let me ask you this, part of the reason that stocks have come down so precipitously is because people look at the economy and they get awfully worried with what they see. happening around the globe. they see that there's been a recession here in manufacturing, they worry that's going to spill over into the broader economy. what do you siee in your busines and the companies you own stakes in? >> business, i would say, is a little softer in many places than people -- or that i anticipated, we'll say four or five months ago. that doesn't mean it's reverse. but, you know, we talked about how since the fall of 2009, overall, the economies just kept moving up around 2%. and people talked about double-dips, we remember hearing that three or four years ago. then they talked about sack seller rating. in the end, it seemed to be gaining 2% most of the time. you know, that is not a bad clip, incidentally. it will take you a long way. but i don't -- i don't think i

know what business will do next month or next year. i bought my first stock in april of 1942. i was 11. pearl harbor had happened three or four months earlier. we were losing the war. you want to talk about a bad outlook for the country. nobody thought we would going to lose the war. at that time, we were getting clobbered in the pacific. the dow was 100. it was a good time to buy stocks. i bought stocks after 9/11. i got stocks in 1987 after the big crash or the fall. the country's not going to go away. the clients aren't going to go away. the people aren't going to go away. the talents aren't going to go away. the country will grow in value over time. now, who gets it is another question. but it will grow in value. if it grows in value, businesses will grow in value.

it's a terrible mistake that buyers sell stock based on what you think a business is going to do next month or even next year. >> although you did say that the economy's a little weaker than you would have expected. >> right, correct. >> what do you think happened? >> well, i'm not sure what happened. the people were just optimistic about it. and you've had -- the general thinking, i think, if you go back, that oil was -- the low price of oil was going to put more money in the pockets of consumers and that that was going to cause a pickup in business and so on. ant it was a dividend. i mean, the american public got a big gasoline dividend in effect. that's an interesting point that you can get to if you like, as to why lower oil prices which should be good for oil-importing countries really may not be in the short run. and we saw what happened like that. >> why is that? >> well, it's a very interesting

thing. we all learned in freshman economics that if oil went down in price it was bad for the exporters and good for the importers. certainly, when we had the oil shock back 40 years, it was a tax. there's no question that it is good for the country to have lower oil prices but what happens is the benefit to consumers feeds in, next time you go to the filling station, gas station, you know, you save 15 or 20 bucks. it feeds in very slowly. but the capital values disappear immediately. so if you're sitting with an oil industry in this country that's producing 10 million barrels a day or something of the sort, that's at $100, you know, 10 million barrels a day, that's $1 billion of revenue. 365 billion a year capital value is maybe $2 trillion based on

that. now, all of a sudden, you're taking it down to where you're not making any money. and the $2 trillion of capital values disappears very quickly. the bank loans it gets sour very quickly. they keep buying it from negative companies very quickly. so the negative effects of this huge capital value feeds in very slowly. even though it's good for the country net when you're an importing economy, it can be very bad in the immediate effects it has. >> but we're not looking at an immediate effect anymore. we're anniversary-ing these low oil prices. >> right. >> does it actually change in the economy? >> well, the loans against the oil companies, they don't go bad on the first day and all of that. so you get a lot of fallout. in terms of capital values. it's fairly -- and the banks feel it and the oil suppliers,

oil equipment suppliers feel it. so, all of those things come back very quickly. people lose their jobs in the producing areas. so, some very tough things happened. to the economy. fairly quickly. and the benefits just keep flowing, too. >> that explains the correlation that we've seen in weak oil pricing us and weak stock prices. is there a point where you think that correlation loosens up, though, and we start to see the benefits instead? >> overall, it's good for an oil-importing country which we are to have lower oil prices. if oil were free, it would be good for us. it wouldn't be very good for -- you know, and you would have this big adjustment in the oil industry which would happen immediately. so it would clobber us in certain areas initially. and housing would be bad in houston and all kinds of things.

we have a furniture operation in houston and we have them throughout the country. our houston furniture operation -- >> going to blast the furniture mode. >> in dallas, dallas hasn't been hit. but houston we've done the worst in furniture among other operations but that's to be expected. >> because of the location with houston so heavily oil. >> because of where it is. and you feel that very quickly. >> warren, when you say that the economy hasn't been as strong as you had expected if you were looking four or five months ago, are you talking about the industrial operations that you watch? are you talking about from the consumer? are you talking about across the board? because berkshire is much more industrial focus than a few years ago. >> usually, you see it in industrial parks. and you're seeing it -- well, rail was disappointing last year. got more disappointing agency the year went along. so far this year, it's been the race. >> although in your annual letter you really laid out the strong performance of

burlington-northern santa fe compared to the year earlier? >> yeah, i would have expected the industry to have done better. but we were coming off a bad year which helps in comparisons. and we run the railroad a lot better last year than the year before. but overall, the rail industry had a disappointing year. got poor during the fourth quarter. it's been poor in the first quarter of this year. and there again, some of that is secondary. the biggest thing has been coal, actually. but in oil, 3% or 4% of our railroad come from oil. but if you look at frac sand, that's very big. there's all kinds of way things ripple through the economy. >> back to the key question, though, the question that i think investors are trying to figure out, that weakness in the investment areas does that spill

over to the broader consumer? what do you think? >> well, it hasn't so far, except in certain areas where they've been more exposed. >> in houston as you say? >> yeah, yeah. but that shouldn't really concern investors. if you're buying -- if you're buying a farm, if you're buying an interest in a local business, if you're buying an apartment house to rent out in omaha to people, you shouldn't be looking at the next six months and trying to decide whether or not now is the time to buy. you should look what the the asset is likely to produce over time and what you have to pay for it. and if you can buy it cheaper, so much the better. for people to try and time stocks is crazy. >> we're going to talk a lot more about the annual report. or the annual letter in just a few moments, if you don't mind. if the meantime, we'll send it back to you andrew. andrew, i know we have more coming. >> thank you, becky and warren. we're going to have much more from warren buffett straight

ahead. we should tell you right now, u.s. equity futures at this hour are looking down. dow jones looks off by 100 points. stocks return with warren buffett in just a moment. we got another one. i have an orc-o-gram for an "owen." that's me. ♪ you should hire stacy drew. ♪ ♪ she wants to change the world with you. ♪ ♪ she can program jet engines to talk and such. ♪ ♪ her biggest weakness is she cares too much. ♪ thank you. my friend really wants a job at ge. mine too. ♪ i'm a wise elf from a far off shire. ♪ and sanjay patel is who you should hire. ♪ thank you. seriously though, stacy went to a great school and she's really loyal. you should give her a shot. sanjay's a team player and uh...

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where we are live with warren buffett, the chairman and ceo of berkshi berkshire hathaway. >> i've written them all, i didn't used to sign them in the first. but i've written all 51 of them. >> this is a process that i think takes you most of the year. you start thinking about the next year's probably tomorrow? >> yeah, i'm always thinking about -- i have some subjects that i might have put in this year. but when i got to 16,000 words i decided i might be losing people, so i stored them away for next year. but it is sort of continuous. there's some things that are actually just reporting on what happened. and there's other, there's a few subjects that i like to sort of mouth off on. >> because you don't get enough opportunity to do that? >> i think my family would

rather have me do it in print than do it personally. >> let's start off talking with the report itself in terms of how the businesses are doing. it's been a strong year. profit was up sharply. how would you state how overall business is doing right now? >> most of the business did very well last year. our goal is to add to the fundamental earning power every year. now, that doesn't mean that we think the earnings will go up every year, because sometimes you'll number recession or something. we want to feel tee end of the year we've got nor fundamental earning power on an average basis at the start of the year. since we retain all earning, we ought to do that. it would be silly to retain our earnings to stay flat. last year, we were able to add a couple of important businesses they didn't actually get done until after the year end. and then we try to develop further the earning power that we already have.

>> the big addition this year will be for precision cast parts? >> yeah, i didn't close until the end of the year. >> you talk about your powerhouse five. >> now, we're going to have the powerhouse six. some day we'll have the powerhouse 80, i don't know. >> just in terms of learning through those businesses you did say that burlington-northern santa fe you suspect will have a weaker year this year? >> yeah, i would say it's highly likely that all u.s. railroads will have a lower year this year. >> that's just for industrial investment? >> not as many car loads are moving. every week on wednesday, american association of railroads you can look up figures, it will tell you crushed stone, autos, grain, all kinds of different commodities. how many cars moved the previous week. you at all it the arteries of

the economy. >> and is that because of the china slowdown? it's hard to imagine a slowdown in china would hurt grain movement here? >> well, grain actually hasn't been so bad. the big culprit has been coal. and that's going to continue. it's exacerbated by the fact that coal stocks at electric is high. they measure it in terms of usage. there's somewhat of a catch-up. now there's somewhat of an undershipment to work off excess stocks at the utilities. but partly happened was that our service got bad a couple years ago, a year and a half or whatever it was a year ago, and utilities began to worry about their stocks going down. and coal piles are high at utilities but even leaving out

that factor, coal usage is going down with utilities. and many utilities can shift between natural gas and coal with a lot of their generation. and natural gas prices being where they are just hurts coal a lot. >> just running through the report, looking through some of the numbers the thing that caught me off guard is geico where the profit fell from $360 billion to 1.3. what happened there? >> what happened there is interesting in the auto insurance business. for the first time in quite a while deaths and accidents, too, but the death figures -- we've got long histories on, deaths were 100 million miles driven went up. and it's quite interesting. it was -- in the 1930s, it was -- you were 15 times more likely to die in an auto accident per mile driven than currently.

