live from new york where business never sleeps, this is "squawk box. good morning, and welcome to "squawk box" here on cnbc. live from the nasdaq market site in times square. i'm joe kernin, becky, you just saw live in omaha with -- oh, with warren buffett. okay all right. i got it we'll get back to her in just a minute, though i misunderstood. so, that's why -- that's why you're out there three hours with -- >> that's why i'm here >> excellent, excellent. how many -- we got to get -- i've got to look how many questions do you have from our viewers, do you think, becky? >> a lot >> everybody should get in >> and i have to say, the questions are really good this year people have gone through it's not just like what's your favorite stock tell me which stock to buy 58,000 variations of the same question a lot of other things happening here too

questions are good a lot going on >> all right the markets are crazy, becky what was that, 350 on friday, when it was all said and done. and strongly higher again this morning. almost 200 and also -- well, we'll take a quick look here's a check on the markets u.s. equity futures at this hour are, as you can see, 193 points indicated on the dow the nasdaq up another 25 the nasdaq shb dhad been diverg last week. that's a big move that we saw, continuing buying, going on, across the board in this country. and actually in asia and europe, overnight, some strong market action and some interesting news in the ten-year note as well. but as you can see, the nikkei was one more than 1% point 260 points hang seng up sharply as well check out europe, green across the board, in europe, when i

watched, at least looked this morning. not the gains that we're seeing here or in asia. but we'll see what happens this week as we move forward. it's only 6:01 and treasury yields moderating on the ten-year, which that -- you know, i guess it's a double-edged sword, as we get closer to 3%, sometimes, you see a little pressure on the stock market i guess if we don't immediately go there, and if we trade below 290, i don't know if it went below where it now let's say it goes down maybe that becomes -- maybe that lights a fire under the stock market just by not going to 3%. we'll see. anyway, we now know, becky, thats there was quite a bit of margin selling, i guess, going on in that rout, which explains how quickly it moved and how far it moved but we'll get back out to you. and you you can ask warren >> one of the lead stories in

"the wall street journal" today about the margin selling >> yeah. >> i assume he probably doesn't buy -- you know, maybe he does >> never, in fact, he wrote a big part of that in his annual letter to shareholders this year is the dangers of margin investing and using leverage, right, warren? >> uh-huh. >> that would be a yes >> good, we'll talk about that >> hey, warren, my man, creighton -- how are you >> i'm great >> did you see, that was so awesome, that game i'm not a villanova fan. not for nothing. just because xavier -- >> uh-huh. >> i'm not good players absolutely drive me nuts he sticks a dagger in xavier so often. how great, i thought they should have won in regulation i don't know if you saw the game, but, wow, they really came on strong. they got the initial tip

in overtime. right? and then they won, they beat villanova. it was awesome >> joe, we're having our basketball bracket contest for berkshire employees here in a couple weeks and the same prize as last year. but either creighton or nebraska ends up winning the tournament, we're going to double the prize. >> this is breaking news this is what i was looking for >> this is breaking news >> creighton almost -- creighton just barely lost to xavier and they beat villanova. how big is that, coach he looks big but then i saw him with his players he's like 11 feet tall i think. >> yeah. he's got a big son, too. >> he does, too. all right. becky, we got three hours, right? we got three hours >> we do we have plenty of time. >> that was breaking news. doubling -- >> it was. and i'm sure this is going to come at some point

doubling the prize, the bounty >> if creighton or nebraska wins the tournament >> by the way, is joe allowed to play this year >> i will include him. i'll book him personally the company is going to award the prize. if you get through the sweet 16, you get 1 million a year for life which creighton in basketball, it will be $2 million a year for life >> i want a fee, joe, if you win. >> we can do our own bet, warren i'm like a broken record, can we do something with netjets, like private for life >> you can buy your own netjets. >> all right go, go, go start with -- >> let's negotiate >> all right let's get right to the news, with the newsmaker of the morning, berkshire hathaway chairman and ceo warren buffett is with us warren, we're here in omaha, you just put out your annual letters

to shareholders. you sat down with us seven or eight years and let us come out. read your letter, have questions about that and get a chance to talk about it. this is your 53rd -- >> it's the 53rd letter. >> this one was different. you actually broke with the format that you've been doing where you lay out and go to the companies. why did you decide to shake things up in this year >> well, i'm 87, at the end of my second childhood. i just felt we have sort of worn out that format. tlansd was kite a bit of information that i would put in the letter that was repeated in 10k. so, you're right, it's probably 60% or 65% of the previous letter >> which is if somebody who doesn't like change on any level, i'm amazed to see you doing it throwing it out the window let's talk about the business news items at the top of the letter the first is there's a $63.5

billion increase in net worth for the company in 2017. $29 billion of that comes from the tax changes. u.s. government making those tax changes. >> right >> why don't we dig into that? why significant is that? >> two primary items they both reduced a deferred tax liability. we had about $100 billion of unrealized gains and equities. now, when they're sold, you pay tax on that. and previously, when the tax was 35%, we would have had a $35 billion reserve for taxes against that as a liability. that would drop to about $21 billion. so $14 billion, roughly. was a reduction in the amount of tax that when we saw those securities, we will pay. it wasn't cash now but it reduced a liability when you reduce a liability, net worth goes up. and the other important point related to the same thing, the third, income taxes.

when we buy some kind of fixed asset, locomotive or whatever it may be, we're entitled in previous years to 50% depreciation in the first year and let's say it's going to last ten years for me it lasts longer than that to make it easy but you would normally on a book basis depreciate $1 million over the asset over ten years for tax purposes you got to have what they call bonus depreciation and take 50% of it the first year so you'll get the same amount of depreciation over time but you got the tax deduction earlier. and that became a deferred tax we have a lot of that. we've got it in the railroad we've got it in multiple places. the amount that is saved with utility companies goes to the customers. so that was about $6 billion and we set that up as a liability. that will go to the customers. but the amount that related to the normal, the locomotives or

whatever may be we got a reduction. because the depreciation we'll take later on for book purposes will be taxed at 21% instead of 35%. those are the two big items. >> you're not a proponent of pushing through this tax reform but you have to act sensibly about it what it means for american business. it's a ewing tailwind for american business? >> it's a tailwind, particularly if you've got companies with a lot of depreciation, taking bonus depreciation up front. so it's a big item not as many companies have lots of depreciation in market securities but it's a big item for those that do. >> what will it mean for american business overall? as a positive to that what will it move to the economy over the next year or next years? >> it certainly means that corporations will pay a lot less in tax because the ongoing rate is 25%

instead of 35% forget about the changes that apply to the past. when we make money in 2018, domestically and subject to a lot of other -- basically, we'll be paying at 21% instead of 35%. so, that's a lot of money. and you know, we haven't really gotten cash yet. from this. but we will save cash, as we go along. >> joe >> just thinking about some of your comment it's in past, warren, i don't you thought american business was overtaxed. you made that mapoint many, many times. or maybe you were saying if they were taxed less it wouldn't necessarily make it better for them they were doing just fine the way they were with the old tax rate you said that many, many times on the show. i know you think people like you, bill gates and others, the wealthy should pay more. i think you have a stated sort of objective that the government needs more money to do what it

wants to do. in this case, what you just said, is that a positive for the country that berkshire now is going to have more control about where that capital is allocated? rather than the government having control of where that capital is allocated is that a net positive for the country or a net negative for the company, in your view? >> well, it depends whether instead of allocating it to us, they allocate to people on low incomes. if they're going to give a tax cut, the question is who they gave it to and there are all kinds of provisions in that >> i just mean -- >> basically -- >> we're not talking about -- we're talking about berkshire hathaway now gets that instead of the government. do you think that's a net positive that it's kept in the private sector because if you think it's a net negative, you're free to write that check and say i don't like this tax law take the money from berkshire and give it to the low income

people or whatever, you could do that or do you think that -- >> well, joe, we haven't 1 million shareholders i think i'd get sued by 999,000 if that were the case. >> if that wasn't the case, would you do it, if the shareholders would go along with you? i just think it's really good for berkshire, i wonder if you can just agree with me on that >> it's really good for berkshire, there's no question about it >> but society, in general, don't you think you can do great things with the incremental addition -- wouldn't you rather have it than have, you know, people that don't use it as effectively? >> everybody would like to have it the question is whether -- who do you give it to. >> i can't get you on these things but, i think if i read between the lines, i think it's -- i think you like this. i think it's good. and i think that it's not a necessary negative for society

that the private sector gets to compete globally better, however you want to look at it, it's a net positive and if you don't like it, i think you ought to -- just sign that check and send it off what did you say, $29 billion? >> i'd like something, but i don't believe in giving away other people's money >> that's probably an area where you do agree >> all right i think there's times where you recommended giving away other people's money, although it would include you. okay i'm going back to the brackets let me just see here >> if you win the money, joe, you're going to pay a big tax on this you'll wish they cut personal rates a lauot more, believe me. >> talk to becky, we both know about this, don't we, becky. between the agency and -- >> state and local taxes going up for a lot of people

>> yeah. >> i think i'm paying more than you because you take no income i do i think i'm probably paying more than you, i know how you work things >> yeah, i think you're probably paying a higher rate, joe. i don't think you're paying more dollars but a higher rate. >> i don't mind. i'm good >> i'd agree with you on that. no, i do not think we're overtaxed. >> warren, let's talk about another big change you that mentioned in the letter. this is about a accounting change that's going to come. it's going to make tell tougher for individuals to realize what's happening on an actual basis with the company what is that accounting change it's accounting is sounds boring but i think it's important >> well, it is important we will report -- well, we would have reported i don't know how much more, 15 billion or something like that more income last year, than we did understand the ruunder th

rules that have just been adopted. because the accounting requires that we now run gains or losses unrealized, this is as stocks go up and down, run those through the internal account say, we're running a normal business like the railroad and you're interested on how that does on an operating basis but we have $170 billion in stocks they might go up $10 billion in a quarter or down $10 billion. we formally always had that on the balance sheet. now, you're going to see a bottom line net income figure which really has no relevance to outbreaking results. and people will look at the report they'll look at the bottom and it says net income it will be a totally deceptive figure and we're warning people about that >> right you said that you and charlie are going to take pains to explain to people to explain what this means have you talk to

ajeet and abe belle to make sury understand this? >> oh, they would understand people are used to seeing net income and it means nothing. >> is that a berkshire position because you have 170 billion in stocks? >> yeah, it makes us like securities firms goldman sachs had to report that way in the past but they're in the trading business of stocks and bonds going up but we've got an unusual market. but other insurance companies are going to have to do the exact same thing you name it, chubb, or whatever it is they're going to report unrealized gains or losses as net income, against net income, each quarter >> obviously that will fluctuate with the markets going up or down that will have a huge impact on things you also said you got $116

billion in cash at least you did at the end of the year that you'd love to put to work, but when you look around you have a hard time finding values you say prices are decent, but far from spectacular business is at an all-time high. >> that's true >> that mean markets overall is under valued >> no, not necessarily in fact, the market, the stock market, relative to a long-term bond market. people have three choices pretty much if they're going to be some marketable securities. they can own reasonably long-term bonds, they can learn equities or keep it in short-term cash or equivalents and if you had to choose between buying long-term bonds or equities, i would choose equities in a minute now >> you would choose equitieses in a minute. >> it's not like it's going to go up or everything else if i were going to own a 30-year

