♪ ♪ 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 kernen along with andrew ross sorkin but just let me get to this quickly. i'm here but becky's in omaha with warren buffet we're going to get out there i'm he going to do this quickly, becky. >> big news. >> trump's been tweeting. >> big news. >> you know what i think, guys he's back to house money we're near new highs he's like, you know what -- >> push it. >> house money, here's -- here's the time to do it. first though, here is some breaking -- there's the news we're talking about. u.s. equity futures tumbling to start the week yesterday the president looked to turn up the pressure on china

looking to hike tariffs from 10% currently to 25% he said they would impose 25% on $325 billion worth of chinese goods shortly. there's supposed to be a delegation this week this wouldn't happen until friday i'm not sure what's involved there. there has always been the worry that enforcement is going to be the issue, that the chinese will agree to a lot of things and then sort of not really follow through. a lot of people said we need to be tough i don't know whether they would be for this. it's a pain for anybody that's in the market but we've had great gains. near all-time highs. today you can see the dow is called down about 475 points s&p indicated down 51 or so. nasdaq 166 overnight in asia, japan's markets were closed. thankfully for them for a public holiday. stocks in hong kong fell nearly

3% the shanghai composite fell more than 5 1/2%. the shenzhen plunged more than 7% in europe, london's ftse is closed for the early may bank holiday elsewhere. and on this day when investors are worried, there is no better guest to join us we want to get back to becky quick in omaha who is with the oracle, the one and only warren buffet i should say thank you to warren i didn't get to say thank you to him before i left on saturday. becky, over to you >> andrew, thank you thank you very much. this was the 54th annual shareholder meeting for berkshire hathaway while shareholder meetings are known for being lightly stayed, downright boring, this was anything but 40,000 people were here. quicken loans founder dan gilbert and spanx founder sara blakely. for the first time apple ceo tim cook was in attendance

apple is berkshire's largest equity holding we caught up with cook this weekend and asked him what he thought about it all. >> i think it's incredible i've never been to an annual meeting like this before i thought ours was lively but there's 40 plus,000 people here. and i love the fact that warren and charlie take every question and of course through all of it, not just the wisdom that they exude, but you can feel the integrity and the humility coming out i think it's a great learning experience for me and for everybody in the audience i'm sure. >> joining us now is berkshire's chairman and ceo warren buffet warren, what's it mean to you to have gone through this weekend >> it's a lot of fun you see who you're working for, they see you and you interact with them. they come in sort of a mardi gras spirit. i was in the last ten years with

now maybe 40 -- well, from out of town not 40,000 but a great many from around the world i just never get a letter of complaint. i know somebody complains or has a car rental that isn't available or a hotel room, but they just come in the spirit of enjoying it and the people in omaha welcome them people go around with smiles on their faces. we have 600 of our own people who come in from our various subsidiaries and work for a couple of days i never see anything but smiles on their faces. >> unfortunately we're not going to allow you to rest on your laurels this week because we have some major news breaking this morning you see the market's already down by almost 500 points, the futures here for the dow what do you think about the potential for trade tariffs coming back on and what that might mean for the trade talks >> i can't gauge how both sides

play some people negotiate different ways if we actually have a trade war, it will be bad for the whole world and it will be very bad depending on the extent of the war. but there's times in negotiations when you talk tough. the one thing you can't do though is you can't shake your fist first and then shake your finger later on. that is not a technique that works well so when you do push ahead, you don't know exactly what the outcome's going to be. >> you can't shake your fist first and shake which finger later, right >> well -- well -- well -- you're more advanced on this than i am actually well, that's what you're worried about is you get the other finger back and you have to mean it after a while otherwise it doesn't mean anything obviously when you do that

and you're gauging a response from someone else that also has their own calculus and has their own internal political considerations and so on so it's a dangerous game you negotiate a lot of deals would you do it? >> it isn't my style but i've had a consistent way of negotiating and that has its advantages it has its disadvantages, too, but i just say what i'll do and i don't do anything else so people really know that's what i mean and they can decide whether what i've said is acceptable or not, but they know that i don't go through a game.

now there's lots of people in acquisitions that really like to play games, and they're used to it in their own business it's their way of doing it, and that's fine, but it doesn't work with me. and i don't want to -- i can't afford to spend the time on it you don't know whether you're ever going to get there and you've spent weeks and months. it's just -- it would be a huge time waister if we did it. >> you know, i don't know that this is bluster coming from president trump though he's already put the tariffs on and. i don't know that i would take this lightly and think that we're not going to be seeing 25% tariffs on friday. >> you can't if you are playing the game, you have to sell it that way with some people in negotiations the best technique is to act half crazy with your kids you can see how it works you're negotiating things with

your children all the time count to three if you don't do this and that. they know you're not going to shoot them in the end. they've really got the edge. and that goes on all the time. it's interesting with the reputation we bought a very large auto dealership operation a few years ago and we did make more or less our kind of deal, we name the price. and probably 20 times since then people come out, they say we want to do something, and they just -- we've never thought we could do it the same way they just -- it's just part of their lives to negotiate part of my life not to negotiate. >> you make them come in with a high offer and expect to negotiate? >> sure. anything you say i understand that. that's the way a lot of things take place but probably a majority of

transactions and -- but it's nice to have a reputation for not doing it because it makes it a lot easier you save a lot of time. >> let's talk about what it would mean if tariffs on chinese goods rose to 25% from 10% on the $200 billion worth of goods at the end of the week how significant is that? what would it mean for berkshire's businesses >> well, it would mean a lot to the world. it isn't just the countries involved because, you know, they take the dollars they've received from us and they buy goods in other places. their trade surplus is less overall. everything interseblgts in tctse world. it depends who gets retaliatory with us, with them it's easier to start it than it is to stop it. and the effects would be huge if

conducted on a major scale over time just imagine, becky, that our constitution was set up differently and that states could erect tariffs and michigan would put a tariff in on cars and -- or we would have them on corn and the degree to which trade would contract in this country. the mislocated plants, the migration of workers that would -- i mean, it would -- it would be -- well, it sounds ridiculous to talk about it because it is ridiculous, but you've got countries where it would have similar effects if you get country after country after country because you can't just have it between two countries t. will spread now the very fact that it's sort of a nuclear threat is what

brings people to the stiebl, i mean, that's the way many play the game you don't want to have too many nuclear threats out there because some day somebody may feel they have to fulfill one. >> right obviously that's why the global markets are under pressure. >> sure. >> it's not just chinese markets that are down. you saw the kospi was down 3%. markets down just about everywhere. >> it affects everything. >> you're saying the market's reaction is the right one. we'll see what happens next. if we went to bed a week ago and you thought there was a 1% chance of a trade war and subsequent events makes you think there's a 10% chance, markets reflect that very quickly. >> what would you put in terms of -- you're an actuarial mind what kind of odds would you put on it? >> when you talk about two leaders of the two major

economic powers in the world, that's not some sort of thing i can lay odds on. we're talking about two personalities who are very much used to getting their way and -- in politics and you're talking about how they will be perceived m their own country in terms of their behavior it gets very complicated >> you have written insurance contracts. >> yeah. >> what would it take for you to ensure that there was a deal done at the end of this? >> it would take a big premium, yeah this would not be the kind of thing i would look to insure frankly. >> because it's so unknowable? >> yeah. you would have a hard time finding the risk precisely because if they lasted for a

month -- so you get into the duration of how long it was. you'd have a lot of trouble writing the contract but it is the sort of thing, not precisely identical, that we do take on unusual risks. this is a big one. >> what will it mean for berkshire businesses specifically i just think on friday we spoke with jim webber who's the head of brooks running. they've already relocated and moved a lot of operations because of this concern. they've been in the process of doing that since these trade talks first appeared. >> we've seen it in the rail and intermode al stocks are up ahead of time. it distorts things you can imagine the distortion if you get into it you really can't predict the speed or the degree of effect because it spreads

you can't do something between the u.s. and china in a big way without it affecting all the major markets as they go around. you're starting a game that you don't know the ending of but you know it isn't a good game. like i said, it may be necessary to play another game to avoid that sort of thing i mean, that's -- that's what mutually assured destruction was. you felt as long as you had mutually assured destruction nobody would launch a missile, and this is a similar -- can be a similar type game. a little bit of chicken in it. >> you say that intermodal rail loadings were affected by it, meaning you saw an increase in rail car loadings? >> months ago. >> because people were trying trying to -- >> people loaded up on inventory that -- you thought there was going to be a 25%-if i thought there was going to be a change, i would have coca-cola