15 times. and then after world war ii, the figure got down from 15 per 100 million, roughly to 7 or something like that per 100 million. then ralph nader came along and cars got a lot of safer. and now, it's just a little over 1 per 100 million. and that number's kept going down. so we only had a little over 30,000 auto deaths in 2014. but in 2015 for the first time in a long time, the trend started going the other way. and we just got figures from the first nine months but the frequency of auto accidents went up a lot last year. the number of deaths went up. the 32,000 deaths incidentally, a third are drunk driving. if you think about it, almost 10,000 deaths from 32,000 come from drunk driving. half of the people that are killed as occupants in a car are not wearing seat belts. but i personally believe that

distracted driving which was listed for about 10% of the deaths in 2013, i think that amount went up a fair amount. >> distracted driver mean someone talking on the phone or texting? >> yeah, one way or another, distracted driving. that's harder to get the precise figures out. about 2,000 deaths. but in any event, the frequency of accidents, the frequency of deaths per 100 million vehicle miles went up quite significantly in 2015. and that's the first time in a long time. and the cars are safer so people are not driving as well. and on top of that, what they call the severity also went up. so, as a consequence, our rates were behind experience during the year. i would guess, but this is a guess, we're a couple months into the year, i would guess that now the rates are more adequate for what the current experience is. if i had to bet and people at

geico won't like me saying this, but i think our underwriting experience will be better in 2016 than it was in 2015. >> meaning rates at geico and probably all the other auto insurers are going up? >> they have gone up. >> they have gone up. >> now, you get your policy every six months you may not see it for six months until you renew your policy. but rates will have moved up, and you will see it as you get renewals. and they've gone up because both the frequency of accidents has gone up and the cost of accidents has gone up. >> and you think it's tied directly to distracted drivers because they're on their phones? >> i really think that's got to be -- now, there are more miles driven last year because encompass got cheap and when unemployment gets better that affects driving. to some degree. but there were more miles

driven. beyond that, people did not drive as well as they did the year before. when you think about it, it's so much safer to drive a car from when i was a kid, for example or an adult. cars have gotten a lot safer. >> warren, there are a lot of things you brought up in your letter. we're going to go through many of these things. fortunately, we have you for the next 2 1/2 hours or so. i want to get to the issues but others too in the letter. if you wear with us, i think we need to slip in a commercial break. joe. >> thanks, we're going to take a quick break. we will be right back with warren buffett. here's a look back from "squawk box" ask warren from that show back in 2008. >> lebron of the cleveland cavaliers rights in, he asks if you were ever to buy a professional sports franchise, what would it be?

>> it would -- well, if i lived in a big city that had a top team, i'd want to buy it there. >> you would? >> when i was a kid, i thought if i ever got rich, i'd buy a sports team. i'd rather play on one now. if there's anybody that would like to sign me up, i'm ready. . great job. (mandarin) ♪ cut it out. >>see you tomorrow. ♪ everhas a number.olicy but not every insurance company understands the life behind it. for those who've served and the families that have supported them, we offer our best service in return.

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welcome back to "squawk box" here on cnbc. first in business worldwide. i'm becky quick and i'm coming to you live from omaha what, nebraska. joe and andrew are both here in new york. we're ready to jump in on this. right now, we want to get back to our special guest this morning. berkshire hathaway's chairman and ceo.

warren, we have not touched on your other big stocks. i was looking at the list that shows your top 15 holdings. you've got your cost basis, what it costs you for that and what the market is today. it's phenomenal when you look at the huge gains for the stocks that you've owned for years and years. if you look at that list, there's two stocks that have gone down in value from what you paid for them one is john deere and the other is ibm. you've been buying that stake for five years. the cost basis was $13.8 billion. by the end of the year was worth $1.8 billion. was that as mistake to buy ibm? >> it could be. sometimes, when stocks go down, we're wrong when we sell them. and sometimes, we think we're right and we buy more. sometimes, it turns out, we are. i mean, the -- "washington post" stock, the not in that list,

because we disposed of most of it. but we have about 100 to 1 profit in it. but it went down by more than a quarter, after we started buying it. so, we felt the loss with that. and we kept buying it and it all worked out very well. and we -- i shouldn't say we, i bought tesco. it went down and it kept going down and i was was right about the company. if i'm right about the company, the company will do fine. and i love buying more when i think i'm right. and when i'm wrong, you sell them out and take a big loss, we've done that on a few stocks and bonds over the years. more often, we've made even more money because they went down initially. i mean, berkshire itself has gone 50% three different times since i've been in really of co it. the first time i was able to

keep buying i had some money left from the partnership. and it went from 90 to 50. that was terrific. that's happened two times since then. so going down is a good thing, unless the company itself is losing value. sometimes, that is the case. sometimes, it does sn. i don't think that's the case with abm. >> charlie munger said he would say the jury is still out on whether the invention will work. he also said he's either a believer or disbeliever in ibm in its reinvention. when you look at it, can i assume that you're still buying the shares or waiting to see what happens? >> well, you'll see what we do quarterly after every quarter. i can tell you, we've never sold a share of ibm. you mentioned john deere, but there's other stocks that we

buy. and there's stocks that we own that have gone down, a fair amount. american express has gone down quite a bit. that's not really different than ibm. what you pay for a stock doesn't mean anything. what means something is where the company is going nobody five or ten years. and i think, charlie's neutral, i think that ibm will be worth more money. but like i say, i could be wrong. if i'm wrong, we'll accept that. >> joe has a question for you on this country as well. >> warren, when we have analysts on, they do the buy-sell-hold on this. you sound like a hold on ibm right now, just from your body language? >> well, no, i would say this we're a consensual buyer. we're buying different things at different times. >> i understand, warren, i'm trying to read between the lines. you've got big positions and people key off of what you're

doing and you want to be careful you don't say too much. if you're buying up in 170 and it's 130, you would buy twice as much if you were convinced it's going back to 170. so in the next filing if we don't see you bought much, a real commitment, that means you soured on it. at first we'll hear about it because you don't want to telegraph your position. the first we'll hear is when you sell it all. it sounds like you're a hold? >> we shouldn't really say we would buy twice as much. we think for a long time before we go over 10% of a company. "a," we have to report within every two days, every transaction. secondly, we can't change our mind for a year and sell only stocks and have a short-swing profit and have to give it all back to the company. you become in a much different

position at 10% is. so if you would buy twice as much now, that would take us to 20% or so. >> here's my point. there's a lot of invefrlt aut o warren, that piggyback off of things that you do. would it be your recommendation that people that followed you into ibm double down in the ibm position to try to make their money back, or would you urge them not to do that? >> i'm not an investment adviser. i wouldn't ever urge them to do anything based on what we do. i mean, if they want to do what berkshire does, they probably should buy berkshire. but i'm not an investment adviser. it's intellectual property that belongs to berkshire, what we're doing as security. so we have no desire to encourage people to buy or sell stocks at all. except i will tell people that over time, i think they will do very well buying common stockings. i think the best thing for most

of them to do is buy an index fund. i think they're making a big mistake if they're biggie backing me or ten other people whose names appear in the paper. that is not a great strategy. a great strategy is to buy st k stocks over a lifetime and not worry about how much they go up or down. that's what i tell my wife to do in my will. you know, she's going to put 90% in an index funds and 10% of government. i told a lot of other people to do that overt years, and they've done very well. >> warn warren, i want to get one crack at the bat. to extent that investors want to look at your whether it turns right or wrong. it it did turn wrong, what would be the trigger for you to say, okay, maybe i did make a

mistake? >> well, i was wrong on tesco, for example. i was late in recognizing that. they were doing certain things -- i thought when they came into the united states, i thought that was a big mistake. but i did not anticipate that they would lose the position that they had in the uk, for example, to the same extent. i was late in recognizing that. we'll sell a stock for one of two residencasons. if were need the money to buy something because we like something better. that's always in always case at berkshire because the money keeps coming in. that was the case 20 or 30 years ago but not the case now. now, we'll only sell something basically if we feel the company is not worth. >> warren, let me throw in a question from a viewer. go ahead, andrew, i'm sorry. >> the follow-up i wanted to ask that the management of the

company and to the company, how much of the faith in the company is in her and ibm proper, meaning the institution that is ibm? >> well, you have to have faith in both, but the stronger is always going to be the business itself. because a human who is running it, something could happen to them tomorrow. you love the idea of having a manager that's terrific. but you always have to have basic faith in the business. we love the fact that matt rose was running dnsf when we bought that. that's just buying the stock. we have to like the business. and then we also have to feel good about the person running it. but the business overwhelmingly is the most important thing because people come and go. >> warren, let me follow up with a question from a viewer on ibm as well. daniel wrote in, have any of the companies under berkshire's umbrella gained any competitive

advantage by using ibm watson so far? >> we have at geico, we're doing a fairly elaborate experiment with watson. and with watson, you spend a considerable amount of time teaching watson. i mean, watson did not come knowing a thing about insurance. and never read an insurance policy before. and he was great at "jeopardy!." so our job and ibm's job was to educate watson in all expects of insurance. watson learns. and we've been working with watson quite a while now. and we've got some big tasks in mind for watson. and we see progress along that line. but it's just like in medicine. you know, if you've got memorial sloan-kettering starting to feed information about cancer into watson. the first day, watson knows nothing. it's a piece of machinery.

and after a while, it has this ability to remember every article that's ever been written and do it in a second or two. and take information in tens of thousands, i don't know whether it's x-rays or recent tests or whatever it may be. and it becomes an incredibly value piece of, or storage of information and then aid in decision making. and that can be very valuable in insurance. but it's not valuable the first day or second day. >> so is geico paying ibm or is ibm page geico? >> well, it's an interesting thing. they would probably like us to pay them. it's a partnership. it's a partnership with mb anderson or sloan ke-ketterinsl.

you need to decide what gets fed in. you have language problems and all of these things and you've got quite a smart partner at the end. obviously, we've put money into it. ibm's put money into it. and we think that there could be a very big payoff. >> adrew. >> thank you for that. . warren. we'll get back to warn buffett, if you went to bed early, we'll tell you everything you need to know about last night's oscars in 60 seconds, as we head to break, a quick check of what's happening in european markets right now. we're back in just a moment. and i'd like to... cut. so i'm gonna take this opportunity to direct. thank you, we'll call you. evening, film noir, smoke, atmosphere... bob... you're a young farmhand and e*trade is your cow. milk it.

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u.s. equity futures are down this morning. they were down 90 last time we looked. 61 now, a little better on the dow jones. s&p indicated down under 8 points. nasdaq down 22. here's a check on the economic calendar that we'll be looking at for this week. look for february chicago pmi in january pending home sales. on tuesday, we're getting the ism manufacturing index, auto sales. wednesday, adp report and beige book. thursday, look for revised fourth quarter productivity and labor costs. and the february ism services index. and then on friday, no, no, no -- are you kidding me -- seriously, is that a mistake. >> yes. >> it's -- it's the big jobs number again? >> uh-huh. >> god, that seems like we just did that. it's an even shorter month. shorter month. >> always feels that way. >> that is really fast. let's give you an update on

what happened with the oscars overnight. the biggest ware of the night, best picture went to "spotlight" and best screen play a big shoutout to my friend josh singer. and leonardo dicaprio honored for his performance in "the revenant." it was first academy award win after six nominations. "the revenant" also winning best director for alexander inarritu. >> you were focusing on that and you messed that up. >> i know. he won both -- he won best director out of last year for "birdman" a movie you loved as well. >> i did. >> some people thought this film should have won the best film as

well. >> i don't know what should have won for best film. >> i love brie lawson won the best actress in "room" one of my favorites heavily favored. this is her first award. chris rock hosted the show amid controversy no african-americans were nominated in any major categories. he addressed the controversy right off the bat. >> which means i'm here at the academy awards, otherwise known as the white people's choice awards. [ laughter ] do you realize if they nominated hosts, i wouldn't even get this job. [ laughter ] y'all be watching neil patrick harris right now. >> a lot of funny lines from last night. a lot. we can't say some of them. >> how late -- you were up to midnight? >> no, no, i didn't stay up the whole time.