bond or equities for 30 years, equities would considerably outgrow that bonds i don't know what they're doing in weeks or months, but i've bought it for a long time, and we'll talk more about that later. >> but overall, is berkshire a net buyer or in stocks right now? >> so far this year, we've been a net buyer. we sold a chunk of phillips to get to 3%. >> that's $3.3 billion >> yeah, so, we bought more than that >> right so even with that purchase, you've still been on the buyer >> right >> is that because of the huge spikes in volatility >> no, just because we found stocks that we like. if were buy something, we dent 0 have the slightest idea whether it's going to go up next week, next month or the next minute. but if i like it, we buy it. and we've got $170 becoillion i

stocks there's plenty of stocks we like you have to pay more than the stocks are selling for if you buy them on the public market by some margin. >> all right let's ask a couple questions from viewers one is t60, comes from rich rodgers. he says with $116 billion and growing how confident are you in deploying a large amount of capital that would fit the berkshire mark and at what point would you consider a dividend? >> well, i'm fairly confident we'll find way to deploy money we are deploying money right now. but we'll get a chance as we go along, based on history. it's been a long period now we've been in a bull market. the best chance to deploy is when things are going down, obviously. but if we don't, we'd probably be more likely -- it would depend on the price of the stock entirely the inclination might be more towards repurchasing than

dividends. because dividends have the implied promise that you keep paying them. whereas, repurchase is assuming the price of the stock is such that continuing stockholders benefit from the repurchase, we would probably lean towards repurchase >> would you tell me, you've been very clear about what price you would buy back shares. >> right >> would you change the equation >> you might have to change it a little bit you don't have to change it too much it wouldn't make any sense >> what's the question right now? >> 120%. >> that's when you buy back shares? >> we know we're doing the continuing shareholders a favor if we buy it at that price and that gets increasingly more questionable from there obviously, i need some margin of safety when i do the 120%. and if we were going to pespend lot of money to buy a stock in the future, 127% or something like that we would probably go that direction

>> rather than a dividend. although i'll ask this question for now, and t23, a lot of people came into this very question, why not come up with a one-time dividend, would you pay a one-time special dividend? allen himself says, you like to invest in companies that pay dividends and buy back their stock. but berkshire does not do either why is that? >> well, we'd rather have a stock that is under valued and establishing the dividend, you're not going to eliminate the dividend to repurchase a share. so, a company is paying a dividend, apple, you name it, they're not going to cut their dividend to repurchase shares. and they're probably not going to cut their dividend for a chance for a business change in a dramatic way so, we would do what made the most sense for shareholders. but, you know, i have -- i have pointed out years ago, you can sell a little piece of berkshire

every year and still end up owning more of it. than you had before. so the people that want to create turns, a little bit of what berkshire earns each year into the equivalent of a dividend of cash can do it and they don't force that policy on other people. and we had a vote prompted by some shareholder i never heard of a few years ago some shareholder put on our ballot, he said, let's pay a dividend and let's get this -- and give me the money for it. and pay a dividend we had the vote. and the shareholders 47 to 1, among the b-shareholders, the smaller shareholders, 47 to 1 said don't way us a dividend that was a pretty -- we didn't campaign on it or anything else. the votes just came in >> because they figured you'd do a better job -- did you vote your shares? >> i always vote my shares

the a-shares berkshire, it's been a savings account. i put my money in berkshire. my partners put their money in all of my partners put it in it's a way of saving money over time and the money that's left in there, we invest it. and to the accident thextent thr than more than 120 cents on the dollar, we would have had the same dividend policy if the individuals would be tax-free the whole time >> warren, we're going to continue this conversation but we are going to go to a quick break. when we come back, we'll talk more about some of the individual stocks that berkshire owns that warren didn't comment about in that annual letter. first, though, big news out of china over the weekend as the communist party looks to abolish term limits for its presidents details are straight ahead and "squawk box" will be right back

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it's on all of the front pages of the newspaper today, the announcement sparked some backlash on webo china's answer to twitter but last night, webo began blocking the phrase. chinese investors pounced on the stocks with the word "emperor" in the china ease stocks coming up, we'll get back to warren buffett to omaha. and plus, we'll tell you about events that could move the markets. as we head to break, here's a look at yesterday's, friday's, s&p winners and losers

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welcome back you're watching "squawk box," live from the nasdaq market site in times square. good morning u.s. equities futures sharply higher this morning. we'll see whether we made it up. up to 182 right now on the dow after a 350-point gain on friday the s&p indicated up 12. and the nasdaq also indicated up higher after a 120-plus point gain on friday this week's agenda, today look for january and new home sales

tomorrow, we get durable goods the s&p case-schiller and hpi, and consumer confidence. and powell will deliver this testimony. and then on wednesday, fourth quarter estimate, gdp, chicago pmi, as well as pending home sales. oh, boy, i just saw something. trying to do two things at once here ge news. thursday, we get personal index. ism manufacturing will be thursday and friday, consumer sentiment and stragglers -- not really including macy's, lowe's, kohl's

cap and jcpenney just out from ge, the company is adding three new directors. and thomas horton. this is the one where i said oh, boy, and former financial accounting standards board chairman leslie seidman. is might be sideman. however it's pronounced, becky we'll get back out to becky. i know you must have a book of ge questions for warren buffett today, becky >> there have been plenty of ge questions that come in >> from viewers and from you what do you think of that, a former person who ran the -- yeah, they need someone to come in in that. >> probably not a bad idea at this point >> fasb, a person who ran the

fasb, maybe they can sift through the power systems and the pension issues that are -- who nose >> that's what these things are being rebooked warren's here. >> yeah, warren loved the ceo, gave a huge -- the former ceo. and remember that big sort of -- at a time when ge really needed buffett there, berkshire, in terms of saying that big investment, that helped ge a lot, warren. becky, you can ask all of these questions. i wonder looking back on it, warren, you feel like you were duped by some extent >> no, i don't feel that way my job is to make up my own mind on things. and we're talking that investment was made at the very end of -- or the first days of october of 2008. and ge had been funded with extraordinary amounts of commercial paper and the commercial paper market

ended. and they really had a problem. and there was no question in my mind, that it would be temporary. the government got its act together, and the economic engine got back on the tracks which i'll be sure it would. so, we did buy a $3 billion piece of preferred -- >> and came up with -- it came with a 10% >> it came with a 10% coupon we made some money on it we didn't make as much money on that as we made on our goldman investment >> warren, looking back, there was a time, and having your full confidence, looking back on it, you think that was misplaced do you revise your overall viewpoint of how he led ge over the last tenure? have you looked at that, revisited that and thought, wow, this isn't what it appeared to be, or no? >> well, i keep looking at ge.

i won't comment on -- jack welsh is a very good friend of mine. jeff's a friend of mine. clearly they make mistakes and they made mistakes in long-term care we made mistakes in long-term care and that turned out to be a huge one i will read their 10k when it comes out very carefully it will probably take me all day to do it, but i'll do it the insurance cost them a lot of money. and it's cost a lot of people a lot of money you can make big mistakes. >> sorry, i'm just seeing more stuff here i'm just wondering what -- becky, we're trying to get through all of this stuff that ge said. i don't know whether to go with -- with mark brant, did you see this i don't know what this means that maybe there's going to be -- >> i have not gotten that yet.

>> i think did you >> well, look, we already knew this, that ge was going to restate earnings for 2016 and 2017 for both years >> this was news that was out yesterday. we don't know the extent of it but they're reinstating earnings in large part of how they were booking issues of power. revenue power and things coming through. what would your comment be, not knowing everything >> there's a lot of flexibility, when you're booking either construction of progress or potential service contracts i'll be very interested in what they have to say on that you know, i would say the accounting at ge has not been a model at all in recent years. but you can make mistakes, and something about insurance reserving big time and long-term care has probably

been the biggest single element of misreverting to insurance throughout the industry. and they were in it big time but i was staggered by the amount of it >> by the amount of the most recent issue where they had to call up the reserves to the tune of billions of dollars >> yeah. the question get to be, a canvas debt supervising them. that doesn't happen overnight. so it's interesting to see just exactly the correspondence was between the department and -- ge is a wonderful -- >> how wonderful to the tune of buying how much percentage of the common stock right now? how wonderful are you feeling about it, warren >> no, we haven't bought any stocks >> are you going to? >> in fact, we -- we sold our stock. we had a small amount of stock

that came from the preferred and we sold it -- i know we sold it at 29, whatever that was a while back it was a relatively small investment >> it's on sale today. >> yeah, we did get questions -- 14.58 is the latest. we did get questions from the viewers, one came that asked very specifically, if the company approached you, would you be interested in buying parts of this? there's another question that came in, would you be interested in buying parts of either general electric or siemens, stick lateral particularly that would help you in investments star investor, why not buy a ge or siemens health care unit, this could strengthen the health care of jpmorgan and amazon. >> yeah, we wouldn't buy a health care business to tie it

in with the health care initiative. >> would you buy it simply because of price >> if we liked the business and the price was right and we could write a check for cash, that would apply to ge that have got big businesses, i don't think they're interested in selling. they have small businesses they're interested in selling. we're always in the market for it >> do you understand ge? >> i don't understand the whole place, no. but i think i'd be capable of understanding businesses or managers that we have at berkshire would be able of understanding it they have not approached us about anything, any big business they've got smaller -- go ahea , >> warren, i'm going to let you go, but just for the record, i see this, ge, they're worrying about how to report it the accounting rules, it's not

due to the s.e.c. investigation. it's due to new accounting rules. every company is required to do it so, they're worried that -- >> these -- let me ask, i've been very confused by this and maybe we can patch through some of this those accounting changes that we were just talking about with warren at the top of the program, accounting changes that will affect what you're doing going forward. is that a reason to restate 2016 and 2017 earnings? >> well, just from what you said this morning, i don't know anything about it. obviously, they miscalculated their insurance reserve in a big, big way >> i think that's not related to this -- that is not what we're talking about. >> right >> that is not restating of earnings on these issues because there are things that ge has said on this that we're talking about. >> in process business or amount capitalized of possible earnings

in the future, were put on the books in terms of service contracts or something like that anytime you get extended pieces of business, as you get an aircraft or engine, that sort of thing, there's a lot of flexibility, when you record both cost and revenue. my guess is the s.e.c. is looking at that. i don't know a thing about that it but knew guess is, they're looking at that. i've seen companies and not referring to general electric at at all i've seen much different approaches to contracts that extend over years. and how they treat the first year-units which obviously have a higher cost because you're just getting there >> sure. >> there's a lot of flexibility. and whether you have a conservative or aggressive management can determine the earnings for at least a few years. >> right, right. all right. we have much more with warren we're going to continue to talk about. we want to talk about wells fargo, too

it's an issue that a lot of our viewers wrote in about as well we'll get to that in just a moment also, a big weekend for "black panther" at the box office the movie just did something that only three other movies have done ever we have the details,ig aer is rhtft and the wolf huffed and puffed... like you do sometimes, grandpa? well, when you have copd, it can be hard to breathe. it can be hard to get air out, which can make it hard to get air in. so i talked to my doctor. she said...