the guys that transport it to my house would be doing great boom, it would all end. >> that's a big concern. it we've been looking at the great economy and things were looking wonderful, it was pulling things forward now you get into pulling things down >> i think in the gdp figures there was a big -- no, if you think the flow of something is going to stop or get more expensive and you need it, you're going to not change things >> i will buy stocks i won't tell you their names. >> would you buy more? >> generally the more i buy. >> but that doesn't mean you don't think the markets could go down further >> i'm not buying them because i think they're going up the next day or the next week. >> something you're watching very closely >> yeah. oh yeah but we watch the prices

of things we do more than current events because in the end we aren't buying them because of what's going to good business if somebody came to us with a good business today we'd buy it and we'd buy it regardless of what's going on in the tariff situation. this is an unusual case but we're more likely to get something when other people are fearful. you see that in a big way instantly in a market -- in the market for businesses, but it's still there in other people's minds. >> we have much more to talk about this morning, including the occidental deal that you already referred to. if you don't mind, we'll slip in a quick commercial break and come back more and talk about that. >> got to pay the bills. >> we do joe and andrew, i'll send it back to you in new york. >> back to you in just a moment. we are all over this morning's

big market move. when we come back we'll take a closer look at stocks with china exposure getting hit hard this morning. meantime, as we het to work,, here's a look at the markets and we'll be back in a moment with mr. buffet

some of the big news exposure to china coming up. as you can see there, take a look 6%, 5%, 4% losses this morning bring it back to becky quick and warren buffet out in omaha to talk about today's big backing market move, his bid for occidental we'll be right back.

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all right. welcome back, everybody. we are here and news is breaking there's an sec filing that came

out from kraft heinz that's a big berkshire hathaway it's restating earnings from 2016 and 2017 due to misstatements in the original filings. it does not believe the misstatements are quantitatively material to any individual reporting period it says the impact on adjusted earnings is expected to be less than 2% for each year. kraft heinz says it has now completed an investigation that shows several employees in its procurement operation engaged in misconduct but none of those were members of senior management our guest today again is warren buffet he's the chairman of berkshire hathaway which owns a major portion of kraft heinz what do you think of this news sitting here >> that's more or less of what i've heard i'm not on the board anymore i've heard from others this is an update that i heard

last night and they can't -- they can't issue the first quarter reports until the 10k is filed and they can't file the 10k until price waterhouse signs off on it and that apparently is going to require a restatement of a few years we could not report any earnings from kraft heinz in the first quarter because if we get a dividend from bank of america, that dividend goes into earnings but because we have over 20% of kraft heinz we don't report the dividends, we report the earnings so we received a dividend of about 130 million in the first quarter. we don't report that and we expected to get the earnings before we issued our own report but when the time came to issue our report and we didn't have anything, we put a zero in there

and explained it in our release last saturday. and this is just a further indication of the staff as they stand now. at some point price waterhouse will need to be happy with the figures that are reporting and that evidently involves a restatement and at that time i guess the quarterly figures will become quite current and that we keep picking up our share of the earnings. >> this has been a long standoff period between pwc and the company if they've missed the deadline to get the numbers to you at that point. what happens >> yeah, we didn't expect it i thought that we would have the earnings on time and kraft announced the earnings for the last year but they had not been signed off on by their auditor so while they released them publicly, they couldn't

file the 10k with the sec subsequently that's not unusual for companies to announce the earnings before they've actually got the signoff, but in any event, it's just -- you know, we thought we were going to get them this week, next week, whatever, and then last saturday came and that's our time for releasing quarterly earnings we did not have them so we stuck nothing in there and had a footnote and we put it in our press release as well that we just didn't have the figures. >> if they're restating their earnings, does that mean berkshire hathaway will also have to restate its earnings >> it would be so immaterial by the time you take our share. we're a much larger company so i don't know exactly what we do if it gets into the second quarter. i don't know whether we pick up

two quarters, one quarter, exactly how that works. >> three said this is the -- they've wrapped up this investigation. are you satisfied with what you've heard from that part of the investigation or do you know the details? >> i don't know about that i do know because i've been kept abreast of some of the things. i don't listen in on director's calls or anything like that, but greg tells me the high points or low poechbts of what's happened. we have a terrific head. he's a tremendous investor he's put in the hours on it so i feel very good about the fact that jack is really in charge of things from the standpoint of the directors. >> does the company have your confidence >> company has my confidence. >> you have talked about it over the weekend where you said what you paid for kraft was too much in hindsight. >> exactly.

>> not what you paid for heinz >> that's correct. we just bought heinz it would be a better investment and we don't own just over 50% of a business doing fine in relation to the -- what we paid for it >> in a situation where you've determined that you've now paid too much, what do you do >> i paid too much for stocks, i've paid too much for a lot of things time usually works it out but it means that capital could have been better deployed in other areas. you can always pay too much for a business and i've done it with stocks many times. i've done it with businesses we've got -- we've got -- at berkshire we have at least half a dozen businesses, and i can't even use a we, i say i paid too much so -- and if we make -- the next ten deals we make, there will be

a couple where it turned out that i paid too much. >> this sets us up for a much bigger discussion on where market valuations are right now. why do you think you have a hard time finding that. we have to take another break. when we come back we'll have much more from warren buffet we'll talk about his major holdings and his new investment in okay si dental petroleum and what it means for markets and what it means for business prices right here. right now though as we head to break, take a look at u.s. equity futures again, under pressure severely because of the announcement that president trump says he's going to be putting -- raising the tariffs on the 200 billion worth of chinese goods from 10% to 25% on friday. this was the week that was -- there are questions whether the chinese will send the delegation here

as a result, down by 487 points. s&p off by 400 points and the nasdaq off by 486 and "squawk box" will be right back. we see heating breakthroughs clearing the air for billions. at emerson, when issues become inspiration, creating a better world isn't just a result, it's a responsibility.

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live from the beating heart of business, new york. this is "squawk box. good morning if you're just waking up, brace yourself u.s. stock futures indicating a pretty big selloff in points percentagewise it's not like we're seeing in some of the other inbe did i cease around the world, but down 481 points this morning on the dow. this comes after president trump's tweets yesterday threatening to hike tariffs on $200 billion worth of chinese goods that are currently at 10% could go to 25% but then the nuclear option that we've talked about all along, he's also threatening to impose a 25% tariff on an additional $325 billion of chinese goods i think if you add 325 to 200, that's like everything

basically. this was a reaction in china markets overnight. figure ours if we're -- what is ours what is that, 1.5% or something? it's not that big of a deal for us at this point look at that, 7.3% on the shenzhen figure out what that would be here that would be a real drop in u.s. equity. we're coming off some recent -- a recent series of new highs you saw that on the headlines after friday's jobs, we're the envy of the world. everything else. sunday it's like, all right, things are going pretty good i've got a little room to work with to put some pressure on china. we can sort of see how that happened >> one view of the world in the meantime, want to get back out to omaha where becky quick is with the one and only warren buffet. becky? >> hey, andrew hey, joe

let's get back to warren buffet. we've been talking to him all morning long about the news of the day, things that have been happening that affect the berkshire portfolio. other news crossed the wires just last night and another deal that you're involved in. that would be backing up occidental and taking over anadarko who is engaged in talks with chevron with a bid out there. last night occidental put out its own statement and said it will be revising its proposal. it's talking about a deal, still $76 a share offer. 76% cash and 22% stock by increasing the cash portion it allows what they call significant immediate value, greater closing certainty, enhanced creation. with this they no longer have to ask their shareholders for permission where are you with the latest update >> i got a call yesterday evening. first time i had talked to occidental actually since a week

ago yesterday, sunday. and they told me that they were going in this direction, which i like, but i have nothing to do with it. i believ i mean, we committed 10 billion and it had nothing to do with how they frame their offer, how much they offered or anything else all i knew is they were sure they could get $10 billion from us if they complete the deal with anadarko. >> one of the pieces of the letter that vicky holub, the president and ceo of occidental put out surprised me a bit with how it still seems like this is a hostile bid. there's not good-faith talks that seem to be taking place between them based on her letter. she said this. we remain perplexed at your apparent resistance to obtaining far more value for anadarko shareholders which has been expressed clearly in othrough o