>> 11:00. >> no, no. halfway through. >> 10:00. >> yeah. >> they only started at 8:30. >> started with watching the dresses on the red carpet. >> red carpet and then finished. seen enough. >> then i just find out the next day. >> who were your best dressed? >> hold on. >> okay. >> i saw margaret robby. >> the currekernen fashion poli. a lot of basketball too. creighton walloped st. john's. we'll have more from warren buffet in omaha. everybody lost this week, andrew. duke lost. iowa lost. vo: know you have a dedicated

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good morning again, everybody. welcome back to a special edition of "squawk box." we are live in omaha, nebraska, with warren buffet, chairman and ceo of berkshire hathaway. in your annual letter to shareholders you point out that the annual meeting this year will be different in that for the first time ever you are allowing it to be webcast. why are you doing that? >> one, we sort of maxed out in omaha last year. we said over 40,000. it may have been 45,000. the center where we have it, we use, i think, five overflow rooms and filled those.

and then we actually had to use a couple of rooms in this hotel. so -- and the hotels were all full. so we're pretty close to what we can handle physically in omaha. the second reason is that, as i said in the letter, when you have a ceo that's 85 and you have -- his sidekick is 92, it's probably only fair that the shareholders should get a chance to actually see whether you're sitting there drooling and cutting out paper dolls or whether you can hold your own for five or six hours with a lot of questions and talk intelligently about the business. i like to see our managers in person, and particularly as they get older. we have had a couple that have drifted off into lala land at berkshire. in a couple of cases i didn't know it. so there is nothing like semi-personal contact. and they're the people that own the business around the world,

so we'll give it a shot this year and see what happens. >> other than that it's business as usual, though, for the annual meeting? >> it will be business as usual, yeah. >> warren buffett is our special guest. we're fortunate to have him with us for the rest of the program. when we return, much more to come from mr. buffett, including questions from viewers submitted on facebook and instagram. you're watching "squawk box" on cnbc. first in business and worldwide. stick around. a lot more to come this morning.

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his thoughts on the global economy. oil. >> overall it's good for an oil-importing country, which we are. >> china. and investing in turbulent markets. >> you can't predict what stocks will do. in the short run. but you can predict that american business will do well over time. >> warren buffett answers the question that matter most to your money, as the second hour of "squawk box" begins right now. ♪ ♪ good morning, everybody, and welcome back to "squawk box" here on cnbc. first in business worldwide. i'm rebecca quick along with joe kernen and andrew ross sorkin. who are back in new york city. i'm in omaha, nebraska, this morning with warren buffett, the chairman and ceo of berkshire hathaway. warren is answering your

questions this morning. keep them coming. first let's head back to new york where joe has a look at the markets this morning. joe, great to see you again. >> good to see you too, becky. hope your -- you feeling better and now you're traveling again? >> i am feeling much better. >> are you? >> feeling much better. blew my nose before descended on the plane. i'm feeling good. >> you got the ear thing with that. chewing gum sometimes helps a little. you have to prepare warren that i'm going to ask him about creighton. there is another xavier-creighton game coming up. the when you get back to me have an answer whether they'll make it in the tournament. futures pointing to a lower opening on wall street. last we saw they were down 90, 60 and now 45. gotten a little bit better. i don't know whether europe is improving or not. oil was down, but not significantly. now it's unchanged. that may be why the market is improving a little.

in fact, brent crude is up a quarter. wti turned up as well. that could portend that we firm up in the stock market. 10-year note. 174, 175. amazing. look at the selloff at the end. i wonder what we see on friday in the jobs report and whether it indicates weakness in the labor market or whether it continues strong. last month wasn't so great given what we saw the previous month. we'll see whether we're getting up to the point where there aren't enough people for a lot of the jobs that are there. then you start thinking about wages and it would be good if they went up. but then again you worry about -- there are those who think inflation is not as quiescent as you might think. >> we'll ask warren his view on that. other headlines at this hour. china's central bank cutting the reserve requirement ratio. the amount of cash the country's banks have to hold. this is an attempt to calm

investors' visitors over the world's second largest economy. alphabet could gain $3.5 billion in new tax benefits if intel wins the international tax dispute with the irs involving share based compensation. 20 companies have said they're monitoring the outcome of that case. this week is chock full of economic data topped by friday's jobs reports. look ag february chicago pmi and january pending home sales. tomorrow we get the ism manufacturing index and february auto sales. wednesday, the february adp report and the feds' beige book. thursday jobless claims and friday the jobs report. let's get back to becky in omaha. warren, before we start on everything else, answer joe's question. do you think creighton will make it? >> i sure hope so. but i'll give joe advanced word

on something that our managers have not heard yet. our employees haven't heard it. some of our directors know about it. but we're going to announce -- we were going to announce it to our managers in about an hour that this year, if you are employed by berkshire hathaway or any of its subsidiaries, tomorrow, on march 1st, you're eligible for the ultimate office bracket contest. any employee of berkshire can put in a bracket. doesn't cost them anything. go to the website we have for it. if they're the one who picks the greatest number of consecutive games correctly as they're played, they will win $100,000. >> it doesn't have to be a perfect bracket? >> no, no. doesn't have to be anything. you go further -- somebody wins. they get $100,000. if they're tied, they split it. after every game we'll report

how many are left in and maybe what company they work for. but, if they make it to the sweet 16. if they go through two bracket tests and they get to the sweet 16 only, they get a million dollars a year for the rest of their life. >> oh! oh! >> this is the ultimate bracket contest. >> i love this! >> they're not required to do anything. >> this is breaking news! this is amazing! >> it is breaking news. our managers don't know about t. it's to go out -- we were going to send it out in an hour or so. >> warren, can't a couple other people get in on this? becky -- i mean, can we -- i'm probably not going to get all 16 right. let me try, though. i'm prepared this year. >> you don't have to get all -- you don't have to get all 63 games right. you only have to get 48 games right for a million a year the rest of your life. >> that's what i mean. just give a special dispensation to let me try. can i be part of it without

being a geico employee? >> or hire us. >> tell you what i'll do. i'll underwrite you personally. >> i think you're safe. >> forget about berkshire hathaway paying. i'll pay you a million dollars a year for the rest of your life. >> are you suggesting joe will choke? >> you can't check with watson. you have to do this independently. >> becky beat me so badly last year. your money is safe, warren. believe me, you usually know in advance when your money is safe. i know that. >> but somebody will win the hundred thousand for sure. >> that's good. >> my assistant's son works for the nebraska furniture mart and so does his girlfriend so they'll have three entries among them. we'll have a lot of fun out of this, particularly as we go through the games. we'll announce how many are alive after each game and when we get down to 100 or something, we'll have how many are from geico and burlington northern. it will be fun.

>> that's awesome. >> last year you did the million-dollar bracket challenge. >> that was two years ago. >> is that what this came out of? >> oh, yeah. i just thought about it. it seemed like it would be a lot of fun. we're closing on the purchase of duracell today. so all the duracell employees tomorrow will be eligible for this. >> wow! that's a lot. that's awesome. warren, while we're wasting time, the only other thing -- >> this is -- >> to ask you. the new geico commercial, how do you do it? you have got 20 of the best commercials. the latest one is tarzan and jane. you have seen jane ask the chimp whether he knows where the waterfall is. you've seen that one. peter pan, greatest all-time commercial. they just do it again and again and again. it's unbelievable. >> well, joe, just remember, the ones you like, those were my ideas.

there are some clunkers in there. that's charlie's. >> there is a couple. but some of them make up for the other ones. okay, becky, back to the markets. i love the ncaa stuff. >> that is breaking news, you're right, joe. warren, let's talk a little bit more about the economy. we touched on this before. for people just tuning in, there have been so many questions. i have heard from more people in the last few months wanting to know your view on the markets that just about any other time you've sat down with us. people are unnerved by what's happening. what do you tell them first of all when they wake up in the morning and see the worst beginning of the year that we've ever seen in stocks? >> well, but that's because we're on some calendar or something. there have been way worse months. go back to october 19th, 1987. what was it, 22% on the dollar in one day or something. you know, the -- people buying and selling -- they basically don't know what day of the week or hour it is or anything like that. they react to news -- they react

to the market itself. the very fact that we talk about the market on bad days and everything may accentuate it. it doesn't make any difference. if i owned a mcdonald's stand in omaha, i wouldn't get a quote on it every day. i would try to make my service the best. i would hope too many competitors didn't move in close to me and i would hope that mcdonald's did great advertising and came up with new products occasionally, and what i would think about is how will this work over five or ten years. will people keep eating hamburgers and like ours. you'd be better off in stocks if you didn't get a quote on them. quotations cause people to do things they wouldn't otherwise. i have a farm. if i got a quote on it every day since i bought it 30 years ago i might have done something dumb. i don't get a quote.