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"black panther" joining an elite group at the box office that brought in $108 million in north america over the weekend, making it just the fourth film, to top $100 million in its second week in theaters. the other were "star wars," the force awakens. and "jurassic world" and "the avengers." and according to comscores it hasn't debuts in china and japan but those are the world's two biggest markets. coming up, out to omaha where warren buffett and becky quickie answering questions. here's a check of the world markets right now. sometimes, they just drop in.

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welcome back to "squawk b " box," everybody. we are live in omaha, nebraska with berkshire hathaway's chairman and ceo, warren buffet. he's been answering questions that viewers have sent in. one of the questions that we've gotten was wells fargo there was a question that came in from value mojo what are your current thoughts on wells fargo do you think the market adjustment was justified

what's the impact on wells normalized earnings power? and do you still have confidence in tim sloane? >> yeah, i have confidence in tim sloane but wells did -- goes way back they came up with some terrible incentives, and incentives work in both directions, if you've got the right incentives you do the same thing with your family and all kinds of things they had some incentives that incentive system which incentivized bad behavior. the bad behavior became somewhat contagious apparently in some offices more than others where people put in phony accounts and that sort of thing once they saw their superiors doing it, it sort of picked up but that was a bad problem, but that happens, but what they didn't do was they didn't correct it when they were getting word that effectively these terrible practices were taking place so it gets back to the fact that, you know, same thing that happened in solomon 28 years

ago, management didn't react when they found out that something had gone very much awry and then it just compounds like crazy. >> the company took action, that's why the former ceo, john stump lost his job, but then chairman -- former federal chairman janet yellen weighed in just as she was leaving her office and said, we cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by wells fargo expect that robust and comprehensive reforms will be done. that's a huge rebuke he thinks regulators, it's time for them to let up on wells fargo. what do you think? >> i don't know all the facts on it i do know that in 1991 i was -- became the ceo of a company that

had similarly insulted the federal reserve and if the federal reserve is mad at you because you've flouted them in one way or another, you know, you're in a big, big, big dog house. and digging your way out of it takes time, and you find other things, as i think i said last time, there's never just one cockroach in the kitchen you find other things out. i was always terrified of that at solomons. i didn't know what had happened prior to my stepping into the job. so, you know, you obey your government and if you don't, you can have plenty of consequences and wells fargo is suffering from those they will get through it they're not the consequences of what tim sloane did. he's been working like crazy, trying to clean things up, but he's got a lot to clean up. >> do you think you've seen the last of the cockroaches? >> i think so, but that's what

you never know i mean, if you have 260 or 70,000 employees, there was bad activity someplace, you try to find out, but that -- i actually have been in that situation, had 8,000 employees, and i woke up every morning terrified while i was in there that i would pick up the paper and find out that somebody else had done something. and you just -- you can't be sure, although i would -- my guess is, and it's just a guess, is that they have scrubbed and scrubbed and that they have found out the things that were done wrong and the fed and the other supervisor is going to make them pay, which they have for past sins, and they don't -- they don't just do it in one day and waive at you and say congratulations. >> back in 2009 at the annual meeting you were asked if you

had one stock that you put all your money in. you said it would be wells fargo at that point. what stock would it be today if you had one stock to put all your money in? >> well, i've got all my money in berkshire, 99% plus yeah, my -- 99.8% or something like that. that's the one that's the one i feel the best about. not that i feel best about having the greatest up side because it doesn't, but in terms of anything bad happening to it. >> outside of berkshire; there another stock if you had to pick one? >> well, if you look at our holdings you would assume that we like them in the order in which they rank by dollar value of holdings, but if you look at them in terms of recent purchases, you know, over the last year we've bought more apple than anything else. >> can i take it and run with that as a headline, apple's your

favorite stock >> no, because i haven't told you what i have been buying in the last week or month >> but apple ranks up there? >> apple -- but it was selling at 105 when we first bought it >> great warren, we're going to continue to press you on some of these issues in just a moment. >> i can tell. >> when we come back we have more with mr. buffet we'll give you a rundown of today's top stories. big changes to the board of general electric stick around, "squawk box" will be right back. most etfs only track a benchmark. flexshares etfs are built around the way investors think. with objectives like building capital for the future, managing portfolio risk and liquidity and generating income. that's real etf innovation. flexshares. built by investors, for investors. before investing consider the fund's investment objectives, risks, charges and expenses. go to flexshares.com for a prospectus containing this information. read it carefully.

this is a special edition of "squawk box. becky quick is in omaha speaking with the oracle himself. berkshire hathaway chairman and ceo, warren buffet talks about the issues that matter most to

your money from tax reform to his annual letter to shareholders to his latest investment moves. plus, he's answering your questions all morning long it's billionaire warren buffet live as the second hour of "squawk box" begins right now. good morning and welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square. i'm joe kernen just me. becky's in omaha this morning. it's for a good reason obviously speaking with warren buffet, but i've got no one to talk to i've got steck, our guy on the set here, bob becky, but we're in close contact at least. >> we are. we've been talking through the commercial breaks.

>> yeah. well, i needed to. i'm like, it's really -- well, anyway -- >> a lot to get off your chest. >> this is unbelievable. i'm glad -- you know, people need people. they just do >> joe's worst nightmare. >> u.s. equities -- u.s. equity futures at this hour, i'm going to hurry up and get back to you because it's very lonely anyway, here's what's making headlines. you can see the futures are up 175. nasdaq strong. making headlines this hour, there are some pretty amazing things happening chip maker qualcomm has urged broadcom to engage in a price. qualcomm says broadcom's prior offer materially under values the company. economists are looking for a rebound in new home sales for january when those figures are reported at 10:00 eastern time consensus forecasts call for a 4% jump, partially reversing december's 9.3% slide. and general electric is making some moves with its board

shrinking the board and adding three new directors. now there will be 12 the three are former -- one of them, former financial accounting standards board chairman leslie seidman, thomas horton and former danaher ceo lawrence colt. as previously announced, the overall size of ge's board will be from 12 to 3. if you're adding three and going down six, that leaves a who's who list of directors that won't stand for re-election. steven malencoff, shelly lazarus, jim rohr, mary shapiro, marijin dekkers, susan who canfield and i think jack brennan will be staying as the

lead director. yeah, lead director for a while to transition, facilitate the transition to a new lead director until 2019 but then he won't stand for re-election either so let's get back to becky and warren buffet in omaha and there have been some questions, becky, you can talk to warren about it, about where was the board, and i guess this is sort of an answer to those questions at this point. i mean, that's a pretty big reshuffling of the board i guess maybe flannery would want a different board obviously, but seems like a pretty big -- >> flannery has talked about this, about some changes, but i don't think we realize quite how extensive those changes would be. >> right rohr from pnc, malenkoff, qualcomm no, not qualcomm i know the -- i've got to figure this -- but lazarus, mary shapiro. these are really a who's who

list, right? i'd like to get warren's thoughts on that, too. >> that's right. warren, what do you think? i mean, obviously you've watched ge fora long time. you were a shareholder for quite a number of years, from 2008 through when you sold those shares that were at $27 at that point. big changes there restating earnings for a couple of years and talking about some different accounting standards that have been put into place, but it does sound like they are changing for the way they account for some long-term contracts. >> it sounds that way. i haven't read anything, i've been sitting here. it sounds like they are changing when you build a ship or something like that over five years, not that they're building ships, but you do have ways of accounting for the in process activity. >> sure. >> companies can be quite aggressive in that, they can be quite conservative in that i don't know anything specific about general electric. >> you would understand john flannery coming in and wanting to -- >> clean house. >> yeah, make sure he's doing

things his way going through the entire process. >> sure. sure if i were brought in to run ge, which they never would do, and they'd be wise not to, but there would be a lot to get your mind around, i mean, you know, from the old insurance contracts to these long-term contracts and service contracts and there's just a lot on your plate and so the fact that you don't have it all in place the first day or the first week or the first month, i don't blame anybody for that there's things -- there's things to learn with something that complicated and widespread. >> okay. one thing that we got a lot of questions that people wrote in about are variations on forms of corporate social responsibility. i'll start with one of the questions that came in this is from tom iniria, does berkshire own gun manufacturers and does gun ownership have an effect on property and casualty

premiums there were a lot of questions in this vein coming in just given the headlines out there about what's been happening with school shootings but broader than that, corporate responsibility overall >> we don't own any gun manufacturers, but i have not issued any edict, example to the two managers that run money besides me at berkshire, that they can't own stock in gun manufacturers. they can own stock in gun manufacturers. they can own stock in liquor manufacturers. we do own stock in biaggio, a liquor manufacturer, and have for a long time. to my knowledge we don't -- i know we don't own any -- happen to own any gun manufacturers the second point -- >> the second point was does -- from an actuarial perspective does gun ownership have an effect on property and casualty

premiums >> no. there might be some very weird personal policy that you might conceivably -- but in terms of standard business, no. i don't know of any -- i don't know of any time it's come up in years in the insurance business. >> there is a movement from larry fink at blackrock and from others who are kind of stepping into this saying that they would like to have more of an impact on the companies that they are investing in, that they would like to have maybe a little bit more say in what's happening it's an arena that can get pretty fraught with potential missteps though because by taking a stand you're potentially alienating up to half of your customers where do you come down >> yeah, it's complicated. i'm insuring for what's been going on with wells fargo. wells fargo, we do lots of business with them they made a big mistake and some others that flowed out of the big mistake, but berkshire has made mistakes. i got involved in solomon when they made a mistake. you will not find any large

company that doesn't have some problems of one sort or another. i mean, the best defense is a hotline and we have found out more things that have been wrong at berkshire through the hotline -- >> but i think this is a little different than finding out cases of fraud or wrongdoing or somebody doing things that are wrong. this is a case of investing companies, of banking companies potentially getting in and saying we don't agree with a particular group, be it the nra, be it -- we want to take a stand on immigration, something along those lines. you do see more and more ceos who are kind of waiting into the political arena and making their views known. you are somebody who has not shied away from who you vote for and who you support. >> no. no in terms of politics, i have not put my politics in a blind trust. berkshire never had any contributions to politicians i don't believe that imposing my views on 370,000 employees and a

million shareholders, i mean, i'm not their nanny on that. and if i -- i worked for hillary but i don't know who her managers work for or voted for and so i -- i think you have to be pretty careful if you're saying, you know, we're not going to fly on this airline because of that or we're not going to use this railroad because of that in terms of social because you'll find something. i mean, i admire enormously walmart and costco they sell cigarettes we actually distribute between the manufacturers through our company to walmart and 7-elevens and all kinds of people cigarettes i think that -- i think it's a mistake to get -- start getting personal views and trying to impose them on an organization. >> we have seen a lot of that just over the last couple of weeks since the last school shooting >> yes. >> and there have been some companies -- >> i've got views on gun laws,

but i don't think they're berkshire's views. >> so you don't think it's something corporate boards should be talking about? >> i think you should be pretty careful before the company takes a big political opinion and something society has decided that they say, well, we're going to have a different view i also think people individually should very much express their views. i think what the kids are doing are very admirable i don't think that berkshire should say we're not going to do business with people that own guns i think it would be ridiculous. >> let's talk about some of the holdings that we mentioned before at the end of the last block we were talking about apple which is the stock, according to the filings that we've seen, that you've been buying most frequently and most heavily. there are a lot of questions that have come in on apple, and people want to know why you're doubling or tripling down on this stock at this point