interactions over the last week. >> i talked to them on sunday, a week ago yesterday my understanding is anadarko and occidental had talked much earlier, well before the chevron bid, and we're talking about a transaction and then chevron made an offer which anadarko accepted anadarko was for sale. so it held talks about selling itself to occidental that's my understanding. and so they were talking they were talking to more than two parties for that matter. i wouldn't know that but they have decided that they were willing to sell, i'm sure

subject to price, and they accepted an offer and occidental thought they had a better offer and that's apparently where things still stand but i don't know all the details >> part of the idea thiend had been that, well, would occidental be able to get approval from its shareholders because its stock was under pressure some of the shareholders obviously didn't like the deal by using your cash instead of issuing as much stock as they had anticipated originally, that will keep them from having to go to their shareholders to ask permission for this. as they're saying in their own letter, that certainly increases the certainty of this deal taking place and removes some of that uncertainty >> yeah. >> i would also think that the shareholder -- in occidental we are bullish on oil over the years. you're probably bullish on the

permian basin because it's such a significant portion of their assets there so the idea that they will use less stock and more cash as part of the deal although they're getting the cash from us i would think if i had been a holder of occidental over time i would like that kind of deal at berkshire i hate to issue stock so generally speaking any company we own is buying something, we like it better when they buy it for cash versus stock. we like their stock. we'll see what the reaction is to this but i would just imagine it had been an all stock offer to begin with, i would think people would net their shareholders the shareholders will be speaking out i would think the shareholders would like the shift. >> andrew has a question from back in studio, too. >> sure. >> hey, warren i was curious whether you were

surprised that anadarko hadn't engaged with sock si deoccident there wasn't a price that you would think that occidental shouldn't pay, meaning if chevron were to come back and they're at five times the size of occidental, they could write a check and this could be over with if they want to if the price goes up, i know you get preferred shares is there a price at which you wouldn't look at this favorably? >> well, we permitted the $10 billion 100% we do not have any control nor did we want any control over what occidental did with our 10 billion in terms of -- there's nothing in our deal that provides that they have to come back to us and request permission really to do anything it's a remarkable deal, but that's the way we do them in that respect, and they -- so

they get our 10 billion if and when they close a deal with anadarko and they don't have to consult us i certainly don't need our vote. as a matter of courtesy i got the call yesterday but it was not a matter of necessity on their part that's one of the advantages of dealing with berkshire i mean, we can do things that other people don't like to do or their lawyers don't like them to do this is not a deal that our lawyers would have written. >> is this deal a bet on the permean basin and oil prices or is this just a bet on, hey, it's great to have an 8% preferred. >> it's great to have 8% preferred if there isn't any oil. it's a bet on oil prices over the long term more than anything else it's also a bet on the fact that the personmian basin isn't all a

it's cracked up to be. oil prices will determine -- will determine whether almost any oil stock is a good investment over time, whether it's exxon or some wildcat driller. if oil goes way down, nothing -- you don't solve that if it goes way up, you make a lot of money it's not what it does next week or next month or next year you're buying reserves that go far out into the future. you have to have a view on oil over time. charlie and i have got some views on that, not too specific views. they're not that well informed they are -- we feel good about doing the financing. >> why don't you just buy it

yourself it's only a $35 billion deal and you have 110 billion in cash sitting around. >> well, that might have happened if anadarko had happened to us but we wouldn't jump in some other deal that we heard about from somebody else coming to us seeking financing no, we hope that -- we hope people come to us on businesses but i had no idea that this transaction was going to happen. a week ago friday when i got the call from brian moynihan -- i had read in the paper about the deal, but i've never had any contact with anadarko of any sort. >> david faber reported last week that you had said you would offer up to $20 billion, double the $10 billion that you did in this case. is that the case >> if they needed it they have an arrangement obviously with the bank of america who called us. i don't know anything about that deal, i just know that b of a

has arranged that debt financ g financing. they were a different sort of thing. what i meant to some extent with that is i would be very happy if somebody calls tomorrow and needs 20 billion occidental just needed the 10 billion. >> okay. but you like doing these deals at bigger sizes, not smaller sizes in. >> exactly >> back to andrew's point. this is there for forever. doesn't matter if the bids go up doesn't matter what happens along the way. your $10 billion is in this deal for whatever happens >> yeah. there is -- the lawyers don't write deals like this but we tell them to there's no material adverse change there's no -- if the stock market closes, this deal closes, we're there. we're there under all circumstances and we don't -- we have not written any outs into

it and -- but that's part of the direction of doing business with berkshire. we do it all ourselves it's not something that's partialed out among ten parties. each one makes changes and all of that. when they came to my office at 10:00 on sunday. >> okay si dental? >> a week ago sunday, they knew that if we agreed, which we did by 11:00, they knew berkshire was 100% in. now they had their own board of directors meeting the following evening, but they -- they could say to their board, you're going to get $10 billion from berkshire when this closes you don't need to give a thought to it. >> okay. when we come back we're going to talk more about the prices you see in the markets and whether you think prices are fair at these levels, whether you think they're too much but, again, our guest is warren buff fett.

andrew, i'll send it back to you. >> thank you, becky. when we come back we're going to talk more to warren buffet about the big market selloff we'll ap uwrp the berkshire annual meeting we'll be back in a moment. through the at&t network, edge-to-edge intelligence gives you the power to see every corner of your growing business. from managing inventory... to detecting and preventing threats... to scaling up your production. giving you a nice big edge over your competition. that's the power of edge-to-edge intelligence.

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"squawk box. take a look at u.s. equity futures this hour. dow off almost 500 points, nasdaq down 167 points, s&p 500 off 50 points, all of this on the back of some news that china trade negotiations may not be solidifying as quickly as we thought. right now let's get back to omaha, where becky quick is with warren buffett becky. >> hey, andrew thank you very much. obviously, many stocks are under some pressure from what we're seeing from these chinese trade

talks, what the implications are from all of that one stock that is under pressure today, shares of apple if you want to take a look at the chart, closed on friday at $211.75. this morning the bid's at $204.91, the ask at $205.10. and that's because china has been a huge component for apple. tim cook talked in the earnings call last week about how things seem to be improving there he also traveled to omaha this weekend for the berkshire hathaway annual meeting. it's his first time coming here, but for berkshire, apple is now the biggest investment that they have in their equity portfolio it's also -- berkshire's also the third largest investor in shares of apple. so, when we sat down with tim cook this weekend, i got the chance to ask him what he thought and how he found out that berkshire was first buying into shares of apple listen in. >> i found out probably like you did, which is the 13f gets

filed, and somebody tells me about it, and i went, oh, this is really cool warren buffett is investing in apple. you know, we welcome all shareholders, but we run the company for the long term. and so, the fact that we've got the ultimate long-term investor in the stock is incredible, because our interests are aligned. and then -- i knew warren before then, but we had no idea they were looking at the company. they did all that, obviously, secretly, and have their own method of doing that and it's been a privilege, and i'm super happy they've been accumulating >> what happened when you found out? was there talk around the office were there any high-fives? or was it an, oh, boy, now what? >> it seemed like recognition, in a way, in like an honor and a privilege. and i don't mean that in a lighthearted kind of way i mean, wow! it's warren buffett is investing

in the company yeah so, it felt great. and i think for the whole company, because we knew that he didn't -- he's been very clear he didn't invest in technology companies and companies he didn't understand. he's been totally clear with that so, he obviously views apple as a consumer company, in a different kind of way. i think that's really special. >> warren, what did you think hearing this because when i told you we were going to tell you how he find out, you said, "oh, good, i'd like to hear the story." you never talked to him about that >> not specifically, no. i've known tim a little over the years. i see him at least once a year, maybe twice a year, and i've talked to him on the phone a few times and sent him a letter. i sent him a martin luther king speech some years ago that was kind of lost to history that was perfect, and i thought he'd enjoy. but, no, i didn't, i didn't call