focusing on the prices and what they're doing is a terrible way to invest in businesses. >> you said in the annual letter this year that berkshire hathaway is obviously an interest-rate-sensitive company and consequently, when rates go up, the company will do very well. do you think we'll ever see rates going up again? >> that's -- what's happened with interest rates is extraordinary. you can go back and read everything this gal breath or mccain wrote. paul samuelsson. you won't see a word -- in my view -- anything i've ever seen -- about sustained negative interest rates. we're doing something the world hasn't seen. it does have the effect of making all assets more valuable. interest rates are like gravity in valuations. if interest rates are nothing, values can be infinite. if interest rates are extremely high that's a huge gravitational

pull on values. we had that in the early 1980s. so we've gone into this period -- well, berkshire hathaway is sitting with billions of dollars of euros in an insurance company that we have, in europe, and they will bear a negative rate. i mean, we would be better off if we had a big mattress in europe that we could stick all this stuff in, if i just could find the person i trusted to sleep on the mattress. that's what we'd do. if we have a billion euros at minus 35 basis points that's, you know, on a billion it would be 3.5 million euros a year that it's costing us just to have that. well, that means you don't want to collect your receivables. why would you want to collect your receivables? it goes into a negative -- it distorts everything. now, there's good reason why they're doing it, but nobody has really gone throughen an extend period like this. we do not know how this movie plays out. >> when you start thinking of

potential scenarios, how do you play it out? >> we thought when we started it that it would end fairly soon. and then europe in particular needed further, you know, further jolts in the arm. and they've extended it. we can't get too far away from it. we talked about that a year ago, the problems of this country raising rates while europe was at negative rates and what that might do to the dollar, what it does to trade and what trade does to business. in economics the most important thing to remember, it's important in other areas of life. after anything that happens, if somebody tells you this is going to happen, you have to say, and then what? like in physics or anything else. there is always an "and then what." it's a question i always ask myself. when i say what then after interest rates, i don't know the answer. >> ian shepherd wrote something today where he looks at how quickly wages are rising and

inflation is coming up. he said inflation in particular, if you look at the same average inflation we have seen over the last three months or so, if that continues we'll be hitting the fed's target by october, two years ahead of time from the fed's own predictions. he worries that we are going to be growing rapidly at these points in those particular areas and that the fed is already behind the curve for not raising rates faster. do you think about something like that? >> well, i don't know what -- i don't -- i don't pay attention to what economists say, frankly. think about it. all of these economists, 160 iqs, spend their life studying it. can you name one wealthy economist that made money out of securities? kane tried in the early years to make money on stocks by predicting what business would do. he gave it up and went over to a graham type approach. it's interesting to read his

history. he thought he could by looking at various economic variables create the cycle. he went broke a couple times in doing it. on buying good businesses cheap and concentrating his investments, he did very well. it's an interesting history. if you look at the whole history of them, they don't make a lot of money buying and selling stocks yet people buying and selling stocks listen to them. i have a bit of trouble with that. >> okay. forget i asked that. more from warren in a bit. joe, back over to you. all right. coming up we'll talk politics finally with warren buffett. you saw the one, andrew, candidates shouldn't accept money from weirdo billionaires. >> yes. >> when warren hears that, i wonder if he thinks, oh, those are the other guys, or whether you wonder. i don't know who this guy was talking about. we'll ask which candidate has the best plan for the economy. "squawk box" will be right back.

hey how's it going, hotcakes? hotcakes. this place has hotcakes. so why aren't they selling like hotcakes? with comcast business internet and wifi pro, they could be. just add a customized message to your wifi pro splash page and you'll reach your customers where their eyes are already - on their devices. order up. it's more than just wifi, it can help grow your business. you don't see that every day. introducing wifi pro, wifi that helps grow your business. comcast business. built for business. welcome back to "squawk box," everybody. we're speaking to billionaire investor and berkshire hathaway investor and ceo warren buffett. it's super tuesday eve today. the election has been interesting, to say the least, to watch.

>> right. mud fights. >> what do you think? have you been surprised by the direction things have gone? >> i have been surprised by everything. sure. i have been almost fascinated. i have watched virtually all of the debates and town halls. this has been. i have always been a political junkie to some extent. my dad was in congress. but this is -- this takes the cake. >> when we spoke with you back in september, you were the first person i remember suggesting at the time that you could wind up with a brokered convention. looks a little less likely now because donald trump is doing fairly well. >> tomorrow will be big on that. tomorrow's proportional. then they shift over to winner take all a little later. if the proportional -- if the tally at the end of tomorrow is such that trump has 40% of the delegates that have been picked and they've been -- the others have been assigned proportionally, it could go to

the convention. we'll find out. >> in terms of bernie sanders. last time we spoke you said you admired bernie sanders. charlie has spoken up saying as an intellectual he is a disgrace. he also called him a little nuts. >> what i like will bernie sanders is he says exactly what he believes. he is not tailoring his message week by week. you'll find some of the candidates have shifted around or don't answer the questions. with bernie you know exactly what he thinks and in certain areas i agree with him and in certain areas i would agree with charlie. >> what areas are you talking about? >> he is -- bernie is bothered by certain things i am bothered by, and i would hope other people are. things like the influence of money in politics. i mean, bernie would certainly put citizens united at close to the top of the list that he would like changed.

he is bothered by the fact that in a country with 56,000, a gdp per capita that many are so poor and many of whom are willing and able to work but many are just getting by in this country and he would like to do something about it. it's what he's wanting to do about is is where charlie and are are closer. >> charlie says he is a little nuts. >> i wouldn't use that term myself. i would say bernie has a tendency to demonize institutions and he thinks the solution would be simpler and he would turn the system i think somewhat upside-down. there are parts of it i might agree with him on. in terms of campaign finance i think it should be turned upside-down. but i think we have a marvelous system in terms of delivering more and more of what people

want. we have a golden goose that's laid more golden eggs presumably since the country was started. the most remarkable achievement in the history of the world, what's happened in this country. i do not believe in throwing out the baby with the bath water. >> in your letter this year you took aim at some politicians who have been saying that things aren't going well in this country. you said that things are strong here. is that a shot at thinking we don't need to make america great again? >> america has never been greater. i mean, you can look at where we stand. i mean, if -- it will be greater in the future, but america has never been greater. i mean, this is the best time to be alive in the history of the world. in terms of medicine, transportation, entertainment. you name it. or just in terms of aggregate wealth. the distribution has been more skewed in recent years and it should be skewed to a degree. i would say skewing has been

excessive. as i mentioned in the letter i live in an upper middle class neighborhood, the median income might be $100,000 a year or something like that. and every person in that neighborhood lives better than john d. rockefeller sr. lived at the time i was born. in one man's lifetime, upper middle class neighborhood has evolved to a way of life that's better than the richest man then in what was the best country in the world in 1930 was able to achieve. he had power and prestige and all of that, but in terms of medicine, entertainment, transportation, you name it, my neighbors are better off than he was. so this country works, and it's working now. but it leaves -- it's leaving a lot of people behind that are very good citizens, and we can do more for them, but we don't want to do it in terms of screwing up the golden goose. >> what do you think of donald trump and what do you think of chris christie's support of him?

>> well, my friend charlie says never underestimate the man who overestimates himself. that seems to apply in politics as well as in wall street and other places. i have been amazed at what's happened. but -- in the republican party. i wasn't amazed at all -- what christie did was very predictable. that did not surprise me at all. but trump's popularity has surprised me, but it's among republicans, and i happen to be a fan of hillary's, and i think that she will be the winner in the fall. >> okay. warren there wrapping us right now. we still have a lot of time to get to many more questions and maybe touch back on some of this as well. in the meantime, andrew, back to you. thank you, becky. a unicorn warning from bill gates. that story after the break. plus, much more from warren buffett. futures, red arrows and

marginally better daow. "squawk box" returns in a moment. at mfs investment management, we believe in the power of active management. by debating our research to find the best investments. by looking at global and local insights to benefit from different points of view. and by consistently breaking apart risk to focus on long-term value. we actively manage with expertise and conviction. so you can invest with more certainty. mfs. that's the power of active management.

war . welcome back to "squawk box" right here on cnbc. more from warren buffett in a couple of minutes.

first, the headlines this morning. the first, a unicorn warning. bill gates issuing a warn to silicon valley investors telling the fte he predicts the ev evaluations will fall. throwing money at any tech company will no longer equal returns. becky is standing by with warren buffett. we'll talk american express. dow chemical and coke. "squawk box" is back in a moment. opportunities aren't always obvious. sometimes they just drop in. cme group can help you navigate risks and capture opportunities. we enable you to reach global markets and drive forward with broader possibilities.

cme group: how the world advances. something we'll show you.. through small things. big things.

and spur of the moment things. sheraton. ♪ you're watching cnbc. volatility in the tech volatility in the tech when you're on hold, your business is on hold. that's why comcast business doesn't leave you there. when you call,

a small business expert will answer you in about 30 seconds. no annoying hold music. just a real person, real fast. whenever you need them. great, that's what i said. so your business can get back to business. sounds like my ride's ready. don't get stuck on hold. reach an expert fast. comcast business. built for business. we were down 90. for a while. down only about 30. last i saw we were somewhere in the middle. 43. 41 right now. oil rebounded a little bit from where it was. it's now actually positive. it was never down a lot today, but as you can see, wti now at

32.88. the european markets were quite weak early on. they have improved. germany continues to be down a percentage point. france is basically just down less than .1%. the ftse is down less than a third of a percent. among the stories front and center. starbucks set to open its first store in italy next year. the ceo announced the coffee chain will expand to milan and other italian cities in 2017. he acknowledged the high standard for coffee. saying the company will enter the country with humility and respect. >> we'll see if italians take to starbucks the way the rest of the world has. >> i think it was a soprano's episode where paulie is really mad when they're in a place getting espresso or cappuccino or something and what they're charging for it and how this was a uniquely italian thing.

i just saw it recently because we're watching it again. you should enter -- i would say that's good advice. enter italy with humility and respect if you're going to show them how to brew coffee. that's a funny story. talking about humility. let's see how customers react to this. disney hoping to use ticket prices now to ease traffic problems in its parks. call it surge pricing. the company has rolled out a surge pricing offer for single-day tickets in both its california and orlando parks. prices will now be split into three levels. what's called value, regular and peak, based on projected traffic. if you go during the holiday season, during the summer when school is off. all considered peak. then some regular. only affecting people buying one-day tickets, not the annual pass or longer sets of tickets. and we also have your oscar recap this morning. biggest awards show of the night.

best picture went to "spotlight," the film about "the boston globe's" investigation into the catholic priest abuse scandal. also won best original screenplay. joe has been talking about how he enjoys that picture. in the best actor category, leonardo dicaprio honored for his performance in "the revenant." it was his first academy award win after six nominations. back to omaha. rebecca quick is joined by warren buffett. was warren watching the oscars and did he root for a particular picture this year? >> warren? >> we have an abc station in miami that we own, wplg. i was rooting for a big audience. i did not watch the oscars, no. >> one of the guys who won best screenplay told candidates not to accept any money from weirdo billionaires. i was wondering if you -- did you give hillary any money this time around?