>> they want to know but i'm not going to tell them they can look at our actions and we have to report those every three months but we're not in the investment advisory business >> why do you like it? >> it's proprietary. the views -- those are proprietary in effect. >> someone that was asking you about you've long tauted the stocks that you've bought into by drinking coca-cola or eating at dairy queen or doing all of these things to talk about the stocks that berkshire owns but you still have your flip phone wanted to know if you were ever going to get a smartphone, an apple phone. >> tim cook's asked me that. well, the answer is i guess i'm out of touch, but i tell tim that as long as i haven't gotten one, the market's not saturated. the day i buy one, there's m probably nobody left after that. >> want to talk about some of the other stocks you all hold

too. one question that came in from kraft heinz was the announcement that kraft heinz just put out. is this a sign that mr. buffet is scaling back his direct participation in the business? he was referring to the headline kraft heinz reports retirement of warren buffet from board. >> i was not on any outside board -- well, until the heinz deal came along and then the 3g, our partners, asked if i would go on for a while and i said fine, but it takes -- there's five meetings a year, it's about a day and a half per meeting you go in the previous afternoon and take -- so it's really a day and a half if you have five meetings, that's seven and a half days a year we have two other people on the board. the truth is i'll talk to the 3g folks in the same way. it doesn't change anything about it, it saves me 7 1/2 days a year i don't want to be on any outside boards it's time consuming and i haven't got that much time. >> but it doesn't indicate

any -- >> zero. >> -- declining interest in the business >> no. we're not going to change any of the share. we have two people on the board. we could have put somebody additional ourselves but alexander van dam is going on there, i know him. he's got a huge investment in the company. i love the fact that he's going to be a much better director than i am and he likes to travel. >> great we're going to continue this conversation with warren, but, joe, we'll send it back to you in the studio as we head to a break. >> warren, always -- you know, sometimes i feel like we're drifting and then he pulls -- he pulls me back in, and that answer on the -- on your questions, warren, was so apt and so appropriate we all have personal views and we should act on those in every way that we can to try to get what we want in society the way that we think it should be based on our personal views, but isn't that the operative word,

personal views >> yes. >> i can just play devil's advocate and i can think of some things that certain individuals would want companies to take a stand on that are diametrically opposed to what other people want. >> sure. >> you can think of them, too. the hot button issues in society, whether it's abortion, or lgbt issues and, you know, the left always -- always feels like they're so sure that they've got all the answers and that they're right that they can't believe anyone would disagree on how they feel about virtue and things, but if you had the right come in, what the left would feel are insane ideas and you had -- and you were pressuring corporations to take a stand, it doesn't work that way. but that's not going to stop the -- >> no. >> -- that's not going to stop the thought place and the media. the media goes crazy and tries to shame corporations, but your answer was so right on and you didn't pull any punches either would you tell larry fink, if

you had a conversation with him, would you say, larry, what are you thinking would you say that to him? i love your views, larry -- >> i would tell him exactly -- i would tell him what i thought, but it's the extreme on both sides. whenever people get going on those questions, i always say let's talk about something noncontroversial like religion. >> exactly >> it's just -- >> i mean, salt, red meat. god almighty any of that stuff. there's just -- everybody's got -- that's why they're called personal views, you know so i don't know. anyway -- but i digress. we love hearing from you warren, like i said, great answer thank you. becky, that was a good discussion we'll have much more from warren and becky after the break. let's get a check on the markets right now. as you can see, sharply higher up 190 points up 13 on the s&p nasdaq up 30 the ten-year note, changing hands now. below 2.9% maybe that has something to

do -- 2.85 in fact maybe that's why the markets are strong they like it when rates stay low. here's oil which is back to 63 1/2 more warren buffet all the way until 9:00 today stay with us ronoh really?g's going on at schwab. thank you clients? well jd power did just rank them highest in investor satisfaction with full service brokerage firms... again. and online equity trades are only $4.95... i mean you can't have low cost and be full service. it's impossible. it's like having your cake and eating it too. ask your broker if they offer award-winning full service and low costs. how am i going to explain this? if you don't like their answer, ask again at schwab. schwab, a modern approach to wealth management.

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welcome back to "squawk box. a few headlines before we head back to omaha and warren buffet and becky. samsung unveiling the new galaxy s9 phone at the world congress in barcelona it uses qualcomm's snap dragon 845 chip the phone is pretty expensive, priced at $750 for the s9 and $840 for the larger s9 plus. both will be available on march 16th got to talk to warren. maybe that's the smartphoneth that -- we just assumed he would buy an apple we'll ask him. fiat chrysler is planning to eliminate diesel models from its vehicle lineup by 2022 the financial times reports that the move follows a drop in demand in the wake of volkswagen's emissions achieving

scandal. it doesn't sell diesel cars in the u.s. but they're popular in europe and asia. prices at the pump edging lower. unleaded fell 6 cents to $2.59 a gallon that's the first decline since december gas prices are still 25 cents higher than a year ago going back to becky or a break going back to becky. becky, when i text people and when i send it and it goes in blue and i get things back in green, it's like i don't even -- is that like not an apple phone? i like the blue, you know? i don't know, do some people really have galaxy phones, samsung? do you know what i'm talking -- >> i think so. yeah i do know what you're talking about but i don't know what the answer is. i guess there's a change whether you're in the iphone ecosystem or not is that part of the reason >> i think less of people when they're not in the iphone ecosystem. >> because you are all about status, right?

>> i'm very tech savvy i like blue a lot better -- green, i'm like, where, what century are you living in? what is this green think get a 10, get an x, warren come on. >> if you were buying a smartphone, which one would you buy? >> oh, i'd definitely buy an apple. >> see see? >> incidentally, samsung, although they made the money in semiconductors, but they could be the second highest earning company in the world they earned about -- i think they earned about -- well, you get into juan but 50 trillion. what is it, 108 or -- 108 but -- they probably earned somewhere around $45 billion i haven't looked at it recently. there antitoo many companies. >> that aren't in the commodities business. >> they did not make as much

with the phones, semiconductor business. >> shows you a little bit about how mr. buffet is always reading the financial statements of just about every company out there. what you do for your fun time, right? >> that is my fun time. >> that is your fun time, right. warren, i want totalk to you about something you wrote in the annual letter, that is leverage. it happens that one of the stories on the front page of the wall street journal is all about margins. margin bets fueling the selloff. $642.8 billion had been borrowed by retail and institutional investors against their portfolio. that can lead to all kinds of machinations in the stock market it's a real impact when stock prices go down. >> it's interesting after the '29 crash when they had 10% margins, they actually gave the federal reserve the powers of margin requirements.

i think the fed still does have that power but the whole thing has been moot by derivatives, index futures and that sort of thing people can gamble in stocks and people like to gamble. a lot of people like to gamble but you can't -- four times in the 53 years i've been at berkshire it's gone down 40 to 53%. >> berkshire shares? >> well, very fast in october of 1987 and people had a perfectly decent investment. if they borrowed against it, they lose it it is crazy in my opinion to borrow on security you don't know whether the stock exchange will open tomorrow morning. we have closed the stock exchange one time during world war i we closed it for months we closed it after 9/11 for a few days i put in the annual report, it's insane to risk what you have and

need for something you don't really need. you know, borrowing money is a way of trying to get rich a little faster, but there are plenty of good ways to get rich slowly you can have a lot of fun while you're getting rich as well, but my partner charlie says that there's only three ways that a smart person can go broke, liquors, lays and leverage the first two he added because they started with l. it's leverage. and when somebody tells you how they came back and made a second fortu fortune, i'm not impressed why the hell did they lose their first fortune? there's no reason. there's no reason to borrow money except you're in a hurry to get rich and you're risking going broke and ultimately the effects it can have on your family i do not believe in borrowing money on securities. >> there was a question that someone had written in just asking about how you do that just in terms of -- let me see

if i can find it just in terms of getting yourself to not do -- you have at times in the past had more ideas than you had money. >> always. first 20 years. >> how did you have the self-discipline to not go up and get leveraged up >> i wasn't unhappy when i had $10,000 when i got out of school i was having a lot of fun. i was looking for things to buy. in fact, after i spent 10,000, i ran out of money, it meant i kept looking for things better than what i already had. if you have $100,000 that being -- and you're an unhappy person and a million dollars is going to make you happy, it is not going to make you happy. then you'll look around and see people with 2 million. it doesn't work that way you will not be way happier if you double your net worth. you'll get a euphoric surge or something like that. to risk, you know, starting all

over again, you know, losing everything, you have children, it just -- it's madness. >> warren, we're going to continue this conversation we'll have a lot of questions from viewers that we'll go through rapid fire when we come back as well in fact, when we come back from omaha, we'll have your questions that you've been sending in through the morning plus your morning corporate stories including changes to the board of general electric. we have the details straight ahead. right now though as we head to a break, take a look at some of the names of folks that are going to be joining us tomorrow here on "squawk box. stick around, we will be right back for your heart... your joints... or your digestion... so why wouldn't you take something for the most important part of you... your brain. with an ingredient originally found in jellyfish, prevagen is now the number one selling brain health supplement in drug stores nationwide.