him up while we were buying. i try to keep as quiet as i can when we're buying anything >> china, though, is a huge issue for apple. it's why the stock had been under pressure at the end of last year. last week on the earnings call, it certainly sounded like they thought china, the situation there was improving. what does this news today mean for you? >> well, the important thing is really what the relationship is with china -- three years, five years, ten years, twenty years from now i mean, this all enters in, and certainly, it's hard for me to imagine that the two most important countries in the world would do dumb things over a long period of time, but they could i mean, the possibility always exists that you get miscalculations or egos or national pride or whatever it may be, and that things do

escalate i don't think that will happen well, i know it shouldn't happen i think it's a low probability, but that would be bad. that be bad for everything berkshire ouwns. i mean, it isn't a question of apple, have a very negative effect on our economy, other world economies, and there's chain-reaction-sort type of things so i don't think it will happen, but i don't think it's zero the probability. >> you say it would be bad for virtually all of the businesses that berkshire owns, but apple's in a pretty unique position because it is so front and center, because it's already come up as a potential target for some of these things do you think apple runs a special risk or not? >> well, it would have -- i mean, obviously in terms of our electric utility in iowa, it's going to -- it would have a very

minor effect relative to other types of businesses, but the ripple effect -- if you're in a recession and -- it hits everything, almost, eventually, so i think it's very unwise. it's kind of like having -- if you have a nuclear war, you don't want to say, "ha, ha, ha," you know, if you're in canada, because only attacking the united states or something it's impossible to contain it if you have two superpowers and trade involved and you can't predict exactly how it spreads >> apple shares are down 3% this morning, just looking at the chart. >> good. yeah. >> that's good, why? >> well, because they're repurchasing shares, and when they repurchase shares, our interest goes up and we don't lay out a dime i love it. and obviously, it's better to buy it at x than 2x. >> they say they've reauthorized up to $75 billion in additional

shares are you behind that? you're in favor of that, i should say >> wildly in favor of it. >> we're going to talk a little bit more about share repurchases, not just with apple, but more broadly, because it is a question that came up frequently this weekend at the annual meeting, too. >> repurchases can be the dumbest thing in the world or the smartest thing in the world. and i've seen both but they're just -- repurchases by the company are just like purchases to us, they're dumb a one price and smart at another price. and i like it when companies -- i like it when we're invested in companies where they understand that many companies just repurchase and repurchase, you know, it's the thing to do, and they're encouraged to by some shareholders and by their brokers. repurchases can be dumb. they can be smart. at apple, they've been smart. >> we will talk more about this and much more with warren buffett when we come back after a quick break. then at 8:00 a.m. eastern time, we will be convenining our summt with warren buffett, charlie

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>> announcer: this is a special edition of "squawk box." becky quick reporting live from the berkshire hathaway annual shareholder meeting in omaha, nebraska, with special guest warren buffett >> if we actually have a trade war, it will be bad for the whole world. it's easier to start it than it is to stop it, and the effects would be huge, if conducted on a major scale over time. >> announcer: then at 8:00 a.m., he'll be joined for a billionaire summit with berkshire vice chair charlie munger and microsoft founder bill gates this special edition of "squawk box" starts right now. ♪ those flyover states >> announcer: live from the beating heart of business, new york, this is "squawk box.

good morning, and welcome back to "squawk box" here on cnbc i'm joe kernen along with andrew ross sorkin. we're back in new jersey becky, though, is in omaha this morning with a very special guest. warren buffett joins us fresh off the berkshire hathaway annual meeting we're going to hear from becky in just a minute, but first take a look at the futures. big move this morning in u.s. equity futures this hour, tumbling after president trump threatened china with some new tariffs. we have the perfect guest this morning for the market move. let's get right to becky quick and warren buffett hey, becks >> hey, joe. thank you very much. again, picking up with warren buffett where we left off. warren, we did talk at the top of last hour about what china tariffs potentially mean for business and what they mean for berkshire, but you're looking at the market's down almost 500 points this morning. and for people who are just waking up and just kind of trying to figure out what this means for them, for their portfolios, for their businesses today, i'm sure they've got some questions. what can you tell them what do you say when you look at the markets, i guess down 460

points right now for the dow >> well, i'm saying, if you own a farm and you're worried about selling your farm because you read the newspaper this morning, or you own a perfectly decent business in your town, and you're worried about -- think you should worry about selling your business today because of -- then you should think about -- worry about thinking about selling stocks but if you look at stocks as businesses that you own little pieces of, why in the world should you sell it based on headlines of any sort? i mean, if you expect -- if you expect a farm to be a good investment over ten years, if you expect an apartment house to be a good investment over ten years, and if you own a marketable security, which is an interest in a business, and you expect that business to be a good business over ten years, it's nonsense to get feeling good or bad about what stock prices do in a day, unless you have extra money and they go down and then you feel better because you can buy more of them cheaper. just like if you could buy the

farm right next to you cheaper, you'd love that if you were a farmer >> you know, usually that's an analogy that i understand and agree with, but this time around, a farm in particular, i would be pretty worried if i was a farmer, trying to figure out if i should be planting soybeans or if i think i'm going to be able to make enough money to get things back this time around tariffs have hit the farmers particularly hard, and a lot of them have said they're behind the president, they want to see us get to a better situation but many of them are also in a position where, look, they've already been asked to give a lot. they thought we were about to reach a deal, and they're hoping that when they're making decisions for this planting season, they have some clarity. >> well, it is true that business generally has improved, markets have improved and everything, and the farmer has not participated in that so, this has been a very good economy, for a long time i mean, we've been coming back for eight or nine years, and businesses kept getting better interest rates have been low for business stocks have gone up, and the farmer has not participated the

same way so maybe i shouldn't have used that example but they -- if you have a decent business -- i mean, you buy into a business you don't buy a stock that wiggles around, you know and people understand that but then they behave as if it's bad news when the price goes down if you had a half interest in a wonderful business, and then the person that owned the other half and they were depressed by those headlines and said, i'll sell to you my share of the business a lot cheaper than yesterday because i think this whole thing is going to just end the world, you'd just say, here i wish you weren't so depressed, but if you're selling it to me cheaper, you know? the business is going to be here five years from now and ten years from now, and all the headlines -- we don't know what the world's going to look like in three years or five years or ten years. what you do know is that the united states is going to grow over time and that businesses are going to generally do well and if you own decent businesses, you'll make money. >> that's a great long-term perspective, but for the shorter

term, not just for stock prices, even for companies that are trying to think about their quarterly earnings or trying to figure out how they're going to be able to pay for some items or figuring out how the relationship with the supplier's going to work at this point, it could be an impact that's fairly large -- >> well, you have to run your business -- >> in the short term or medium-term. >> our own subsidiaries, obviously, where they thought that tariffs could be increased, they've loaded up more on inventory. i mean, you make business decisions, but you don't make a decision about whether to buy or sell the business if you've got a good business. if you're going to own a business for ten years, you're going to see a lot of terrible headlines, you know. i bought into my first business in 1942, and they didn't notice that i did but just imagine all those headlines at that time and the world, you know, the philippines were falling i mean, we were losing the war and, but the united states is going -- your kids are going to live better than you did and

your grandchildren are going to live better than they do, and generally speaking, productive assets are going to be worth more in this country and if you own a diversified group of productive assets, you'll do fine, as long as you don't read the papers. >> although you did say an hour ago that the sell-off when the dow was down by about 500 points was not an undue sell-off, was not overdone at that point, if we actually get to raising tariffs by 12%. >> well, it may not be undo -- i mean, in the day or the week -- but you shouldn't need -- i don't have the faintest idea how to buy and sell stocks for a day or a week or a month i know how to buy businesses for a long period of time. i'll be wrong on some of them. you won't be wrong on america. >> in terms of that, when you look at the markets today, if you see cheaper prices, would that mean that you would buy more of a stock that you wouldn't have bought last week >> yeah, some of them will hit levels that i might have been below. i will always react well to declining prices

if i like to buy a business, you know, if i could buy this hotel we're in and they dropped the price, is that good news or bad news for me? i mean, if i like to buy hotels. so, but, the fundamental point, some people get it, some don't -- but when you are buying a stock, you're buying something that wiggles around or is on a chart or has a target price, you're buying part of a business if you're right about the business, you know, pay a crazy price, you can be right about the stock, as long as you don't do dumb things yourself. >> over the weekend, a lot of questions came up about share buybacks >> yeah. >> people were asking specifically about berkshire why don't you buy back more shares of berkshire, especially when you have $110 billion in cash on hand what's your answer to them >> well, we will only buy berkshire if we think that the shareholder the next day, or that same day, is wealthier after we've bought the stock, in