>> yeah, but -- that -- you learn the logic, you can't do the reverse of that. you can't say because i gave money i'm a weirdo billionaire. >> so warren, the hollywood reporter wrote the story. i knew you were on today. i didn't think of you because i don't think you're a weirdo necessarily. so they picked out three weirdo billionaires. here they were. koch brothers, ken lang don. who was the last one. >> they called ken a weirdo? >> they picked out three republicans, obviously. they weren't talking about warren or tom steyer or george so soros. by definition, they were on the right. >> there is no way ken is a

weirdo. i didn't get the third one. >> i agree. i agree. i just -- when i read it i was thinking, i wonder if your ears were burning when i read that. that was what i was going to ask you. >> ken is a terrific guy. i know him personally. >> he is. >> we love him too. >> he is on wednesday. >> warren -- is he? good. i haven't seen him in a while. warren, let's talk more about the letter and some of the things that you wrote about. you took a lot of time and space in the letter to tackle the differences between berkshire hathaway's operating style and 3g's operating style. george, you've partnered on several deals. you said, you buy good businesses with good managers and you like the way they're running. 3g buys businesses where they can go in, make cuts and try to improve the way a business is running. you also say you would never do a hostile deal. it's fine to lay out the differences.

what do you think about the different style which has been criticized heavily in the past, the private equity version of coming in and laying off a lot of people. >> i think every business should be run as efficiently as possible. some are and some aren't. we try to buy the ones that are. we don't think there is a thing that needs doing at precision cash parts that would make it more efficient. we think berkshire headquarters are efficient. we have 25 people there, the same 25 as a year ago. i believe enormously in efficiency. it's the only way living improves is to get more output per unit of input. we did everything the same as we did in 1790 we would be living like we did in 1790. the whole goal -- you try -- obviously manufacturing it's easy to measure how many cars you get per man hour. it's more difficult if you're looking at medicine or teaching or something of that sort. but the goal of the society

should be to get more output per unit of input. and some companies are extremely efficient now, and we try to buy those, because we don't think we can bring it to them. and jorge and his associates look at companies where there is a lot to be done to make them for efficient, and once they are, you have a more efficient economy. you are trying to free up people. i use the example in the annual report of farm labor. we had 40% of the people working on the farm in 1900. if we had 40% now, about 150 million plus work force, we have to 60 million. those people would not be producing, you know, at apple and things like that things we want. efficiency should be the goal whether it's government, business, you name it. and they're very good at getting inefficient operations working much more efficiently. i wouldn't be good at it. but i'm good at spotting where people are doing it already, and

i'm reasonable good at talking those people into joining berkshire. >> i guess that's my point. when 3g and other private earthquaequity people have laid off people they generate a lot problems. you think this is something that has to be done. >> certainly. you see it in the newspapers industry. very people writing about it have had to get more efficient about it as revenues have declined. probably some were inefficient in some ways before hand because they were so rich at that time. a rich economy can afford a lot of inefficiencies but that doesn't mean it should happen. the more people are properly placed in the proper jobs that fit their talents and you motivate them to do the best jobs they can, the more output you get per capita, the better the country will be. >> andrew, do you have a question? warren, a number of

activists have emailed me over the weekend. interesting note in your letter this year, you seemed after years of being relatively critical of activists you said, to be sure, certain hostile offers are justified. some ceos forget it's shareholders for whom they're working. when is it okay and when is it not and has your view on activism changed? >> it hasn't changed at all. it's the first time i have written about it in this arena. i have talked about it at annual meetings in the past. we do not -- you take the fortune 500. we do not have the 500 best quarterbacks in -- at each one of those teams. in the end, part of the success of our economy will depend on having the right managers running the right businesses. and anytime a business is run by someone that's a 6 when you could have a 9 in there, not only the business suffers, the

whole economy suffers. you need able people, and to the extent you can, the very best people, running businesses. i mean, they deploy these 150 million workers we have and determine how efficient they are. so i have been a director of companies where we've had the wrong person running them. we've owned companies where we've had the wrong person running them. and i do not believe that, in dilly dallying around about making changes on that. sometimes i have been too slow myself, and i've seen the problems in widely-held corporations. i have seen the problems of getting rid of somebody who is a perfectly nice person, probably helped select you to become a director, treats his family well, treats his directors well, but he is just not doing as good a job as somebody else can do. that hurts not only that company. it actually hurts all of america. so i have always felt that way. it doesn't mean i want to do that job myself.

i mean. you know, at 85 i am not around to going -- it's easier just to buy companies that are already well run. it makes my job so much easier. but the problem exists out there that certain companies are not well run, and sometimes the directors don't do anything about it and then you need somebody stir things up. >> warren, let's talk about a company that has been stirred up recently, and that's dow chemical. you own $3 billion of preferred shares that wpay 8.5% annually. there is the option of the company to go ahead and convert those back to common shares if the stock price stayed above $53 and change -- >> you and i are probably the only ones that know that aside from dow chemical. >> the company has been trading higher because of the merger that's been pushed through. >> it traded higher for a couple of days and then actually it traded lower. >> if the company were to hit that threshold and decide to go

ahead and convert the shares to common, which they probably would just because of the 8.5% that they're paying on it, would you keep the stock? >> well, the company would like the stock to sell at a level to force them to force conversion. that's perfectly sensible. i would want the same thing were i in their position. if it -- we are unlikely to be an owner of the common. >> because? >> because we bought a preferred that we liked. and we did not buy the common. we have not bought the common ever since. so there are other stocks that we would like better as a common stock. so we -- we like the preferred, 8.5% preferred we like. someday it will get to a level that -- where they can force conversion. and they undoubtedly will. and then the question is, would i rather own dow chemical or maybe dupont dow chemical at that time. would i rather own that than any other stock. if that were the case, i would have been buying it already.

>> if that's the case, is it because of the changes that are coming? andrew liver wasn't be with the company. >> we've never owned much in the way of chemical businesses. look at the history of berkshire, i can't even hardly recall -- i don't think i can recall a chemical stock we owned. i don't think i have a fix on that business. >> i think of -- >> it's a specialized chemical. if you look at all the big chemical companies, we really haven't owned them. >> in terms of what happened there, is that a situation where you think the activists were warranted in getting involved? >> well, i don't know about whether they were warranted there. but there are certainly situations -- it's very tough to tell. dupont, we'll find out whether people can run it better than it was being run before.

but the record is very mixed on that. sometimes -- sometimes the activists come in or bring in somebody that does a much improved job, and sometimes they screw it up. >> okay. >> warren, we'll continue this conversation. in the meantime, joe, back over your direction. >> thanks, becky. coming up, warren will talk about some of his top holdings including american express and coca cola. "squawk box" will be right back.

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frito-lay is a fabulous business. i would love to own it. i eat frito's, cheetos. i eat mun chos, which are hard to find. i always drink coca cola with them. >> that was warren talking salty snacks and soda. bringing us back to some of your biggest investments. charlie made comments recently where he said coca cola is still a strong company but not like it used to be. >> well, coca cola continues to sell more drinks, wider portfolio than they used to have many years ago. more every year than the year before. but the growth rate in

carbonated soft drinks 20 years ago was a lot greater than it is today. it's still -- it's still very strong. i mean, i think they sell like 1.9 billion eight-ounce servings of some drink every day. and a lot of that is coca cola. it's a very good business but the growth rate has slowed down considerably from where it was we'll say 20 years ago. >> we know that the company just recently announced that it is stepping up the restructuring of the north american operations, trying to push ahead the move to get out of coca cola bottlers. >> yeah. >> is that the right move? >> it's hard to tell. i mean, they bought up the bottling operations five or six years ago with the idea of refranchising them later on. this is part of a plan. they drift -- in 1899, for a dollar, they made a deal with

three guys from chattanooga. the dumbest deal ever made. they gave in perpetuity, the rights in almost the entire united states to these guys for the bottling operation. that led to all kinds of things over time. those fellows made sub-arrangements. working their way out of that started 40 or 50 years ago. my friend don kiel had a big part of the job. he tried to get these things into a more logical arrangement, and they've been working on that for a long time and this is part of a long-term plan to have the most logical distribution system that fits today's retailing. there weren't walmarts and those things around then. now you have big national accounts and it's a different world. it's been expensive and thvery expensive to reconfigure the distribution arrangement. >> was the purchase of coca cola

enterprises the right move back in 2010? >> they probably felt it was the only move to -- but they created cce 20 years earlier, of course. it's been a tough fproblem to align the interests of the bottlers and they call it concentrate manufacturing part of it. and it's different by different countries. it's not an easy puzzle. but they had decided that, to have the united states in particular more logically configured, reinvigorated in terms of the bottling partners. they have a terrific bottler they added in chicago. i know the people. so the score card is not in on it. they paid a lot of money, and they're not going to get back that much money, it doesn't look to me like, in terms of one day re-franchising it. but that's not the key. the real key is how vigorous the system is once put in place and they've accelerated the

timetable for getting it re-f n re-franchis re-franchised. >> the company named a new cfo in august. do you know him. >> i have a dinner coming up with him. >> there is a question from a viewer asking, from shop two friends. will 3g buy coca cola in the next three years. >> i wouldn't say so. coca cola is not for sale. we own 9% of it so -- >> let's turn our attention to american express. another question from a viewer who writes how do you rationalize berkshire's continued investment in american express given its troubles? >> american express started in 1851. they had an express business. you transported goods from the east to the west coast. i think they even chained the

pony express rider to his trunk that he was carrying so that the indians couldn't take the trunk. along came the railroad, and american express adopted to money orders. then the credit card came along in 1950s. they adapted. diner's club looked like they would wipe them off the face of the earth for a time. it's been a business that's had to adapt. but it's been a fundamental business with a terrific operation. when roosevelt closed the banks in 1933 traveler's checks were allowed to continue to be used. they substituted for banks for a while. it's been terrific in adapting in a world where you need to adapt quickly. you have card holders spending $16,000 or $17,000 per person against $4,000 or so on visa. it's a very, very strong brand,

but you are going to have all kinds of people coming at you in payments. that won't stop. it will be this thing today and another thing tomorrow. you have paypal, the whole works. i think american express will do fine over time. the costco -- the costco arrangement was a big deal, but the proprietary cards stay as strong as ever and keep growing. i like it fine. there is no question it will have an abundance of competition. >> the company is going through a restructuring as well. american express. and people have been told to warn that you could have up and down quarters as you go through this as they spend more on marketing to bring more people in, more members into the cards. you're prepared to ride that out? >> well, sure. i rode out the salad oil scandal in the '60s. they bought fireman's fund insurance. they tried to build a broker's thing. they'll make mistakes. they owned ids and spun it off

at one point. but they have the sense to evolve, and they keep evolving toward their strengths. and, you know, i have a card in my pocket that i got in 1964. it serves my purposes very well, but it doesn't serve everybody's purposes and they'll keep adapting to that. they've come up with lots of new products. so it's competitive. but i like the business. >> of the big four investments, we've talked about already american express, coca cola, ibm. we've not touched on wells fargo. >> the biggest one. >> and the best performing stock, looking at the four over the last year or so. talk a little bit about wells fargo. >> it's a terrific operation. john has done a great job. i keep trying to -- he is talking about retiring at 65 and i'm going to go out and have a hunger strike at the directors' meeting if they do that. he has done a fabulous job.

wells, it's a very big -- it's a company that makes $20 billion a year, plus, after tax. and it's in i don't know how many households. but it's a very well run bank. it -- when the crisis hit, you know, it took over what i think was then the fourth largest bank, wachovia. the government didn't have to come up with a penny. stockholders bought more stock. but wells was there to take over wachovia at a time when the world was falling apart. didn't have to go to the federal government. you mentioned bank of america in the annual letter. not one of your big four holdings, although you mentioned, if converted it would be your fourth largest equity investment. >> bank of america -- brian moynihan has done a great job. he inherited a bad hand.

when merrill lynch was acquired on that sunday around $30 a share, ryan reed took on a tough problem. he had all these mortgage problems inherited from the past. he had the government mad at him and a bit of the populace mad at him. we have the warrants that expire in a few years and i think it's very likely that we exercise th and remain a large shareholder. i think we own 70% of the company or something like that. i think that will happen. >> we'll continue our conversation with warren buffett. when we come back we'll get his advice for tim cook. buffett is a big rail fan, at the owner of burlington northern, what does buffett think of the oil glut.

stick around, this special edition of "squawk box" will be right back.