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♪ ♪ good morning and welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square among the stories front and center, general electric shuffling its board of directors. that's one word for it the company is adding three new directors, including former financial accounting standards board chairman leslie seidman or

sideman. i'm going to noe eventually when we do something. seidman. thomas horton, former danaher ceo lawrence colt. the overall size of the board will be reduced from 12 to 18 which means there are quite a few departures, or at least people not standing for re-election. many of you are familiar with. remember andrea jung, shelly lazarus, jim rohr, mary shapiro, steve mollenkopf, mariji marijin dekkers. susan hockfield and peter henry. daimlerchrysler plans to invest 2 billion for a facility which will build mercedes benz in china

guille is a parent company of volvo. and in other global news, the ruling communist party in china has proposed eliminating the two-term limit for president xi jinping, for all of them, i guess, but this mainly applies to president xi and he will remain leader of china indefinitely the proposal covers the office of vice president. let's get back to omaha and warren buffet and becky is there. did i say anything -- should android users feel like i really -- i was just kidding around i happen to use the iphone they're people, too. >> are you getting angry responses on twitter >> yes, myopic, android. that's fine. i did have a question for warren for samsung to give them a plug but then i wondered does warren

have a flat screen you have a color tv, right, warren >> i've got -- >> you've got a flat screen? >> i've got an 85 incher i like to watch sports on television. >> see, i knew it. it's interesting -- and i sit very close to it it's interesting, in the theater you get a bad result but you can sit very close to this screen of mine. >> is it a samsung, warren can you disclose that? >> it is a samsung, yeah. >> mine, too >> it is a samsung. >> so you watch creighton? from this far away >> absolutely. >> i watch the super bowl. i watch everything >> olympics? >> just think of -- yeah, think about it what that is compared to 40, 50 years ago. >> hi-def, it's fantastic.

you can tell it to verbally switch to something else, switch to "squawk box," for example, which is one of the most common -- or switch from "squawk box" -- no, i'm kidding. anyway, go on. >> all right. >> i watch you on an 85 inch screen. >> oh, my god. >> we don't have makeup people enough i know >> no, we don't. wow. warren, we want to take this part of the question and get information from viewers and people who read your annual letter and have additional questions about berkshire, too the first one is both you and charlie have the vast majority of your net worth in berkshire stock. can you clarify how much of their network ajit and greg abel have they did disclose their earnings in terms of berkshire but that doesn't tell about their net worth. >> i've never asked them about

their network. that's their business. ajit obviously has a very substantial investment he came into my office in 1986 on a saturday. i don't think he had very much net worth at that time and he's just bought berkshire as he's gone along greg has american energy, now berkshire energy for well over 20 years his net worth is virtually 100% in berkshire i don't know that it's 100%. what he has outside. i'm sure it's a very, very high percentage it pays no dividend incidentally berkshire itself owns 90% of it. our interests are very aligned. >> by the way, you don't hand out stock options like a lot of companies do. >> no. >> these are sums that they've kind of built up themselves? >> ajit bought every share of

that, you know, in the open market he buys it just like anybody else if it goes down, he suffers. we don't grant the directors restricted shares or anything of the sort we want our directors to stand in the shoes of the shareholders we don't have directors and officers liability insurance if we do something really dumb and the company loses a lot of money, they lose money and it's real money to them, it isn't just something that was given to them >> you didn't know how much either of them owned before, did you, before they -- >> well, i knew how much greg owned of berkshire hathaway energy i had no idea what his holdings were of berkshire. i didn't know -- i mean, i knew ajit owned it but i had no idea what the amount was. >> here's another question that comes in this says berkshire has become a large player in the real estate brokerage, a field that's still plagued by high commissions.

i recently sold a home using red fin. is this a threat to home services >> yeah. i don't think as much but, you know, i could misjudge that. obviously the internet is going to try and take away any business this is just a more traditional firm in the past buying a home is the biggest deal that most people make in their lives. sometimes they're moving from another city and they want somebody that explains the schools to them, you know, just how the hold city -- they really want a helping hand in coming in and it's a very personal transaction. it's a scary transaction sometimes to people. a lot of paperwork involved and all of that. they really want somebody they trust. i have a feeling that it will be very much a person-to-person operation 10 or 20 years from now. but the people that are backing the internet operation think

otherwise. certainly it's proved that a lot of businesses you thought had to be done face to face can be done very well from thousands of miles away >> this question comes in from jeff vonn. he says, warren, will you talk about your thought process and discussion that you and the investment team had about taking a large position in byd? which segment of the business was most attractive and why? and that comes up because byd made its way into the top 15 holdings of berkshire again this time around. >> right well, i've said in the past, it really wasn't me or the investment team. charlie called me one day and says, we've got to buy byd this guy that runs it is better than thomas edison i said, that isn't good enough he called me and he said he's a combination of edison and bill gates. i said, you're warming up. charlie wanted to do it. it's working out so well that i'm starting to think that it was my idea. as it's coming back to me, i

think i persuaded charlie. unfortunately i'm on the record that it's his deal byd, charlie's in love with the company. and it's done very well. the fella that runs it, autos, batteries, he's got big, big ideas. he's very good at executing but i leave it to charlie. >> there's another question that came in and he's asking about cash he says what's the intrinsic value? he said it's positive. you havedescribed the $37 billion pcc acquisition as a singular bet on mark donogan that's a very long-term business and the contracts they get can run out into the mid 2020s mark i just saw him, what, two

days ago he is an extraordinary business operator i mean, he just loves figuring out how to make things and he gets along extremely well. they've got that kind of mind and they're very, very good at it mark never stops working he's built a sensational company. he will continue that with us. >> finally, market falley writes in a relationship with todd and ted, the investment gurus in house. he says, has buffet ever disagreed with any of todd or ted's investments and why? >> welling, they make their own decisions 100% and they each manage called the $13 billion now. >> started out as what, about $5 billion each >> pardon me >> well, they started out -- actually, i think when todd -- about a year ahead of ted. i think maybe it was 2 billion but it has increased at various points then they've earned a lot of

money for berkshire. certainly they've done things i wouldn't have done, but i've done things they wouldn't do, too. i mean, i want them to figure out their own -- they -- they are good at managing money and they've got the advantage of managing smaller sums than i'm running. they've got the disadvantage of running quite a bit larger sums than most people run it gets quite different in the size they have done not only a good job of managing the money, they've contributed to berkshire in just dozens of ways they were sensational hires. >> do you talk about the investments with them ahead of time >> not -- no, not ahead of time. and there's a number of them i haven't talked with them at all. i couldn't even -- i couldn't name three-quarters of their portfolio, i couldn't tell you the amounts, i don't remember them that well, but i have gotten ideas from them, but they take on other tasks. i mean, todd is on the health

care situation he's there on saturday they're there on saturday. they're there all day talking to people around the country in terms of looking for the right ceo and that sort of thing they are enormous contributors to berkshire. >> we are going to talk more about the health care proposal between berkshire hathaway, jpmorgan and amazon coming up in a little bit in fact, warren, this will be the first time that we've gotten to talk to you about it -- >> right. >> -- since this announcement came up. we'll do that later this morning. in the meantime, joe, we'll send it back to you. >> you might prepare warren to answer some of the most pressing social issues facing us, becky, like can you -- do you know whether he's a taco bell or a chipotle guy have you ever asked him -- >> i'd have a guess. i don't know have you been to taco bell or chipotle >> neither one. >> neither >> neither one i go to -- i go to kentucky fried. i go to mcdonald's, i go to burger king. i occasionally go to wendy's

>> skirting the question squirting the question >> no. >> will the taco bell guy be good at chipotle or will he ruin the natural fufu, you know, all the -- i mean, taco bell -- >> knowing his inclinations for where he's -- he just -- >> when they start selling ham burgers, i'll give you an opinion. >> i don't think he's a taco guy. >> all right these are the pressing -- these are what's on my mind. as i said, i wanted to prepare you for some of these social -- >> i'm for whichever one serves coca-cola. >> that might not be taco bell because it used to be pepsi. anyway, coming up, more warren buffet plus a big weekend for "black panther" at the box office "squawk box" coming right back got a question for the oracle of omaha, tweet us at squawk cnbc or visit our facebook page. make sure you use the hashtag

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welcome back to "squawk box. the futures have moderated somewhat recently.

now up 161 on the dow. almost 200 earlier as far as upward momentum. the nasdaq though meanwhile has actually added to the earlier gains. it was up 120 plus on friday and earlier in the pre-market session was up about 25, 26, 27. now up 33. "black panther" joining an elite group at the box office. brought in $180 million in north america over the week end. that's just the fourth film to top 100 million in its second week in theaters the others were "star wars," the force awakens, jurassic world and the avengers so after 12 days now the movie has raked in roughly $704 million globally i don't know how much in popcorn sales because sometimes that's as expensive -- i went to a movie saturday night i think it cost more, popcorn and a large drink cost more than a ticket, quite a bit more

according to comscore it hasn't debuted in china and japan those are two of hollywood's biggest markets. let's get back now to becky in omaha. what if we -- just -- you know how nbc we go to commercial on the olympics, golf or something, we stay with -- we show the commercial but we stay with the programming. what if we did that with you and warren >> then you could see what was happening? >> yeah. >> that would be good. >> the conversations that might be some of the best. >> i'm actually just looking at this no, i was just showing him, i was laughing i've been watching the wires to see what he says makes the wierg wires, and literally, joe, this hit the wires. at 7:44:48 buffet has not gone to taco bell or chipotle. >> 85 inch screen.

within -- literally within milliseconds drudge had buffet touts tax plan that got on drudge almost immediately too. let me check "huffington post." >> that's not nearly as important as this comment that made the wire. >> you, too, could go to 87. >> warren, one thing that you said earlier, you were talking about samsung. you mentioned you owned a samsung 85 inch television screen you know a lot about the company. you don't own the shares >> i don't own them and berkshire doesn't own them now berkshire has owned samsung. it doesn't get reported in our 13f. it hasn't shown up. >> really? >> i think i'm right on that i'm 99% sure and so we bought some -- when samsung was about a million juan, you've got to divide that

by something over 1,000, we bought a reasonable amount we did sell it when it went up it's higher than it is now it went up to a million eight or something. it's around 2 million, 3 or 4 the yuan went in our favor so we did better in dollars. >> i mean, i don't think of you as in the past you have bought some south korean stocks, i think, it was a while ago. why were you looking at samsung? >> it was very, very cheap had a lot of cash. they hadn't done much on buying in their stock but they talked about it, but it was just very cheap. it was a big, strong, good company. >> i remember you buying a south korean retailer, was it years ago? >> yeah. there was a time when i bought a whole bunch of little ones. >> yeah. right about the time we traveled. >> yeah, exactly the korean market was very cheap. i mean ridiculously cheap after 1998 when they had all kinds of

troubles and there were a lot of bargains in korea. >> when you say a reasonable amount, i mean, for me that's a different number for my holdings than it would be for you. >> yeah. >> are we talking north of a billion dollars? >> well, we probably made in the hundreds of millions someplace. >> you made that much on those transactions >> yeah. that's my memory kind of in 500 million or 400 million i don't remember exactly. >> let's talk about some of the other purchases that were revealed, purchases and sales that were revealed in some of these most recent filings, 13fs. you sold more of your ibm stake and bought more apple according to the latest filings we've seen a question came in from brandon carol that said, first of all, why did you? >> well, i was wrong on -- at least i thought i was wrong on ibm. maybe i'm wrong when i sold it i certainly was wrong when i bought it. and i felt that apple has an

extraordinary consumer franchise. i -- apple's a different kind of business than ibm. they're both tech obviously in a major way. they even have a joint venture, you know, on some things, but i think i understand consumer behavior perhaps better than i do the tech business wouldn't take much to beat it. and i like it. i like tim cook very much. i like their policies. i see how strong that ecosystem is to an extraordinary degree. i mean, i look at my grandchildren, my great grandchildren and everybody in the office, i mean, their families, i talk to the people in the furniture market when the ten hand arrives, nobody goes over to buy an android you are very, very, very locked