other words, we've bought it for a shade less, or maybe a lot less, but at least a shade less than it's actually worth and we don't set out to buy any given amount we set out to buy stock at prices below interesting value per share. now, that's not something that is precise to the penny or anything it's probably a band of 10% or something like that. and my partner, charlie munger, if you asked us to give you a slip of paper with interest per value per share on it, it would not be the same figure, but it would be close and we both would have a band or something of the sort. if you're buying at below that figure, you know, if i'm -- we've each got $1, and you'll sell me -- and we've put it on the table and you can't reach it for a while, and you say, well, i can't reach it, so i'll sell you my share for 95 cents. i'll give you 95 cents you know, a dollar or two. so, it's nice. it's not complicated it may be beyond my ability to

figure out the intrinsic value of certain kinds of businesses, but with berkshire, i've got a reasonable idea. i try to give the shareholders the same information that i regard as important in calcul e calculating that now, it can change, presumably you want it to change up over time because we retain earnings and we should be building more value. but that's the equation. first of all, you have to have the cash you need to run the business i mean, that's -- steve jobs called me one time i mean, he called me, i don't know how many years ago, but he was thinking about repurchasing shares and i said, steve, there are just two questions i said, you know, a, you have all the business, all the money that you need to developthe kind of business that you've got in your head for the next five or ten years and oh, he says, we've got plenty of money. and then i said, then the second question is, is your stock selling for less than it's worth? and he said, oh, yeah, selling for a lot less than it's worth i said, well, you've answered your own question.

but if he answered, we need the money we've got here actually to fully develop our business and we've got opportunities to do it, i'd say, forget about it, you know build the new plants and do that and maybe the cash will come in later where you can buy in stock. and secondly, he said the stock isn't really cheap, what's the reason for buying it in? >> did he buy back shares after that >> he didn't like buying back shares i think he was hoping i was going to give him a different answer he didn't argue with the logic of it, but i think maybe -- i think he was hoping for a different answer. >> it's interesting that you say that, because tim cook, the current ceo of apple, was here this weekend, and we got the chance to ask him about share buybacks, too, because share buybacks have been such a big deal for apple they've deployed so much cash doing that and just announced last week at the earnings that they'd be buying back an additional $75 billion worth of apple shares, or at least they've authorized the

repurchase of that much. again, we sat down with tim cook this weekend and here's what he had to say about that, too listen in, warren. >> this is a funny story a bit, is back in 2012, i had been in the ceo spot maybe a year or so. we had a growing amount of cash. i think we had crossed the $100 billion kind of mark, if my memory is correct. and i was getting lots of input from a lot of different people, as you can guess and when i don't have experience in something, i always make a list of the people that i think are the smartest people that i can contact to talk to them and get advice and warren was on the top of the list, as you can imagine i had never met warren before. and so, i get his number i call out to omaha. and i'm thinking -- i wasn't sure he'd take the call, you know i'm sort of calling out of the blue

he doesn't know me from adam but he took the call, and i had a great conversation with him, and that was the first time that i had met warren and he was very clear to me. i still remember, he said, he goes, let me just cut through it -- if you believe your stock is undervalued, you should buy your stock and i thought that was just the simplest way of looking at it. so, here's what we do, is we first and foremost take care of our people and we take care of the company and the future of the company. and we've been investing a ton in both this country and some others we're going to spend $350 billion in the united states in building new sites, and we just announced a new expansion in austin and so forth. so, all of that is number one, right? and then, if we had money left over, we'd look to see what else we'd do. >> part of what else they do, he said, is to make acquisitions.

and what i didn't realize is he said they're making an acquisition every week or two. >> yeah, they make a lot of small acquisitions. >> you say they've made 20 to 30 acquisitions over the last six months. >> sure. >> small acquisitions that they don't really talk about and don't tell people things about. >> yeah, yeah. >> you knew that >> if you look at the 10q, you know, you can see. but they make a lot of acquisitions, yeah and i hope berkshire makes a lot of acquisitions, and i'd rather buy an attractive business than buy our own stock at its intrinsic value. if our stock gets well below that, i've still got this strong -- and i can do both, fortunately. but how an executive can pay, say we're going to spend $10 billion buying stock and then not pay any attention to the price at which they buy it, they wouldn't buy any other business that way and, so, we're price-sensitive on it.

on the other hand, when the price is right, there's no easier way to make money for your shareholders. >> you say you like apple buying back shares, so you think the price is right there. >> well, they've done a terrific job of it. they've done a terrific job. they've made their shareholders a lot wealthier because tim has done that aggressively when the price is right >> what -- i mean, how do you know in hindsight -- do you know -- how can you tell when a company's doing a bad job repurchasing you have to be able to figure out how to value the business properly it's easier than you're making it sound. >> yeah. the truth is, if you look back, and i was director of the company, but coca-cola kept repurchasing their shares at a time when it didn't make sense, if you look at it, in the years earlier. they just -- they had a terrifically good idea of repurchasing when the company only had a market value, you know, less than $10 billion, and they bought a lot of stock, and they were aggressive about it.

they fell in love with the idea. and i was a director at the time but they're one of many. i mean, same thing happened to gillette, to a degree. it's interesting sometimes it's difficult for ceos to be objective about their own stock price. and they think the higher it sells, the better, you know. and it's a fine way to feel, except if you're repurchasing it and you repurchase it at prices up to the sky. >> when coca-cola was buying back shares, and it turned out it was at too high of a price and you were a director, did you know that at the time? >> i had a pretty good idea. >> why didn't you say something? >> well, i -- i may have made some comments, but the man has done a sensational job

that's part of the reason why the stock price was so high. they've done a great job, made me a ton of money. and if you indulge too often at the dinner table, you don't get invited to parties anymore. >> which is the problem with any board. >> it's just, you don't get to be a director, unless maybe you're an activist or something, but people don't like it if you speak -- and some ceos like it a lot less than others some ceos encourage a lot of dialogue, and others make sure all the important stuff comes up at five of 12:00 when you have to leave at 12:00 to get your plane, and the next plane is six hours later. >> it's interesting. >> boards are managed in different ways >> have you known every board you've been on, which has been managed well and which has not >> well, several were managed well in some respects, and they could be done financially. i mean, you have some managements that really have a money sense, and then you've got others that are very good managers, but they're not good

at -- i always love it when i hear management -- i ask the guy what he's doing with his own money, and he says, oh, i couldn't possibly evaluate stocks and everything. i turn that over to somebody else and then he goes out and makes a $5 billion acquisition or something he doesn't really know anything about just buying a whole lot of stock. some are good at it, some aren't that's true of our managers. we have terrific managers. some of them are good at full-on acquisitions and some of them would be terrible. >> do you let the ones who would be terrible at it go ahead and make a bolt-on acquisition >> not very often. some of them don't have -- they have great operational sense they don't have a money sense exactly. you know, a lot of -- you talk to a lot of managers, ceos and they don't know how to run their own stock portfolio. well, those are decisions and are capital allocation

decisions. they know a lot about businesses and know how to value things you'd think they'd be good investors, but -- i used -- one fellow who was a big partner back when i was running a partnership a long, long time ago, and he had stock options at his places and he would regularly exercise them, take the money and buy berkshire. i wasn't so dumb about it, but it wasn't exactly what the options were supposed to incent. >> but that's unique to have somebody who understands both operations and the money side of things. >> well, some really do, and -- >> i'm thinking -- >> i would say tim cook, for example, does. he has a real grasp of -- i mean, he has an operational mind and he has a money mind as well. >> what about greg abel and -- >> well, i don't want to get into going through the alphabet on this. >> no, i ask it because berkshire's in a unique position and you have people who are doing all kinds of things, some who are managing money, some who are managing operations. >> yeah. >> can somebody do all of this >> both of those guys happen to

have extreme money sense, but i don't want to get started going through the list. >> understood. understood can't help but try. >> well, you got the answer on the two important ones >> warren buffett is our guest when we come back, we're going to talk a lot more, joe, about the economy and what he sees after those great jobs numbers that we got on friday, the stronger-than-expected gdp numbers we've gotten recently, too. we'll talk about what that means, especially with china and all the things we're hearing today. >> great thanks, becky. coming up, much more from warren buffett. then at the top of the 8:00 hour, a billionaire roundtable here on "squawk box. berkshire hathaway vice chairman charlie munger, microsoft co-founder bill gates, are going to join warren we're not in that roundtable, i guess, are we? >> i mean, we don't have the money for it, but might have a question or two. >> what if we pool our resources, maybe still -- >> even with the credit cards? >> even with the credit cards. >> we'd need a loan. >> tap him out big hour coming up, only on "squawk box. ent?