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warren's annual letter to shareholders is out. we have a special one on one

interview with the oracle of omaha. >> we would be better off if we had a big mattress in europe to stick all the stuff in. if i could find the person i trusted to sleep on the mattress. >> oil. >> very tough things happened to the economy fairly quickly, and the benefit just keep flowing through slowly. >> and investing in turbulent markets. >> american business will do fine over time. if you own a piece of it, and if you don't beat yourself -- the only person that can cause you to get a bad result in stocks is yourself. >> warren buffett answers the questions that matter most to your money as the final hour of "squawk box" begins right now. welcome back to "squawk box" here in cnbc. first in business worldwide. i'm joe kernen along with andrew ross sorkin. rebecca quick is live in omaha

with berkshire hathaway ceo warren buffett. first, let's get you up to speed on other top stories. down 45 points in u.s. markets after two very good weeks. we are a little bit lower, indicated this morning down 42. 43 on the dow. down 6 or so, just under 6 on s&p. 20 or so on the nasdaq. we flipped the board. what's happening in europe. germany the weakest over there as you hear more and more pushback against angela merkel and what's happening over there. immigration a global issue now that everyone is talking about, especially with what's happening in syria. i don't know. what's the latest on the ceasefire? still in force, andrew? >> i think so. anybody's -- >> need to check on an hourly basis, i guess. we'll keep our fingers crossed. the other top stories. china's central bank cutting the reserve requirement ratio.

that's the amount of cash the country's banks have to hold. this is an attempt to calm investor jitters over the world's second largest economy. on the economic agenda in the united states this week, we have a lot to talk about. jobs, jobs and jobs. wednesday we'll get the february adp report. on friday the all-important jobs report itself. we're watching gold this morning. it's on track for its best month in four years as investors seek a save haven. at 1,132. >> back to becky in omaha with our special guest, warren buffett, who traditionally doesn't like gold. becky. >> warren, would you like to expound on that? >> last time he asked me about gold three or four years ago it was at 1800. i said i didn't think much of it. so far i've been right. >> a lot of questions have come

in from people wanting to know your thoughts on apple and the department of justice. one of the questions is from nick saying in regard to the fbi versus apple what would you do in a similar situation knowing that the value of your company could be affected? >> i want to establish my credentials. this is my phone. i don't know anything about tech, obviously. but my feeling generally -- and i don't know the -- i don't know the specifics of the pleading to the judge that decided it or anything of the sort. i do think that we live in a very, very dangerous world. and there i'm thinking about the mass attacks type thing we could have in cyber or nuclear, chemical, biological. certainly, if you were in the early days of september 2001 and you were receiving credible information that something major was happening and you had reason

to believe that it might be connected with certain people, i think in that case security trumps privacy. on the other hand, i think if you have people who are just fishing around on smaller type things and low probabilities of finding things or anything like that, i think privacy trumps security. in the end, if there is something major, something that the attorney general or head of the fbi would be willing to sign and go to a judge on and say, we need this information and we need it now, i would be willing to trust that official to behave in a proper manner. i wouldn't want that broadly distributed. i wouldn't want every magistrate feel he had to respond immediately to some local cop or whatever it may be on a matter of privacy or another. but i do think that the world is very, very dangerous, and i think that anything that enables

us to minimize the danger of something that's really threatening -- i mean, take the anthrax of 2001. if -- if it were apparent that you could determine the area from which that anthrax came, i would want to know about everybody who had access to it immediately. i wouldn't know when they would start putting it in something more dangerous. >> on apple's point, tim cook's side of things, he says this is basically the government ordering them to write code. i am not a technologist either. i don't understand that necessarily. >> see, i don't either. i admire tim cook enormously. i respect him as much as any ceo in the country. i would say that. if we had probable cause and where the attorney general, the

fbi, the president thought that there was a dirty bomb in new york or something of the sort and apple could help us or berkshire hathaway -- we've been asked to help on certain things. if we -- if they were asked to help, i would think they would want to do it immediately. incidentally, i think tim cook probably would. the problem is he doesn't want to open it up to where everybody can crack your phone or my phone and learn a whole bunch of things that really are irrelevant to national security but may help somebody in some other way. so you have to have some -- privacy has its limits, and the national security has its limits in the other direction. you can't call everything national security. >> andrew, you have a question on this too? >> i had a couple. warren piqued my interest. you mentioned the government has asked berkshire prior for certain information. what kind of information was that? >> well, i would say this.

i think almost every large company over a period of years has been asked to help in some way in terms of law enforcement. and when they're asked, they are also -- that's preceded by an agreement not to talk about it, and i think that's quite proper. i mean, there are things -- you could be privy, certain companies could be privy to something that would be useful, you know, if there were a dirty bomb in new york or something that was scheduled to go off, you might be very interested in building maintenance or something of that sort. so i -- i know that many large companies have been asked very -- it's not been willy nilly. nobody is doing it just to pry or anything like that. there has been a reason for it. and i think that almost any large company would cooperate. i think, frankly, apple would

cooperate if it was a targeted sort of thing where they felt it was very important to national security. but i don't think they want to give away -- they don't want to unlock millions of phones out there where people will just be prying. >> warren, i think one of the issues for tim cook in particular about the code is it would be the equivalent of the government asking you to manufacture a product, if you will, that you currently don't manufacture on a product that you don't want to manufacture. if the government came to you under those circumstances, how would you feel? >> i would say, if it was important enough to national security, we would try to cooperate. and i think -- listen, i think 99% plus of the fortune 500 would do the same thing. you would have to be convinced it was terribly important and that you had some particular ability or expertise that really could make a difference. but if somebody came to me and

said, you know, you have some power plants and you've got a lot of plutonium there, would you mind selling us some. the fellow looked like he came from north korea. i think i would be quite cooperative with the u.s. government. >> warren, just to put one fine point on it, because i think this makes is slightly more complicated and this is one of the reasons tim cook feels the way he does beyond generally feeling this way on the privacy count, which is the impact on his business, which is to say, unlike other businesses, if the government came to you privately -- in this case it's now very public -- that the larger implication from a business standpoint is that, if apple were forced to give up this information, that it might make his business in places like china and elsewhere much more complicated either because he's going to have to abide by their rules or they're going to tell him, you know what, you can't do business here. >> that's -- that's a complication. i would say -- i don't know tim real well, but everything i know

about him is he is as high-grade an individual as you can imagine. but you know, the bank -- as a matter of fact, i used to take out my wife like she had the cash. i used to take out $9,000 regularly. the fbi came to see me. my bank gave them that information. i'm not mad at my bank about it. but they cooperate with the u.s. government, and it probably has to do with money laundering and a whole bunch of things. but -- i expect my bank to cooperate with the u.s. government. i expect -- i expect my telephone company to cooperate with the united states government. i think they should be reasonable in determining to what extent they -- where there is really a need to get that sort of thing, but i -- we live in a dangerous world, and if at our railroad we found mysterious

shipments going on or something, i would hope that we would make sure that the proper people in government knew about it. >> i want to know -- i want to know -- what were you doing with the $9,000? warren, and how many times did you do that? what the heck -- it piqued my interest. huh? >> well, i did it once a year. that's what my wife gets to spend on me. >> once a year. okay. i'm just kidding. i did it fairly frequently. i read someplace that -- that the $10,000 was some threshold where they reported it. i thought, why should they report. >> taking $9,000 for walking around money, have we, andrews? >> i use my american express

card to help warren. >> that's why the fbi got suspicion of me. >> you were just under the threshold every time? >> yeah. you weren't supposed to do that. i didn't know that. >> they found out you were spending it on cherry coke, guzzling cases of that. [ laughter ] >> well, those two guys looked pretty serious when they came into the office. i wasn't there but my assistant was there. >> we are almost back to the weirdo billionaire question again. i was wondering where that $9,000 was going. do tell. >> we'll save that for the annual meeting. i have to have some news there. >> andrew? >> i am finished up on my apple questions. i am fascinated by his answer. you talked to bill gates about this at all, warren? >> no. i saw him on charlie rose the other night talking about that.

i have not talked to bill about it. it's a very, very tough question because it is a question of degree. if i really want to know -- if we can crack the 19 guys and find some conversations when they're planning on how to take over a bunch of airplanes, i would like access to that information and i wouldn't have to go all the way up to the supreme court while it was playing out. on the other hand, the idea of government just prying and, you know, using it -- well, we had that case with j. edgar hoover, you know. so it's a tough question. it's easy to answer the extremes and it's hard to know where to cut it in the middle. >> okay. >> i think -- my guess is tim cook -- i mean, you know, he cares about the same things as every american cares about in terms of the safety of the country, and he also cares about not letting people get into a product he sold unless they've got a very, very good reason for it. >> okay. warren buffett, we'll come back

to you in just a couple minutes. stay tuned for more questions, some of which have been submitted by you, the viewers. we'll get to those shortly. look at the price of crude. we were talking about oil with warren earlier. wti crude at $32.90. squawk returns with warren buffett in a moment.