in, at least psychologically and mentally, to the product you're using. i mean, you've got your -- all kinds of stuff up on there it is a very sticky product. >> that was sort of the same thing you said about ibm when you were first buying it, that corporations that have bought into it, they were kind of stuck with it. that it would be what they were using because it was too hard to get off of a system like that. >> yeah. >> by the way, ibm recently just timely showed an increase in revenue for the first time in like 27 quarters. >> yeah. the foreign exchange went with them and it was the introduction of a new piece of hardware they weren't up except for those two factors, but the cloud came along and one of the most extraordinary things i've ever seen in business is one unrelated type company, a retailer you can call amazon at that time goes into another big industry and sees the future in it gets into it and then they gave -- and jeff bezos would say

this, he's said it on charlie rose show some time ago, he got this amazing runway. i mean, the other players -- here's all these 200 i.q. people in that business and they gave him year after year after year, it wasn't a secret what he was doing, and he was in an important way revolutionizing the industry and the other people sat on their hands basically. >> wow we have more questions we're going to ask you related to these things but right now we're going to sind it back to joe. >> hold on i just thought of something, becky. warren -- >> yeah. >> -- i don't understand why creighton is in the big east, number one, because it's so far west so it is why don't -- i'm inviting you. i'll get the tickets you can come with my family. why don't you come back for the big east tournament, not the march madness, at madison square gardens coming up the week of march 7 to 10th? you want to come back for that and we'll take in a couple of games? >> that's tempting because i

like watching creighton basketball, but i am cutting back on the travel, joe. i'll watch it on my 85 inch. >> now you're cutting back i invite you somewhere and you're cutting back on your travel the minute i invite you. >> no. >> what? >> i'll get good seats. >> i'm making you an invitation. if creighton gets to the finals in march madness, i'll take you. how's that >> that's pretty good. >> that's a firm offer i'll have good tickets. >> no. >> everybody's great, that's the thing. amazing. >> all right okay so forget it. >> i'll have good tickets. you've got to be for the blue jays if we go, you cheer for the blue jays. >> not if it's against xavier, i can't do that. >> no, no. all right. >> exception. >> i just thought because this is going to be -- that's unbelievable, madison square garden that conference, i mean, if you can win in that conference, you can win anywhere, right? it's like the southeastern conference. >> who would have thought it

>> all right, buffet, forget it. don't come back. i don't care coming up, this morning's corporate headlines plus much more from warren buffet. he's not traveling as much what if you said that, becky, when he comes out to omaha get on one of your net jets. anyway, we'll get more about health care in a moment.

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good morning, everyone welcome back to a special edition of "squawk box" live from omaha, nebraska we are here with warren buffet who's going to be answering your questions for one more hour. go ahead and keep sending us your questions on twitter and facebook with #askwarren monday, february 26th, 2018, and the third hour of "squawk box" begins right now . good morning and welcome

back to "squawk box" here on cnbc live from the nasdaq market site in times square. i'm joe kernen along with becky quick. the futures right now, they were inching up last we checked back to 180. up 180 on the dow. up just under 13 on the s&p and the nasdaq strong up 37. treasury yields have moderated saw 285 on the ten year last time we checked. 2.85 even right now. corporate news, general electric making big changes to its board. the company adding three directors, including former financial accounting standard board chairman leslie seidman. former american airlines ceo thomas horton. the overall size of ge's board will be reduced to 12 from 18. there is a list of some of the directors who are not standing for re-election, which includes the mollenkopf, shelly lazarus,

jack brennan will not stabbed. he will stay on to facilitate the transition but will not stand for re-election in 2019. right now let's get back to becky quick and warren buffet. time is going pretty fast. already 8:00 back here, beck. >> i know. it always flies. our newsmaker of the morning is warren buffet. warren, we have not gotten a chance to speak with you since you made an announcement along with jamie dimon and jeff bezos about how the three of you are creating a new company to tackle the ever increasing level of health care costs in america tell us a little bit about this plan, how this came together how did the three of you set this up? >> it's a good question. i think that certainly todd and i -- todd combs. >> todd combs. >> discussed it quite a bit. todd is on the board of jpmorgan and i think he talked to jamie

about it and he participated probably more in the discussion than i did, but i love the idea of tackling what i regard as the major problem of our economy i think that you have health care costs go from 5% of gdp in 1960, there were $170 per person annually and now they're over 10,000 and they're closing in on 18% of gdp, which is as much as thefederal government raises i a year so it's -- and it gives every indication of going up and up and up now you want the best health care, but you find that in other industrial countries that we're at about our 5% level many years ago they brought up into the 11% range or thereabouts so we are at a huge competitive disadvantage in american businesses, far more important than any tax change in terms of

our health care costs. and 3.3 trillion a year now. that's every dollar has a constituency it's a very complicated system but i do think we have the right three partners and the job now is to get the right ceo and that's an enormously important job. we can't afford to make a mistake and that is our first and most important order of business and we go forth. >> you all have not put out a lot of details about how this is going to work, but there's been an awful lot of conjecture and people tried to figure this out. the day you announced this there was a huge hit to insurers, pharmacy benefit managers. this is not the first time that a group of people has tried to tackle health care costs, but this is the first time that the market has had an instantaneous reaction to something like this. probably in no small amount because of the stature of the

three of you combined doing this what's your goal >> well, the goal is to deliver better care in reality and also in terms of how the people feel about the care that they're receiving because that's important, too and finally is to take cost out of the system while not impairing the quality of what people receive, and that's enormously complicated there's so many intersecting companies and people it's not going to be easy, but we're determined we've got the money. we'll stick with it. you mentioned the company. we don't necessarily have to form a company we may form a company and probably will, but it's just a joint effort now and we will need somebody to head an organization and put it in partnership form and different things and our goal is really not just for the three companies. our goal is something that other people can pick up on and it's really constant increase there are only 100 cents in the

dollar and if you've got 18 cents which we're approaching going to health care, you've only got 82 cents left. >> you mentioned that it's a very complicated system. i know you're not an expert on it but you've spent a lot of time digging through it and so have the other people digging through this, todd, jamie, jeff, lots of other people involved underneath what's your early read on some of these things? because if you look for margins, there are lots of middlemen and lots of margins. >> no, i think we've been inundated from people that would like to run this or like to help, just inundated i should emphasize health and companies that would like to join and all of that we're not remotely there, but it would be very easy, i think, to go in and shave off 3 or 4% just by negotiating powers. we're looking for something much

bigger than that that can be part of it, but we're hoping to figure out a way that the constant increase as an increase in gdp can at least be halted and that hopefully we can find a way where perhaps better care can be delivered even at somewhat lesser costs. >> do you think the private sector can do it better than the government >> yeah, i think usually that's the case i think that's probably the case in health care >> i mean, i realize, again, this is early on, but people look at pharmacy benefits managers, they'll look at express scripts and say their margins are 9% on $100 billion in drugs that go through their system every year. is that like an easy way to clip are we talking about working even beyond? >> oh, it would be beyond that, way beyond that. and i can't tell you what -- they interact in ways that it's going to take a terrific ceo a

lot of commitment, probably some important mistakes, lots of time you know, i'm not interested in lots of time i want to keep it moving, but this is not easy if it was easy, it would have been done. it's very, very difficult. like i say, it isn't difficult to shave a little bit off here, but it will pop up someplace else it has to be looked at by somebody who really has a grasp of it from every angle, hospitals, physicians, patients. i mean -- and the question is whether we can come up with something better i'm hopeful, but don't expect any miracles out of us soon. we've got the perfect partnership and with jeff and jamie, i mean, we can make things happen. our companies are big yet we can -- we can still make things happen we don't have the bureaucratic problems or the constituency

problems that some others might have and we like each other, we trust each other, so that's going to work very, very well and it's a lot of muscle, but it takes -- it's going to take a terrific ceo, and that's our most important job by far, is finding that person. we want to come up with the right person, and i hope we do it fairly soon we're not going to compromise. >> is this a plan we should expect or would you expect to see this in place a year from now? >> i would expect to see a ceo in place a year from now there will be a lot to do, becky. you talk about something that has 3.3 trillion that is presently going to people and most people that are on the reception end of the 3.3 trillion are happy with things i may have said billion but 3.3 trillion are happy with things over all they say things can be

done better, but not in their tiblg s particular segment. >> you mean the actors involved? >> it's a huge, huge, huge industry we've done well with medicine. we don't have more doctors per capita, more nurses per capita and beds per capita. we have a top notch ceo certainly well within a year and we will give that person a lot of latitude and a lot of support and he or she will lead it. >> you know, in the past when we've talked about ways to try and bend the cost curve as a nation when we've had this discussion, people always say, be careful what you cut back on because you could hurt the innovation process you could hurt what we are doing to come up with the best health care procedures and pills and discoveries in the health care

front. >> sure. >> do you worry about that >> yeah. but i think you've got three organizations and i think we've got the ceo that's terribly conscious of that. there's no question, i mean, that our drug companies -- miracles i take a few pills, you know they seem to help. so i think i receive very good health care so interethere's a good about our system, but the system by its very nature is not cost conscious if you are a young medical person, let's just say you're working on prostate cancer, which i had, the rewards to you psychologically and your peers, everything, are going to come if you do something that develops something better for prostate cancer, which they should, but they aren't going to come to you if you reduce the cost of treating it. there just isn't the same

motivation the outstanding medical minds are functioning in many cases much more on the results, which they should be, but the cost really doesn't make much difference it's very seldom that you read about some break through on cost by anybody in this huge profession so it's got a different set of incentives and to some degree we've got to figure out a way to keep the good parts, you know, without -- but also to get at what i call what really and truly is a tape worm on the economic system. it's eating up instead of $170 per person in 1960 when we thought we were doing pretty well in this arena, over $10,000 per person just think of that $10,000 per person family of four, $40,000,

unbalanced gdp. >> let me ask a question for mark gelbert you've made a lot of money from some very successful profit-making companies. why is this new venture designed to be free from profit making incentives and constraints is profit seeking not a good incentive? >> it's a wonderful incentive. there may be many places that it happens in this. we didn't -- if you read the -- what we said carefully, i mean, we are free from that as a demand, but that doesn't mean that it can't happen. >> sure. >> what i would love to see, of course, is costs come down and the employees in terms of -- because they're very significant parts of the costs, you know, i personally at berkshire would like to see them get the first reduction if we find something better that doesn't say that berkshire shouldn't get something too, but it's -- it's really a huge, huge cost to the american public, and it gets down to the worker

i mean, the company may write the check, but the -- they often get participation, co-pays and all kinds of things. so this goes beyond just trying to improve the bottom line of the three companies involved. >> companies like berkshire hathaway and jpmorgan and amazon make up -- they cover about half of all-american households, about half of american households get insurance through companies like this. >> it's sort of the way it's developed in this country. and partly the tax law leads to that because the companies get a deduction and the employee doesn't recognize income on that particular benefit if we could -- the company bought all your food, you would get charged on the impolice sit v -- implicit value of the food the tax law has an impact in how this is arranged lots of things have an impact, that's why it's going to be so difficult to make fundamental change but we're committed to

it. >> one of the recent additions that berkshire made to its stock holdings was the addition of teva there was a question that came in from marco, guy named trader marco who says what are your expectations on return on investment in teva do you have any hopes, strategies to introduce teva into amazon? >> that would be the last thing from my mind i never talk about them. >> you have no idea why berkshire bought it? >> no. no >> okay. >> they'll sell it without telling me >> all right warren, we're going to leave it there right now but we will have much more from warren buffet coming up after this quick break. plus, samsung unveiling the latest version of its flagship smartphone we have the details straight ahead. stay tuned, you are watching "sawbo rhteronnbquk x"ig he cc.