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welcome back to "squawk box. president trump tweeting just minutes ago -- "the united states has been losing for many years, 600 to $800 billion a year on trade. with china, we lose $500 billion. sorry, we're not going to be doing that anymore!" take a quick look at the futures, continue to be down close to 500 points. 471 -- 472

the nasdaq down 161. s&p down 50. i guess, becky, if i were to pose a question to warren, it would just be that those trade deficit numbers, you can, you know, we get bogged down in talking about whether they're good or bad or how to fix them, and it's a symptom, really, more than a cause of what happens with china i was just wondering, warren, you've done great over the years with the status quo, with how the united states has approached china and china trade. berkshire's done great we've all done great everything's fine. do you wish that trump hadn't confronted china at all and we just aren't addressing any of these long-term problems with intellectual property or, you know, take your pick of which issue we're trying to solve. but do you just wish he had left it alone and just let berkshire do its business the way it's been doing, or do you think there's some rationale to confronting china? >> china and the united states

for the next 100 years, i can tell you two facts about it -- they'll be the two superpowers of the world, and we'll always have some tensions with them and it can well be about intellectual property. it certainly has over the last, you know, 20 years or thereabouts, 30 years. and it will be about trade, it will be about policies that they're carrying out, you know, in terms of their neighbors or we're doing -- i mean, there's no way you can have two countries so dominant in the world without them having conflicts. you just don't -- you know, there are going to be tensions, there are going to be negotiations, and sometimes we'll both come away thinking we've lost, but it's inevitable. so, i -- and how you play the game, if you're negotiating with some people that are tough negotiators on the other side, i mean, it's not -- those are not

easy decisions to make i mean, if you're dealing with the labor union -- nobody really wants a strike it's bad for both sides. but sometimes things develop to that point so, i think you should get very used to the fact that if you're a young person that you're going to see a lot of different tensions over time, and it will have been on the individuals involve, it will depend on the specifics of the situation but every time we sit down, it won't be like a garden party >> warren, you mentioned that there are going to be times when both sides walk away and feel like they lose are there times that both sides could walk away and feel like they win because that's usually the sign of a successful negotiation. >> you want both sides to feel like they won at the end and you know, the idea of a negotiation is to take something that you have, the other person needs, and in a sense trade that for something that they have that you need.

and it's going to be constant, and there's times when it's going to be tense. it's just the nature of things i mean, you have that on a much different level when you're negotiating nuclear arms reductions or something of the sort i mean, we know it's in the interests to get the nuclear stockpiles down and all of that, but that doesn't mean it's easy. and you try to come up with deals that are good for both sides, but that's not always easy. >> i mean, i try and think about that in this scenario, and it may be particularly difficult in this scenario, because for a long time, we've been dealing with china as if they were still not a superpower, as if they were still -- so, we've been giving them better sides of deals. it's really hard to all of a sudden say we're taking some of that back. what do they get out of this deal when we are trying to change a negotiation that we think has been unfair to this point? >> it's difficult for us to

accept the fact. it was difficult for us to accept the fact after world war ii that the soviet was a superpower in terms of military power. and there were -- i mean, as you know, obviously, there are all kinds of tensions involved in that and negotiations and it's still a worry that you have, we have the two big nuclear stockpiles in the world. and you worry in terms of mistakes being made. i mean, it's a big game. and with china, it's overwhelmingly an economic game, and it's an economic game we didn't think we'd be in 40 or 50 years ago. i mean, the chinese -- the rise of their economy has been extraordinary. and they do some things we don't like in connection with that, and sometimes you have to get tough to make changes, and we do some things they don't like. but it's a reality now, and it's going to be a bigger reality as the years go by.

and it's very easy for it to become a huge political issue. so, you'll have people fanning the flames for their own personal interests in politics or their own interests in business it's not easy to navigate, but leadership has -- that's the job of leadership is to take on the tough problems. >> having said that, the economy has held up very well -- >> sure. >> -- in the face of any tensions that we've seen to this point. jobs report, incredibly strong on friday. the last gdp report was very strong, too. >> yeah. >> so -- >> you can't stop america. you can't stop china, though, either but you can't stop america we live as a country -- you know, it's extraordinary what we have compared to 30 or 40 years ago. even in agriculture, it makes it tough in agriculture because we get more productive all the time, and that tends to depress prices

but this country is going to move forward i mean, there isn't any question about that but china's going to move forward. and the way to try to do it is to do it that maximizes what both countries can do well, and more trade is better but trade in specific industries can hurt specific industries here, and that's a huge problem that the president -- the heads of both countries have to be the educators in chief and they have to explain why trade is good for the populous as a whole, and it can be terrible for people in certain industries, and then a rich country takes care of those people that become roadkill in the process, producing a better life for 330 million americans. >> lots of people on wall street are not going to be sanguine about this news today. i've been reading some reports

last night, goldman sachs saying this not only rapidly increases the odds that we don't get a trade pact with china, but increases the odds that you could see trump announce that he's going to pull out of nafta or that he's going to put auto tariffs on european imports. what do you think of that and what would that mean >> it's the problem of escalation in anything we have the problem of that with nuclear weapons. i mean, the escalation and it gets more and more dangerous as people become feeling more and more threatened, and their own local political situation demands more and more action. i mean, that's the dynamic that you're facing any time you get to these major problems between countries. and that requires the wisdom of the leaders, but to some extent, it requires the wisdom of the people and how the leaders convey it. and how they conduct themselves. but we will have this sort of thing happen we've had it happen, obviously,

and occasionally would turn into wars of the past we can't do that anymore in a nuclear world, you can't get to that point. and any sane person realizes, but you don't want to get too close to that tinder box >> usmca, also better known as new nafta, that deal is out there, but now i think pelosi is saying that they're not going to bring it for a vote at this point. are you in favor of the new nafta deal >> well, i was in favor of the original one we are very, very lucky to have canada and mexico bordering us and then oceans on the other side i mean, it's -- geographically, it is a very attractive position compared to countries that are situated around the world. and we've got lots and lots of

common interests, and we are the big guy in the game. and as the big guy in the game, we should do more than our share of making sure that our neighbors are growing and prospering at a rate that is consistent with ours doesn't mean they're equal, but that when we live better, they live better. and trade with mexico and canada is enormously important. we should treat them as neighbors and not adversaries. >> warren buffett is our guest again this morning, the chairman and ceo of berkshire hathaway. we've spent the last hour and a half speaking with him, and we've got more to come when we return, we've got other issues to talk about with warren we still haven't gotten to wells fargo. and charlie munger is here, too. he's here early. so we may put him on set early. >> good! good give him the wells fargo questions. >> andrew, we'll send it back over to you. >> thank you, becky, and thank you, warren. coming up, a lot more from warren buffett on this morning's

market sell-off, which has people concerned as we head to break, take a look at how concerned folks are right now. the dow looks like it would open down about 452 points. nasdaq looking to open off about 150 points and the s&p 500 looking to open down about 47 points we're back with becky in omaha tharn fft jt a moment

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still to come on "squawk box" this morning, a very big morning. we are counting down to a huge hour a billionaires round you can't afford to miss it. berkshire hathaway vice chairman charlie munger, microsoft co-founder bill gates, and warren buffett all joining becky quick live from omaha, fresh off the berkshire hathaway annual shareholder meeting. and so much to discuss with them this morning the futures are plunging as president trump threatens new china tariffs. we're going to get their thoughts on trade, the markets, and the state of the global economy. here are european markets right now. want to show them to you "squawk box" returns with all that and more in just a moment dear tech, dear tech, let's talk. we have a pretty good relationship.