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built for business. . welcome back to the special edition of "squawk box." we are live in omaha, nebraska, with warren buffett, the chairman and ceo of berkshire hathaway. we've talked about a lot of issues this morning, but we haven't touched on some of the new investments that came in. i'm thinking of kinder morgan. berkshire, as of the fourth quarter about a $396 million stake. i was a little surprised by that. when we have talked about oil investments in the past you haven't been that enthralled with most of them overall. this was a pipeline investment. >> yeah. i was a little surprised too. we have two fellows who each bought $9 billion for us. i look at the holdings once a month. they don't have to check with me about -- they don't at all. so they run two portfolios. they get paid based on how the

portfolios behave. i have never told them to buy anything or sell anything. so that was the decision of one of those two. >> was it todd or ted? >> well, i don't think i'll tell as to which one is doing what. but they -- i think when you see a position of that size, it's probably theirs. because i am not going to do anything, in all likelihood, that doesn't involve at least potentially involve a few billion. so -- now, that could have been the start of something and i was going to buy more but that's not the case with kinder morgan. >> you were involved, though, in the additional purchases of phillips 66. >> right. yeah. >> at this point -- >> when it gets up into the billions. that's me. >> what is it that you like about phillips 66? >> i won't get into the business of counting stocks, but i --

obviously i like the business or i wouldn't have bought it. i am not recommending anything to anybody else. >> okay. >> it is important -- some people say that is a reflection of how i feel about oil. oil refining is much different than oil production. they are two entirely different businesses. they have a little connection in a certain way, but a decision on oil refining or a decision on going in the oil production business, they're night and day. >> because? >> well, because in the oil production business, it all depends upon the price of oil whether you're going to make money in the future. in the refining business it calls on basically what is costs you to buy oil and sell it. you can make just as much with $30 oil or $100 oil. >> you like the spread right now? >> it's not so good right now. it was better last year. what really helps in the oil refining business is when somebody shuts down. for example, the whiting, indiana, refinery, which is a

big one, shut down last year for a while. that helps the spread. oil refining generally operates in the 90-plus percent of capacity operation. so anytime somebody gets knocked out, either -- there's planned outages but there are also unexpected outages. and if you're in the oil refining business, you're hoping that the utilization is very up there in the high 90s. >> there has been a battle in the energy field in which bloomberg businessweek put you on the cover with elon musk. the two of you battling and fighting over this, him with solar city and you with nevada energy. saying that this is a situation where billionaires are fighting over this and it generated a lot of questions from viewers. i'll give you one that came up. says why is your company nevada energy trying so hard so stop people from converting to solar

power in las vegas? similar question from mike wood. berkshire has been a leader in solar investment. why are you preventing or deterring that metering in nevada? explain that to people? >> we don't have a problem with the meters. we're the leading in renewables in the company among regulated utilities. the thing is, we do not want our million-plus customers that do not have solar to be buying solar at 10.5 cents when we can turn it out for them at 4.5 cents or buy it at that. we do not want the non-solar customers, of whom there are over a million, to subsidize the 17,000 solar customers. solar customers are subsidized through the federal government as we are with our wind and solar operations ourselves. the reason that society believes in subsidizing solar and wind is because of damages to society that may result over decades from carbon emissions. and society has an interest in it. and subsidized by the federal

government, society is, in effect, paying for it. people who benefit the whole country. in nevada they had an arrangement for a very limited number of people, and the public utility commission decides this. an arrangement where the utility had to pay way above market for solar produced by the 17,000 homes, and that -- >> for instance, if i have solar electricity that i'm producing and it's more than i need, i can tell it back to you, the utility. >> at 10.5 cents when we can sell it or make it ourselves for 4.5 cents. the public utility commission decided that was unfair to the million-plus people who didn't have solar and they said it's fine to sell it back but sell it back at market price. >> the bloomberg businessweek cover put it, again, at a battle

between billionaires with you and elon musk. have you spoken with him? >> elon called me. he was unhappy. he's being subsidized with his battery plant big-time. our other customers are playing more for electricity to subsidize his battery plant. and they were being charged this higher price for electricity. and now we can lower prices a little bit to the non-solar people and the 17,000 can only sell us electricity -- this is being phased in over a few years. but eventually they will only be able to sell to us at market price. >> was elon upset when he called you? >> well, he -- he -- he would like us -- he would like the million people to subsidize the 17,000 just like the rest of nevada is subsidizing his battery plant. >> when you told him that, how did the conversation end? >> it was polite. >> all right. warren will continue the conversation in a minute.

joe, back over to you. coming up, viewer questions for the oracle of omaha. we'll have more from warren buffett next. here is a look back at a moment from the "squawk box" "ask warren" show four or five years ago in 2011 when we asked warren about gold. >> you have a question, karl? >> i am trying to get the image of warren fondling a giant block of gold in my mind. >> fondling it occasionally is what stuck with me. >> maybe a giant block of gold and you'll see me fondle like you never have before. buy me a and you'll see me fondle like you never have before. need to hire fast?

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welcome back to "squawk box." time for a check on the markets. u.s. equity futures down all morning long. down to about 35. dow down four. s&p, the nasdaq off about 12. all those are improved levels from earlier today. that's one of the reasons, because the early selloff in oil, which was never severe. but wti was down earlier. it's now up along with brent crude. andrew. okay. let's tell you about some correspondent ne corporate news. disney rolling out what's being

described as surge pricing. think of uber for single-day tickets in both its california and orlando parks. prices will now be split into three levels. you can get what's called value, the lowest price. regular and peak, based on projected traffic. it's important to note this is just for one-day tickets. it doesn't affect multi-day tickets or annual passes. we'll get back to becky quick in omaha with our special guest for the morning, warren buffett. becky. >> andrew, thank you very much. we've talked about a lot of what you laid out in the annual letter, there are still areas we haven't gotten to. one of those is a significant chunk of space you took up defending clayton homes, your mobile home producer. the company has been under attack. a series of articles some in connection with buzzfeed. the most recent charges, you don't directly take on some of the charges that they brought up. one of them is that you charged

minorities higher rates than white people for sales of mobile homes. what do you say to that? >> that's not true. there are a variety of factors that enter into the rate charged. the average rate was about 8.8% last year. these are smaller loans. they are not quarter million dollar loans. they're $60,000 loans. they're made to lower fico people. it depends on your down payment. it depends on your fico score. it depends on your earnings. it depends on the percent of your earnings going to housing. it depends on whether you own the land. there's a whole variety of items. they're all -- they're placed through something that has nothing to do with your religion or, you know, your color or anything of the sort. and if you have a lower down

payment, on average, you'll pay a somewhat higher rate than if you have a higher down payment. if you have land you'll pay a lower rate than if you don't have land. >> the land is the collateral? >> the land becomes part of the collateral for the loan. if you have a higher percentage of your income going to mortgage payments, you'll pay a little more. and similarly, the other way around. if you have a high one, you'll pay less. so there is a range of rates. it's not a huge range, but there is a range of rates depending on your credit worthiness. we are lending to people who are lower-income, on average. these people would not have a home otherwise. at the end of the year, 95.95% of borrowers from current on their payments. and will have a home that cost $78,000 installed but you have to have the land.

i guarantee you'll think that's a very decent -- those are very decent living quarters for that sum. we're taking care of a lot of people that would not otherwise have a chance for home ownership. >> you went through specifically, the seattle "times" went through specifically and made charges where they looked at specific cases where they say people were lied to, on tape, about whether or not there were other available lenders. situations like that. have you looked into any of that? >> we have a copy in the annual report of a one-page item listing available lenders. it says go to more than one. we don't make all the loans that are taken on a house. the local bank often makes them. sometimes local banks are not keen on making loans on manufactured homes. in every office we have it posted on the wall. it's a one-page thing. big type. they sign it. now, does that mean that every single transaction gets handled perfectly, no. we have 330,000 employees at

berkshire hathaway. i guarantee you somebody is doing something they shouldn't do today. in terms of the tone at the top and the instructions -- and i should point out, in the last two years we have had 65 examinations, including examinations from 25 different states, and federal, and the total amount of fines we've paid is $38,000 or something like that, and we made some refunds of $700,000. but we've got 300,000 loans, we're constantly examined by all the states in which we do business and by the federal government. and if you look at our record compared to most lenders, i think it's pretty darn good. >> joe? >> thanks, beck. hey, warren, i love when you talk about how everyone in your neighborhood lives better than john d. rockefeller on -- on $100,000 and we're going to keep

getti getting better and better. you saw the google robot running through the trees last week and falling and getting back up. we hear manual labor will eventually be replaced by robots. we made it through -- there is no more really ditch-digging. we have earth-moving equipment. you looked at the way we do agriculture now. we've managed to find a way to employ people as we've gotten better through technology at all of these things. my buddy andrew -- he has me worrying about this finally. the population of the world keeps growing. throw in artificial intelligence where who knows, maybe it won't just be manual labor. maybe it will be average brain-intensive stuff done by machines too. are you sure that we can keep up, giving everyone a job, when technology is doing so much? is it still a reason to be optimistic about the future? >> well, joe, wouldn't it be wonderful if someday we got to

the point where there were robots everyplace, they were running farms, they were running apple, they were running berkshire hathaway and all you had to do was one person could punch a button at the start of every morning and all the goods and services that we're getting now would be turned out by robots or whatever and we'd have the goods. 18 million cars, a million and one housing starts, we'd have all the ipads being sold. if it all came from one person pushing a button, would that be a tragedy? instead of working 35 hours a week we might work an hour a week or something of the sort. basically the more output you can get from people it frees them up for things. it frees them up to work less. we work less than people did 100 years ago. what we've elected to do is bring down the work week and also have a huge abundance of goods beyond what we had at that

time. i guarantee, if somebody in 1900 when there were 40 million people working and 11 million were on farms and if some president said nine or 11 million of you will be displaced by a bunch of machinery, he probably would have won on an anti-farm machinery ticket. if we get so you can just press a button and everything is produced, that would be nirvana. >> one of the questions that raises -- and i don't suspect this is an issue for the next 20 or 25-year term. it's the issue of are you getting into an issue of redistribution of wealth. what does it say about individual responsibility, capitalism. some people talk about a wage that would be given across the board. i mean, literally that the government would just provide this wage to you. i mean, it sort of raises all sorts of questions the farther

you get out with it. >> andrew, i agree totally with that. as capitalism and the market system get more specialized, it does leave more and more people behind. in 1900, if you go to work on a farm, you could earn something reasonably close to the median income. there was not a huge disparity between one farm worker and another and the wages you could make that way, and compared to what you'd make in a more specialized occupation. as the economy gets more and more specialized, it pushes more and more of the rewards that the market system offers, it pushes those to people with specialized talents and it leaves behind people who have talents that were valued a hundred years ago. there is no question about that. a prosperous society can take care of that. as i point out in the annual report, if we just get 2% a year growth in one generation, there will be $76,000 more of output per family of four in the united

states. $76,000 more gdp per family of four from simply 2% growth. now, it will get -- the market system left alone will produce more and more of that for guys at the top like me, and it will leave a lot of people behind, but we can solve that. we should have a -- we should have a country that works for people who are willing to work. i think an earned income tax credit of improved and expanded is really called for. because we'll have the output. the question is who gets it. we're going to have a whole lot more output. just like we have six times as much output now per capita. real output, as when i was born. if you told my parents in 1930 we'd have six times the output that they had at that time per capita, they would have said, well, everybody is going to be living wonderfully. it hasn't been true because specialization pushes more and more to the top. the very fact of cable tv.