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what's with the coffee maker? well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade.

welcome back to "squawk

box. let's check out the futures right now. this is after a 350 point gain in the dow on friday, and the dow is now back -- closed friday at 25,309 and we're up another 170 points today so closing in on 25,500 again. i don't know where that puts us in terms of -- from the highs, but if there was a 10, 12% correction, we've certainly gotten back more than half of that and the s&p is now up 11 and the nasdaq indicated up 35 samsung unveiling its new galaxy s9 smartphone yesterday at the mobile world congress in barcelona. the new flag ship phone looks similar to last year's s8. it has new camera features that boost low light photography and action shots the phone's priced at $720 for the s9 and 840 for the larger s9

plus both will be available on march 16th warren buffet might be in the market for a smartphone. i don't know whether he's going to take the plunge or not from his -- got one of those big gordon gecko phones he had on the beach. it's like the size of a mailbox, like a toaster coming up, we're going back to becky quick in omaha where warren buffet is answering questions from "squawk box" viewers. take a look at the ten year. "squawk box" will be right back.

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welcome back to "squawk box" where we are live from omaha, nebraska, with a special edition. our newsmaker this morning is warren buffet. he just put out his annual letter to shareholders this weekend. it's his 53rd annual letter to shareholders, and he's giving you a chance to ask questions, too. we've been asking for questions. warren, i have a couple i would like to get to. >> okay. >> eric lafont writes in, warren, at last year's annual meeting you said you missed out on buying amazon the stock was $935 last may, today it's $1500 are you completely surprised by the market's valuation of amazon >> no. i'm not surprised. i'm amazed at the managerial talent of jeff bezos, but i've been a constant fan really almost since he started.

the more i see of him, the more impressed i've been with what he's accomplished. but i've blown it in terms of making any money on it. >> so you're not investing right now? >> no. but i would never bet against it. >> andre writes in a second question he says, bnsf was acquired when the railroad industry had consolidated down to four players and was showing signs of pricing power. has berkshire looked at acquiring 100% of an airline given similar dynamics of consolidation, high barriers, pricing power and low values relative to book >> people can go in and form ultra low cost things. frontier is out there waiting to go public, perhaps so you've got -- you're not going to have these huge carriers necessarily, more of those, but you can always

compete. but you can't build a new railroad from omaha to chicago tomorrow, but you can add a flight if you're one of the airlines already there or you can perhaps come in and get a gate and add flights so it's a way different set of economics between the two industries i wouldn't rule out owning an entire airline, but it's a different business, a very different business. >> right now you have four major airlines. >> we own -- we own -- >> united, delta -- >> somewhere between six and a fraction and nine and a fraction percent of -- we won't -- we won't go over 10% because we just generally don't like to go over 10% but we do own those four i wouldn't rule out as even -- even buying stock in some other one or changing that position. >> but it's united, delta, american and southwest, right? >> yeah. >> those are the four big ones >> yeah. >> do you still like the airlines as when you first got into it? >> it's a business that's always

subject to someone doing something very dumb competitively. they've done it a lot in the past there was more chance of them doing it when there were seven of them, the big ones, than four the industry was suicidally competitive for decades. i mean, they net lossed money while they were growing and i was on the board of u.s. air so i saw how it all happened. it could turn into a serious competitive battle that could wipe out earnings or it could be a business that's more decent but still subject to lots of competition. it's really hard to know for sure how it will develop it is not risk free in competition at all railroad business, all the tracks have been pretty much laid and all of that that's settled, now it's regulated. it means that your earnings,

you're a common carrier, many places you compete with another railroad, other places you don't and there are different rules that apply even in terms of pricing in those cases but it's a -- it's a perfectly decent business. it will lose volume over time and that's an important product but it will probably gain in intermodal and other areas it's two different animals. >> there's another question, it's t41 guys. it's derek bores who writes in he says of the equities that berkshire hathaway currently holds, which one, one in all caps, do you wish you could purchase more of if the sec allowed it i think he's referring to cases of american express or wells fargo where you're not allowed. >> i can't answer that i'm not going to tell you what we would buy. >> derek, congratulations, you managed to get one that he won't answer well done on that. all right, folks we're going to take a quick break. when we come back we have much more with warren buffet. we'll talk about market valuations right now and what he

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good morning and welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square a couple of stocks to watch, dean foods is down sharply company reporting earnings 25 cents a share. revenue is below estimates the company announced plans to consolidate the manufacturing capacity in a move that it says will cut costs shares of h.p. inc. this morning. the company has gone from neutral to overweight. the stock has jumped 3.5% just on friday after following the company's quarterly report

right now let's get back to becky quick and warren buffet in omaha. becky. >> joe, thank you. as we, you know, our special guest this morning is the chairman and ceo of berkshire hathaway, warren buffet. we got briefly your thoughts on the market there's been a lot that's happened in the markets since we sat down with you. volatility is back in a way. that has the average retail investor questioning what to do at this point. it's squaredcared a lot of peop. is it something to be worried about? what's causing it? >> if you own stocks like a farm or apartment house, you don't get a quote on those every day you look at the business the value of the american business depends on how much it delivers in cash to its owners between now and judgment day i don't think it changes in 10% in the two-month period if you're looking at it as a

business now you've got -- anything can happen in markets. anything can happen in markets and that's why they don't ever borrow money against the theory. markets don't have to open you can have extraordinary events i think to some extent you can get some of the instruments that people don't understand very well that have a lot of fire power. >> like the volatility index and things that are tied to that >> yeah. the idea of people taking a position and they're gambling. they're not investing. nobody is investing when they buy some super charged index on the vix or something like that they don't need it it's an unnecessary instrument they will create instruments that the public will buy and you can just count on that wall street's been doing that since they met under the buttonwood tree in 1972 or whatever it was. but if you're investing, if i'm going to buy a half interest in

the mcdonald's franchise and you're going to run it, i look to the business to determine whether i made a good investment i'm concerned about, you know, whether we have new competition, how we do over the years, but it's the business i look at. when you're just looking at the price of something, you're not inbe vesting i mean, if you buy something, bitcoin, for example, or some cryptocurrency, you're not looking to the asset itself to produce anything if you buy an apartment house, you're looking at how the apartment house is doing if you buy a whole business, you're looking at how the business does. if you buy a part of a business, why shouldn't you look at how the business is going to do? people get charmed by lots of action and the fact that things are liquid and all of that it does have repercussions back into the market when you get something like an arrangement or you can lose 90% of your money in one day that really doesn't belong with the word investment. i mean, it's a gamble.

>> although you've said yourself, you've talked about this in the annual letter over the weekend and just even at the top of the show where when you look around for a business that you want to buy, you can't find attractive levels. however, when you're looking at equities, you do see that in a good place berkshire has been a net purchaser of equities this year in 2018 and that's because you like the deals that you're getting in the market. >> you can buy small pieces of businesses for less than you can buy whole pieces of businesses. >> the premium you would have to pay? >> yes so you get a bargain as an investor compared to what i can get in terms of buying the whole business people -- they just think of stocks as pieces of business, they'd be so much better off than the little things that move around in price. i think with berkshire we have an unusual number of people, shareholders look at berkshire as a business. look at it as a savings account. we retain it, we reinvest for

them we're their savings account. that's the way i look at my own stock, the way charlie looks at the stock. >> part of the reason you've been so bullish on equities for many years at this point is the interest rate environment. >> yeah. >> you've looked at interest rates and said have rates are gravity on stock prices. when interest rates are so low stock prices inevitably are going to climb there's been a really weird thing happening in the markets where all of a sudden good news we got from a good jobs report made people start to worry that interest rates were going to climb and that the fed was going to raise rates more than anticipated. people got really nervous around that and you can still see it every time we get up on the ten year back towards 3% it gives investors or at least traders, i should say, some concerns about what's happening. how do you kind of -- >> if you bought a 30 year government bond, it has a whole bunch of coupons attached.

the coupon says 3% or whatever they say you know that's what you're going to get between now and 30 years from now and then they're going to get you your money back what is a stock? a stock is the same sort of thing. it has a bunch of coupons, it's just they haven't printed the numbers on them yet, and it's your job as an investor to print those numbers on them. if those numbers say 10%, most american businesses earn more than 10%, if they say 10% that bond is worth a hell of a lot of money than 3%. if that government bond goes to 3% it changes the value of this equity bond in effect you are buying you are buying when you buy an interest in general motors, berkshire hathaway, anything, you are buying something that over time is going to return cash to you. it will be bigger numbers. those are the coupons and it's up to you. your job as an investor is to decide what you think those coupons will be.

that's what you're buying. you're buying the discounted value of it. and the higher the yard stick goes, the yard stick is government bonds, the less attractive these other bonds look that's just fundamental economics. so in 1982 or 3 when the long government bond got to 15%, a company that was earning 15% on equity was worth no more than book value under those circumstances because you could buy a 30 year strip of boston guarantee that sells for 15% a year and a business that earns 12% was a sub par business but a business that earns 12% when a government bond of 3% is one hell of a business. >> 3% is a long way from 15? >> absolutely. but i watched it go from 3 to 15, too. >> is there an inflection point? people think we've gone from 2.4% to 2.9%.