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welcome back to "squawk box" this morning we are looking at a lot of red arrows after the news overnight that president trump is threatening to reapply tariffs as the negotiations seem to have

stalled, or at least they're now being renegotiated take a look at the dow right now. looks like it would open off about 452 points, nasdaq off about 150 points, and the s&p 500 off about 47 points. we'll also show you what's going on in europe red arrows there across the board with the cac and the ftse in italy off close to 2%, dax as well spain as well. then let's also show you asia, because that's getting hit in a very big way these tweets roiling these markets. shanghai composite down over 5%, the shenzhen composite down over 7% then also let's take a quick look at oil right now because wti crude is trading at $61.56 in the meantime, we want to get back to becky quick, who is in omaha with some very special people, who i imagine have some opinions on what's going on right now in these markets, becky. >> andrew, they do

thank you very much. again, we are live in omaha, where we've been talking for the last hour and a half plus with warren buffett, the chairman and ceo of berkshire hathaway. right now, we're joined by charlie munger, who is the vice chairman of berkshire hathaway he is also the chairman of the good samaritan hospital in los angeles, chairman of "the daily journal," and he's on the board at costco. and charlie, thank you very much for being here with us this morning. >> glad to be here. >> it's great to see you we are coming off of the annual shareholders meeting, and obviously, we're going to talk to you guys about the news of the day, but first i'd like to take the opportunity while i have the two of you here today just to talk a little bit about what your partnership has meant to each other. how many years, warren, have you been partners with charlie >> i met him in 1959, and we instantly became partners in thinking and then over the years, we've developed all these financial relationships. but i knew immediately upon meeting charlie that we were going to be -- we were in sync, and we've lasted a lot longer

than i thought we would, but we have had an incredible fun together we've done all kinds of things some have worked, some haven't worked and we've never had an argument. we disagree on things sometimes, but we've never had an argument. and never second guessed me. i try not to second guess him. it's a great relationship. >> charlie, 60 years did you know at that first meeting that you'd have a partnership like this? >> well, i knew that we were on the same page, but it's been very lucky that a little company became as big as it did and that we've had the run we've had. >> what's it like -- >> i think we're very talented and all that, but we've also had a tailwind of good luck. >> what's it like in terms of how you all kind of use each other as sounding boards how does that work >> i think if -- if two

collaborate in their own way, they're better off einstein wouldn't have been as good as he was at what he did if he doesn't have someone to talk to. >> it's more fun, too. >> yeah. >> the ideas are better net, but it's also more fun when we disagree, charlie says, well, you'll end up agreeing with me because you're smart and i'm right. pretty simple. and he was right that's the hell of it. >> not always. >> you're both pretty -- you both act pretty unilaterally, though you both do your own things and come to each other after the fact a lot of times. >> sure. >> he does what i'm thinking i know what he's thinking. and either one of us wouldn't ever do anything we thought the other one was opposed to we might feel we'd have a little selling to do, but we are in sync >> let's talk about a deal you did recently, occidental. >> right. >> where you agreed to back them up you cut that deal and then you called charlie, but you knew

what he was thinking already >> i didn't want to wake him up. i'm pacific coast time i thought it would be very unfair if i -- >> warren knew i'd be for that deal. >> sure. >> how did you know that how do you know so much about each other and how you think >> well, occidental's in my part of the world, and of course, i've followed to some extent the new elements that are interesting. >> and what do you think of the occidental deal? why do you like it >> i like it. >> why >> i think it's got potential. >> because >> well, because i think that occidental is right to want to do it. >> so, buy into the permian basin, to get more assets? >> absolutely. >> and what is it about the permian basin that you like? >> it's got a lot of oil in it, and gas. i don't like a desert just for its own sake. >> i asked warren this earlier today -- if it's such a great deal, the permian basin is such a great deal, why didn't you just buy anadarko?

>> nobody asked us to. >> yeah. well, and that may sound strange, but who knows if they'd come to us we knew -- we do usually wait until people come to us. it isn't like we -- if we wanted to buy in the field, we necessarily, you know, would start dialing and flying around and everything that -- >> occidental knows a lot about the basin, and we don't. of course, we like having somebody with us that knows something about it. >> yeah, when we were at solomon, we had something called anglo american that some -- >> angle of persian? isn't it anglo persian >> something like that yeah -- >> anglo british or something. whatever it was, it was neither. >> anglo swiss, actually anglo swiss. they came to the directors and had a big plan for drilling in russia and we were going to put up a lot of money and send it to

siberia and hope that we got oil back and charlie said, you know, who's anglo and -- >> who's swiss >> and of course, none of these people were -- i mean, so, they were lying in the name of the company, and that did not go over so well with the solomon board when charlie pointed it out. but we sent a lot of money to siberia, and -- >> never got it back, either. >> got one little vial of oil. the guy came to see me one time after i had become chairman and he showed me this magnificent, you know, exactly the kind of oil they wanted, and that's the only oil we ever saw and it was producing 50,000 barrels a day towards the end. they just kept it all. >> yeah, anglo swiss. >> anglo swiss. >> no anglos and no swiss, just lies all the way down. >> let me ask you, though, about occidental and this deal in particular if you like the permian basin but you've also both commented on times when you think you've paid too much in the past, is there a number that would hit that you would think, okay, this is paying too much for the permian basin, too

charlie? >> well, of course. >> all the time. we always think that way. >> yeah. >> but it's not anywhere near at the price that they're paying right now? you think it's going -- >> well, we don't know. >> we don't know. >> maybe the last dollar all we know is we're willing to do it. >> you both have made some comments about, recently, to us about you think prices are very high in terms of what you have to pay for a premium for buying a company outright is that still the case >> there's probably more competition for buying companies by people who are using other people's money, and therefore, have less sensitivity to price and who are willing to borrow a whole lot more and are being offered the ability to borrow a whole lot more, less in the way of covenants so, the competition is tough on it. >> and part of the up side and the idea of not knowing the down side. >> in fact, they make money on the down side. >> yeah, so, that is really terrible competition for us. and it gets worse every year >> is this why you're sitting on such a big pile of cash at this

point? >> part of the reason, of course. >> it's residual on the other hand, you know, i would much rather own many common stocks than bonds, and of course, that's -- i think stocks compared to bonds -- and you have to compare -- they are the ultimate, and we talked about bond yields and effect being gravity, and when they're very low, there's little gravity to pull down stocks and that exists today, you know. we'd so much rather own the business of america than get a 3 porti3% for 30 years in the government and people were making those choices all the time in the investment world, but stocks actually in many cases -- it looked like perfectly intelligent investments. >> charlie, do you agree with that >> sure. >> let's talk about some of the ipos that have been coming to market recently, because there has been a bit of a fervor many of these ipos have done well, although not all of them lyft shares are under pressure uber comes to market this week

and warren, you mentioned this weekend, you talked once again about how you had looked at uber about 18 months ago and passed on that. what do you think about uber coming to market now >> well, because i looked at it, i really don't want to discuss uber and i don't have any special feelings about it than any other coming to market but i would say that in 54 years -- well, i don't think berkshire's ever going to -- i mean, the idea of saying the best place in the world i can put my money is something where all of the selling incentives are there, commissions are higher, you know, the animal spirits are rising i mean, that's going to be better than 1,000 other things i can buy where there is no similar selling enthusiasm and the desire to get the deal done on extra commissions that's the single best thing to buy on a given day

i mean, it's -- >> and i can't think of a time we've ever done it. >> yeah. >> ever bought an ipo. >> yeah. never will. >> so -- >> they don't even call us. >> but how can it be -- the best sngle thing to use your money for in a given day is something that they've got everyone in the world out pushing it it just doesn't make any sense i mean, i'm not saying that necessarily what we're buying is going to work out better, but there have to always be better things than one single issue if you make one decision on investing, if you can't find something among all the choices that we see that is better than something that -- and like i say, the commissions used -- they've come khouw i think now on this, but the highest commission, thing that a stock salesman -- was the new issue. so, you have all this -- we like to buy things where nobody's making a dime selling them to us. >> charlie, specifically on some of these companies, and i won't

talk about uber versus any of the others, but a lot of these companies are coming very late in the cycle they've had massive private capital that's been put to work to this point. and they still have massive losses and the need for more capital. >> it's even worse than that some of them have preference for each round and so the rounds aren't really fair rounds. there's a lot of lying in modern finance. >> so you're not in favor of any of these big -- >> i don't like lying. >> what do you think of these -- i ask this because we have a lot of retail investors who watch and who are looking at this and they feel the excitement behind it >> got any wonderful advice on buying, adios. >> whenever you buy a stock -- let's say you're buying general motors, 1.4 billion -- let's say the stock's value is a little below that you should be able to take out a one-page sheet of paper and say, i am buying the general motors company at $56 billion because -- and if you can't answer that question, if you can't write that out, then

you'll go on to something else and if you're buying berkshire, you have to say, i am buying berkshire hathaway at $500 billion because -- and the answer isn't something you can write. you can't say, i'm buying it because my neighbor thinks it's going to go up or because, you know, everybody's talking about it on cnbc this morning or whatever it may be. >> or like on uber. >> no, that's the question you answer now, when you buy groceries, you buy everything else, you can answer that question but if you can't answer it on something that you're involving your savings of many years for, why in the world should you -- why should you be doing it >> let me ask you gentlemen about a topic that came up over the weekend at the annual shareholders meeting, and that's shares of wells fargo and just the company to this point. i got a lot of questions that were sent to me by shareholders questioning why you all have been standing behind wells fargo without saying more about what went on there?