it makes somebody that is the best middle weight it the country worth $40 million or $50 million for a fight. back in the '30s he got what you could get out of 8,000 people maybe in a room. so it really pushes to the people with special talents valued by the market, and it turns out more and more stuff. but absent some intervention by government it will leave all that stuff at the top. and that really, i don't think, is what our country should be about over time. i think there should be enormous differences in results, but i also think that anybody who is willing to work in a country that's getting ever more prosperous should find that that country works for themselves. >> hmm. we had to -- >> if you want a little unearned income, joe, all you have to do is fill that bracket out and get to the sweet 16 and get a million dollars per year for the rest of your life. >> i'm going to take about $9,000 in cash out every week.

i don't know what i'm going to spend it on. if i ever get like you, i just want to touch $9,000 someday. if larry summers is right, it will be in quarters. [ laughing ] >> that will be heavy to carry around. >> try taking -- if you want to get called out by the fbi, take out $9,000 every week. you'll have two new friends. >> i know it. spitzer tried that. let's go. go ahead, becky. you want to take us out of here before i -- go ahead, becky. >> before we get ourselves in trouble. when we come back we have much more from our special guest, warren buffett. right now, as we head to break, look at the u.s. equity futures. they've been under a little pressure this morning, things have evened out quite a bit. dow futures up 7 points. s&p up 1.5. nasdaq flat. stick around. "squawk box" will be right back. or stop to find a bathroom? cialis for daily use is approved to treat

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welcome back, everybody, to this special edition of "squawk box." we want to make sure we get more of our viewers' questions. we'll take more right now. gavin smith wants to know, do you have a view on brexit? should the u.k. leave the european union? >> i think i'll leave that to the british. i hope they stay in, but they have to make their decision, obviously, based on what they think is best for the u.k. >> why do you hope they stay in. >> well, i just think the stability -- i am hoping the

european union works out well and i hope the european monetary union works out well. and i think that it would probably be some downside to u.k. not -- not that they're in the monetary union, but the more europe does learn to work together over time, i mean, i think the european monetary union is flawed, as i have said in the past, but that doesn't mean -- you know, we started out in our own arrangement with 13 states and we had a lot of problems to work through. so i -- you know, it's up to the citizens of the u.k. to figure out what's the best for themselves. my hope is they stay in. >> your hope is they stay in because of stability. what do you think would happen to financial markets if they do vote to pull out? >> i don't -- it won't make any difference to anything berkshire does. if i was assured by cameron that they were going to stay in or leave, it wouldn't change one iota what i am doing in businesses or in stocks. >> okay. another question that came from

from eric dubowski. he says we didn't talk much about negative rates across most of the world. shouldn't we be borrowing and buying? i know we touched on negative rates before. >> well, negative rates affect everybody's behavior. i probably -- well, i know that i paid more for precision cash parts because interest rates are so low than i would have paid if interest rates were 6% or 8%. it absolutely has an effect on my behavior. and for people that use a lot of borrowed money it has a huge effect. so it -- i mean, it is a huge stimulus to borrowing. it's terrible on people that are lending. for somebody that's retired and is always afraid of owning stocks and therefore kept their money in banks, they've gotten killed. you really had the borrowing class getting enormously subsidized by the lending class for these overriding social reasons. but, you know, it's -- really

rearranged the income big-time of a lot of the citizens in the united states. and i never would have thought it would continue this long. but i also thought a year ago it would have to continue if the europeans kept doing what they were doing. it's going to be -- nobody has seen this movie before. and you can go back and read all the great economists and nobody talked about a long period of negative interest rates. >> joe, do you have a question? >> looking at an ft piece, warren. i guess you had, in addition to the clayton homes that you outlined, that kind of a controversy or whatever you want to call it. there are also shareholders mad that you don't have climate change as one of the key risks to berkshire hathaway's insurance business. and they're -- people are taking it depending on not what they believe in, they're using it to put forth one or another opinion. i was to go ask in a different

way. you're very optimistic about the future. i am as well. you know co2 will continue to rise because of china and india for the next 10, 15, 20 years. if you believe the alarmist case, i don't know how you can be quite so optimistic because our ability to deal with it is questionable at this point. >> yeah. well the question is raised. it's a proposition that's put forth on the proxy statement of berkshire by a shareholder. i am sure a very well-intentioned shareholder. this shareholder is worried about the effect of climate change on our insurance business. in the annual report i have gone into it quite extensively. the truth is it's not a risk to our insurance business. in fact, it may well be a plus. but the -- that doesn't mean that it's not a problem for society. but we write our insurance policies one year at a time. we adjust to changes in the world. i mean, there are way more automobiles on the road than

there were 30 years or 50 years ago. well, somebody could have said, if all those automobiles are on the road won't there be more accidents and won't you have more insurance claims to pay? of course. adjust our insurance rates every six months. it's not a threat to the insurance operation. >> i don't even think your premiums have been raised. at this point. and with all we hear about supposedly that it's front and center, that the effects of this are happening as we speak, week in and week out with every adverse weather event, when would you expect to see miami real estate start to weaken? when would you expect to see insurance rates start to go up as they invariably must if all these things really are becoming more frequent? why is it not happening? >> well, i think it's -- in terms of insurance rates, i think it's probably a long way off. if i'm wrong, we'll change them.

my friend, bill gates -- >> it's supposedly already here. it's supposedly already here. >> yeah. and -- pardon me? >> a lot of the adverse weather events we see now are tied to it already. supposedly it's front and center right now if you believe the true alarmists. >> well, it has not caused a change in insured losses that is any way different than i would expect if there were no talk about it. it may well in 20 years or 30 years, i don't know. the one thing i can tell you, it hasn't caused it now. rates are down. and the reason we're not writing catastrophe insurance at berkshire hathaway is because rates have gone down for catastrophe insurance. florida has gone longer without a hurricane hitting land than any time since the early 1800s. >> i know. >> it just is not an insurance

risk. >> that's one of the benefits of having you on every year. i remember our conversation after that year when there were -- you remember, we had to go to the greek alphabet because we ran out of named storms that one year. you were, like, i can see your -- you knew rates were going to be up, but you knew the probability was there wouldn't be that many hurricanes the next year. as it turned out, it's been longest period in history without a category 3 making landfall and you've been raking in the premiums. >> you've got a future with us as an insurance underwriter. you understand -- you understand that if two 12s come up in a row, it doesn't mean the chances of a 12 coming up have changed from 1 in 36. >> you knew. you knew. despite bill nye, you knew. thanks.

we'll come back to warren in a minute. a lot more questions for him. tomorrow, of course, super tuesday. voters in a dozen states will go to the polls. we'll tell you what to expect when results come rolling in starting tomorrow at 6:00 a.m. eastern time. back in a moment with warren buffett. i'm here at the td ameritrade trader offices. steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and lets you visualize that information for any options series. okay, cool.

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>> welcome back. we are live with warren buffett from omaha, nebraska this morning. warren, joe was asking about why climate change wasn't in the risk factors. that was an interesting thing you put in the letter this time, risk factors, that you don't normally laid out. one of the risks was an issue how driverless cars could have an adverse impact on both geico and on your auto companies. you know, you think through how you get around that. if driverless cars are driving everybody around what would you do? >> the only way they'll be driving everybody around is if they're regarded as a lot safer. we'll find that out as we go along. >> there's been faster advances in this than i would have expected a few years ago. >> i would say that. but if you asked me to take the over/under on 2030, what percent of the cars on the road in the

united states are driverless, i would take under on 10%. i may be wrong. there's longbets.com, you can make a bet on that. i can take under 10%. i may be wrong. there's no question, if you have 50% driverless cars or 75% driverless cars, the premium -- auto premium buying would be far less and probably the dealership arrangements in the united states would be changed in some way that's hard to predict. >> i understand the geico issue, the dealerships, people would still need cars. >> well, i think -- well, we'll see. maybe. driverless cars would seem to me to be appealing on things much more than style. that sort of thing. i think it would become a more homogenius product. i may be wrong.

but that's my impression. >> i have a couple quotes. someone tweeted don't take vacations, what's the point? if you're not enjoying your work, you're in the wrong job. it sounds like something you might say. but it's something that donald trump tweeted. >> i don't know if he feels like he's in the wrong job now or not. i absolutely -- i had students last week, 160 of them from harvard, south dakota state. i tell them try to find your passion. may not find it the first time, don't sleepwalk through life. find something you can enjoy doing. not everybody is able to find that. to make $10 a week more doing something you don't feel good about compared to something you feel good about, make the change. >> you said you watched bill gates on charlie rose last week. he said something interesting. the thing you do obsessively between able 13 and 18, that's the thing you have the most chance of being world class at.

>> yeah. >> bill said his one thing was coding. what was yours? >> i was interested in investments. bill and i, his father, many years ago, right after we met, had a group of 20 write down on a sheet of paper one word that they thought accounted for their success. one guy didn't know what other was writing. we both wrote down the same word, focus. he was focused on software. i was focused on investments. it gave me a big advantage to start very young. no question about it. >> warren, thank you very much for your time today. appreciate having you. >> thanks for having me. >> joe and andrew, i'll send it back to i guys. >> me and andrew both looked at each other and said that's absolutely true, right? we got really, really -- that's absolutely true. what we did between 13 and 18, we got so f'ing good at that, didn't we. >> i don't know what you're talking about.

>> i read that quote, i started laughing. i looked over at and dru. >> i don't know what this gentleman is talking about. >> come to berkshire's annual meeting and confess. >> like a gold medalist. we can win the gold. thank you. >> i'm glad you were listening, joe. >> make sure you join us -- >> great to be with you. >> "squawk on the street" is next. ♪ >> only joe can get away with that what a great show, guys. good monday morning, welcome to "squawk on the street," i'm carl quintanilla with jim cramer, david faber at the new york stock exchange. closing out the month of february with a leap day. and a busy week ahead. super tuesday, auto sales, adp, jobs number. we'll get you set up. futures relatively steady. eurozone cp