>> that's not much. >> historically thinking that's the way we should be measuring these things >> absolutely. >> not on the absolute movement. >> 2.4 to 2.9 is nothing if you compare it to businesses that earn 12% on equity and reinvestment you look at it as earned untangible equities earned more than that. it translates into higher prices and it should. >> is there a tipping point along the way or is it a gradual decline in terms of businesses >> it is gravity i mean, if you told me interest rates were going to be -- there's a lot of equities i wouldn't want to own now and i would buy all the governments at 15 and i wish i had in 1982 but i didn't. >> if i told you that the long bond was going to trade at 4.5 to 5% next year -- >> it makes a difference

i had o idiotic to own long bonds. i talk about this in the report. public pension funds, they sat there and they owned long bonds. if they go to a 3% basis they're going way above. the way people think about it is they're doing very silly things. >> you lay this out in the annual report, but a lot of investors are told -- retail investors are told that they should have a certain percent of their portfolio in bonds maybe they're told 60/40 70/30 stocks to bonds. that's something you should do and that's the safe way of doing it. >> some people should not own stocks at all because they get too upset. if you're going to do dumb things because your stock -- a stock goes down, you shouldn't own the stock at all >> what are dumb things? selling a stock -- >> selling a stock that's down if you buy your house at $20,000

and somebody comes along the next day and says i'll pay you 15, you don't sell it. you look at the house or whatever it may be but some people are not actually emotionally or psychologically fit to own stocks, but i think more of them would be if we get educated on what you're really buying, which is part of a business and the longer you hold stocks, the less risky they become whereas, the longer the maturity of a bond, the more risky it becomes. >> do you feel like that the message is getting through to people it's one that you repeat again and again. i was watching a lot of the olympics and i felt like what they do in the olympics was easy saling through the air, dogmas sieve spins. i read your letter and i think it's easy to invest and then i walk away and think, it's not that easy. >> it's not that easy for a lot of people. i've been teaching since i was

20 11 schools, 220 students some of them get it, some of them don't people would rather gamble the idea that you can double your money, that's just going to -- that's why people go to the races, go to vegas, whatever it might be. they even know the odds are against them and they still do it it's a strong instinct to want to get rich fast and i don't know how to do it. >> joe has a question that he'd like to ask, too. >> buffet, you haven't tweeted since april of 2016, man is that true >> i didn't really tweet that. i've got -- i've got a friend that's tweeted about seven times for me. >> you follow nobody you -- here, warren, you were coming on "squawk box" this morning for three hours. it would kill you to say i'm going to be on "squawk box" for three hours and tweet that out as a favor to becky and me i mean -- >> make me an offer. i have never actually tweeted

myself and i don't really know how to do it i don't know how to look up somebody else's tweets but i'd still -- >> you look at -- will you look into it. >> i have a satisfactory life. >> i'm going to tell you something, warren. becky, over the weekend i was trying to figure out -- i mean, i get so irritated that i don't need it. you know, not from people sending me -- now from looking -- >> twitter >> what other people are tweeting and retweeting i get irritated. i'm trying to figure out a way to still get the info that sometimes i get but just without me being actually part of it have you got a way i can do it but then i'd still be following these annoying people. >> lobotomy. >> if we go to the final game -- if we go to the finals of the ncaa and we're there together in these great seats i'm going to deliver for you. >> yeah. >> because creighton's in it. >> i hope so. >> i will have you tweet for me during the game. >> oh, be careful what you offer, warren.

how would you like the keys to the castle >> you'll be the designated tweeter. i've never read a tweet. >> you know what, i'm taking creighton and xavier now i'm really going to be rooting. >> i love it i love it. >> becky, i unblocked someone today that appealed to me through e-mail and i've never done it -- i had to figure out how to do it. >> wow. >> it's on a probationary basis at the board of discretion of -- or at the discretion of the board, but i've never done that before. >> discretion of the board >> yeah. someone got back in. so you get to do things like that if you come on, warren. >> i'd rather read 10ks. >> you don't realize how dangerous that offer is that you just made because joe and i have joked around about getting ahold of someone's twitter account the things that you can tweet out or the things that you can say. >> so dangerous. >> people have pretended to be me on both facebook and twitter. >> have you guys gone after -- >> we did it for a while

there's just so many of them. >> every time you stamp one out, another one pops up? >> exactly. much more from warren buffet to come. take a look at shares of the four airlines in which berkshire hathaway has a stake we were just talking about all of this and why mr. buffet needs these stocks delta is up by almost 1.2% he wouldn't rule out owning another airline outright but right now it's not in the cards. we'll be right back. it's easy to give back. it's just a little bit of time. ♪ ♪ i'll stand by you. mvo: with everything that is going on around us and in the nation, we need to work together. we need to do it more often to help people that need help. ♪ ♪ i'll stand by you.

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welcome back to "squawk box. let's check out the futures. 180 right now. 177 in terms of the dow jones trading higher premarket the s&p indicated up about 14. the nasdaq indicated up about 37 last time we looked at the ten year it was actually below 285 now. it was at 284. so that has seemed like it's sort of been positive for the move that we're seeing in equities right now let's get back to becky quick and warren buffet in omaha. still thinking about that tweet offer, becky that's big that is big. >> it is big. >> how many tweets would i -- >> remember when we almost took over david's david faber had been left on.

>> i got so scared i got so scared thinking about the things that i could send out that i -- and then i'd get fired. first he would look like -- then i got so nervous about it i logged it out. i didn't want it there because it's so dangerous. >> david didn't know we almost did that. >> the thought police that are on twitter you can retweet something inadvertently and if it comes from some like crazy or something, then it's suddenly your -- you're tarnished the whole thing is dangerous the whole thing makes me nervous, becky, it just does you know what i mean it's just better to not do it, you know >> agree. >> warren, don't ever twi. don't ever tweet while intoxicated. that is immediate grounds for -- >> oh. >> twi. >> drink. >> you can get a twi don't do that. >> right right. okay let's make a little bit of a turn here and get into another discussion with warren buffet. >> let's talk while intoxicated.

>> we get ourselves in enough trouble with the coffee and the coke -- coca-cola i should say warren, let's talk about trade policies and what's happened in washington there's some news out today that peter navarro is going to be elevated as a special counselor to president trump people have made a lot of this because peter navarro is somebody who has some pretty strong ideas about free trade and where he thinks the problems are with free trade. he's made the argument that having a trade deficit is a bad thing inherently do you agree with that >> well, i actually wrote an article about it some years ago in "forbes" and i think having -- having very large trade deficits as a percentage of your gdp means you're transferring wealth abroad to other countries or claims on wealth, you know, and i felt we

were -- that was excessive a dozen years ago or so. i don't like the idea of running huge trade deficits as a percentage of gdp at all you can say you're fooling foreigners because you're just handing them little pieces of paper and they're working hard making underwear, shoes, everything to ship to you. why not give them little pieces of paper that will get inflated away at some point, but i don't like large trade deficits. on the other hand, trade benefitted us and the other world enormously over time it doesn't mean that there can't be abuses in it in terms of dumping and things of that sort. but a world that has more trade in it relative to the whole world economy 10 or 20 years now will be a better world than one with lesser trade. >> where do you think we stand in terms of how we've approached these trade deals? because a lot of the things that people thought would happen as soon as president trump took office haven't come to fruition. we haven't gotten out of nafta

yet. we haven't done some of the more restrictive things in terms of labeling the chinese manipulators or heavy duty things that were kind of threatened at the start. do you worry about closing borders? what would berkshire? >> i don't think closing borders is a good idea. >> not that we have talked about doing that, but if we were to get out of nafta >> i think over time, we want more trade, and the closer it is to balance trade the better. it may be ideal with the trade balance to work that way but we can take small imbalances over time. and on balance, you want to encourage trade. we will live better off. if we start saying we're going to throw our own bananas in the united states, we have said that with sugar we have subsidized it and we are not the best natural place to grow sugar and you get artificialities in

your country if you start ruling in this and ruling out that. but we aught to be generally pro-trade, but we should avoid doing something really stupid, which is that as a guiding principle. >> there's been an issue that the commerce department made recommendations in termsof wha to do with aluminum and steel with some of the dumping provisions, the white house has some time now to make up its mind on going down this. do you have any thoughts on this does this play into any of the businesses you're involving in >> i would say we have not been enormously affected by trade obviously, 50 years ago, if we would have known it then, we could have used more domestic workers -- >> berkshire hathaways >> yes, they used to be called union underwear. we were originally in textiles

and our partnership was in the united states and then became outside the u.s. as well and shoes we dot decimated with the company we bought because of the fact that we had the best workers in the world and all that, but shoes came in cheaper from abroad. the united states used to make a high percentage of home shoes but none now so it can have a huge effect on industry but overall, we want to work toward having more trade and we also want to figure out a good way of taking care of the people that are losing their jobs, that are 55 and not competing for other things because of the effects of free trade. the benefits of free trade get spread throughout the population and the road kill are real in terms of people with dividends and industries we should take care of those people because we are sacrificing their lives or economic lives for the greater good and there aught to be policies that take care of them. >> last week on "squawk" we had

a guest host join us for a couple hours, chris hughes, who is one of the founders of facebook he was there and happened to be mark zuckerberg's roommate in college. >> he made a great decision. >> he worked for facebook and in turn made a half billion when the company went public. he joined us with a initiative to deal with the problem you just described his thought is to have a program where it's not a universal basic income where everybody gets a thousand dollars no matter what. it is anybody who is working that should be making about $500 on a monthly basis to make sure they are not falling below the poverty line as long as they are working. what are your thoughts on this because you have talked about the earned income tax credit. >> i like the earned income tax credit i think we're spending $60 billion a year on it and it is something that seems pretty bipartisan. paul ryan is in favor of -- there should be improvements

now we have it once a year and, in effect, you take payday loans and see it coming. it would be better if it was my view done on a regular basis throughout the year. and i think it should be -- to the person, a minimum wage affects economics and affects it big time if you do it extremely. what counts is the amount that goes in their pocket and i think the earned income tax credit is the way of guaranteeing that people have at least a reasonable amount in their pocket, even if they are working at job where is the market doesn't pay that much and it also keeps them at work and it encourages people to improve their skills because as you move up, you keep more of the money. so i much prefer the earned income tax credit. and i think the american people can't really enforce it across the board. it encourages more things across

the board. >> we're going to take a quick break. when we return, we'll have more of your questions for warren buffett. we'll get to that when we come back after this very quick break. as we head to this break, take a look at the u.s. equity futures. they have been up all morning long dow is ubyp 165 points. the s&p is up by 13. "squawk" will be right back. lly. you're still here? come on, denise. we're voya! we stay with you to and through retirement... with solutions to help provide income throughout. i get that voya is with me through retirement, i'm just surprised it means in my kitchen. oh. so, that means no breakfast? i said there might be breakfast. i was really looking forward to breakfast. i know... voya. helping you to and through retirement. when it might be time to buy or sell? with fidelity's real-time analytics, you'll get clear, actionable alerts about potential investment opportunities in real time.

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index has gone up this year. welcome back to "squawk box. time for parting shots, berkshire's chairman and ceo warren buffett a couple quick we questions from viewers. russell writes in, he's wondering what mr. buffett thinks about real estate, especially the luxury markets in the northeast impacted by high property taxes and loss of all the deductions. >> i don't really know we'll find out and then i like the business over time. i like home opener ship. i mean, i bought my house 60 years ago. and it's been an important part to the family's happiness. but i haven't got the faintest

idea >> considering warren and charlie were both already strong minded and confident in their own abilities, how did they click? >> it is an interesting question we had been together in 1959 and grew up less than a block from each other we did not know each other until he was 35 and i was 29 and went to dipp dinner. in five minutes, charlie was rolling on the ground at his own jokes and i did the same thing so we knew we were made for each other. we have never had an argument. this whole time, we are strong-minded. we disagree on a few things but agree on most things and we have a great time together. >> you respect each other. >> absolutely, totally. >> joe, you had a question, too? >> you know, we don't have time, but working -- watching how warren operates, he never really promises things that are likely to happen. and creighton probably won't

make the finals. what about that deal if they make the elite 8, buffett? can we watch that game >> we'll watch that game you got a deal. >> if they make the elite 8 -- >> i'll boy the popcorn. i will even buy the tickets. >> i'll get the tickets, don't worry, i just want to tweet on your account thank you, warren. thank you, becky >> and nebraska is good. nebraska is a good team. >> excellent either one then. i'll take that becky, thank you sorry to "squawk on the street," we're late "squawk on the street" is up now. ♪ great show, guys good monday morning. welcome to "squawk on th