charlie, what do you think >> well, i think it's a fine company. so they made one bad decision about an incentive plan. i regard it as an honest mistake, not as somebody's moral failure. nobody was being malevolent in the high ranks of wells fargo. they just had a blind spot. >> they had a blind spot it didn't get cleared up very quickly, though. >> that's the problem, yeah. >> yeah, but you don't -- they lost their jobs over a blind spot, and, but i don't think tim sloan had a blind spot i think he just lost his job because life is hard >> you thought dick -- >> i don't like it. >> you thought dick kavosovich had a blind spot. >> yeah, sure. >> and >> and the guy -- >> john stumpf >> yeah. >> but you don't think there was criminal activity. >> foers not well, the criminal activity was people below, and that was forgivable

they were under a crazy incentive system >> is the problem fixed now? >> i think so. >> think a very, very high percentage of it would be. certainly, the intent is to correct it it's cost the shareholders, you know, a lot of money and they want to correct it. when i went into solomon, i wanted to correct it, too. i could never quite say it was over, though people kept asking me if it was over i don't know i hope it's over and i'm trying to make it over and i'm looking for things, but when you have 200 -- well, they have 260,000 or so people -- it's a scary job to be running a city of 260,000 people with no cops. and we have something -- we have some things wrong at berkshire now that i don't know about. charlie beats this into me all the time you know, as soon as you find a mistake, do something about it

and sometimes that's unpleasant. i've got to do it. i mean, i may have people that are deputized to do it, but it's my ultimate responsibility. >> yeah, and you do do it, too, fast. >> is wells fargo different because it's a shareholding and not an actual berkshire company that you own outright? >> well, of course we don't have any control over what they do. >> who should be the new ceo >> if i had been making it, it would have been tim sloan, but now they're going to get somebody sometimes a new person is better and sometimes worse. i think it's about half and half. >> yeah. that's something -- yeah i met two weeks ago or thereabouts with four people, inclu including betsy, the chairman, and first time i met her in my life or talked to her. but we talked about it, and it's a tough position to fill. >> what did you tell -- you talked to the chairman --

chairwoman of wells fargo and told her that you think what about -- >> no, they called me. i didn't call them i mean, so, i didn't jump into it but they just asked what i thought. that was the first time they had asked what i thought about it. and i gave them a suggestion or two -- >> what was your suggestion? >> well -- do these people have names? but i've suggested -- well, i suggested publicly that it not be somebody from wall street, not because there aren't plenty of good people on wall street. i just think that politicians are looking for the next one it's good television it plays right into the campaign and you need somebody running that does not bear the extra baggage of having a label on their forehead that says wall street, which will cause half the viewers to cheer for whoever's doing the beating up of >> all right we will continue this conversation we're coming back at the top of

the hour, and joe, we'll be joined by another special guest then. >> yeah. i've heard of this guy microsoft co-founder bill gates. pretty good, becky. >> that's right. >> coming, joining the conversation it will be a big hour coming up. it's only on "squawk box." there is the -- that's it, right there. check it out and check out the futures. we're going to -- i really think we should start doing percentages, too it is a big sell-off, obviously, but let's keep it in perspective. 7% in shenzhen is not what we're looking at here. we're looking latess than 2% on the dow. we'll be back. for another 150 years. ♪ to inspire confidence through style. ♪ i'm working to make connections of a different kind. ♪ i'm working for beauty that begins with nature. ♪ to treat every car like i treat mine. ♪ at adp we're designing a better way to work, so you can achieve what you're working for. ♪

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>> announcer: right now on "squawk box" -- billionaire summit a special conversation with three titans of business this hour, berkshire hathaway's warren buffett and charlie munger, along with microsoft founder bill gates investing in today's market. 2019's wave of ipos. and disruption in the worlds of business, tech, and global health it's a final hour of "squawk box" you can't afford to miss, and it starts right now. ♪ they call me the seeker

♪ i've been searching low and high ♪ >> announcer: live from the most powerful city in the world, new york, this is "squawk box. ♪ ♪ get what i'm after 'til the day i die ♪ 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 andrew ross sorkin. andrew wrote a great column today about the weekend and about capitalism and everything else, and i'm -- >> wow, i'm getting a compliment. >> it's in "the new york times." >> unbelievable. >> and i mean, i could have written part of that i mean, it's all -- i was -- you told me to read it, and i said, no, i'm not going to i'm not going to ruin my monday -- >> that's good warren defended capitalism. >> i know, but you had to write in your -- i mean -- >> and i praised him i praised him for -- >> did you get some pushback from your editors? >> i did not get any pushback -- >> at "the new york times.

you did not? >> no, no, no. >> okay. >> they're very happy. >> okay. becky quick is live in omaha with some very special guests that we'll get to in just a moment, andrew. okay, but first, we want to show you the futures right now, because they are tumbling at the start of this week following a pair of tweets from the president. president trump last night threatening to amp up economic pressure on china. trump said, "for ten months, china has been paying tariffs to the usa of 25% on $50 billion of high tech and 10% on $200 billion of other goods these payments are partially responsible for our great economic results the 10% will go up to 25% on friday $325 billion of additional goods sent to the u.s. by china remain untaxed but will be shortly at a rate of 25%. the tariffs paid to the usa have little impact on product costs, mostly borne by china. the trade deal with china continues, but too slowly as they attempt to renegotiate.

no exclamation point this all coming ahead of a planned visit to the u.s. this week by china trade delegation there was speculation after trump's tweets that the chinese team might cancel their trip, buts a spokesman for their foreign ministry says the country still plans to send the delegation markets have been spooked. the dow off about 164 points, s&p 500 off about 47 points, the nasdaq off about 151 points. also show you treasuries real quick as well. the ten-year note looking right now at 2.485%, and if you look at what's happening in asia overnight, that's where you really had the percentage losses the shanghai composite off over 5.5% the shenzhen composite off over 7% and finally, we'll show you european trading right now you're looking at red arrows again across the board, mostly in and around off about 2% joe. >> i mean, i wait for tuesdays for your column, typically this is --

>> well, you know, the news happens. warren speaks over the weekend, we like to -- >> it's a deal book -- it's "buffett still champions capitalism." if you want to look it up, folks, at home and it reminds me of amazon day. remember when you were woke to the woke when that happened and you tweeted something? you got like 32,000 likes? you were channeling the -- >> yep, you know -- >> it reminds me -- it's like happening -- >> warren did not equivocate, and i -- >> so, it takes warren you've got to hear from him before you think capitalism -- i can until i'm blue in the face, but once he hears from you, warren, well, all right. let's get back out to omaha. i'm just going to start talking, just give warren -- i'm going to give up, really. i spin my wheels warren buffett says one thing, and he gets a column anywhere, warren buffett, berkshire vice chair charlie munger, and another special guest. has he arrived, too, becky that's so exciting. >> he has. bill gates is here and obviously you know he is the founder and current technology adviser at microsoft

he is also the co-founder -- or the founder and the co-chair of the bill and melinda gates foundation and gentlemen, i want to welcome all three of you this morning and really thank you for being here you heard at the top all of this concern about china. this is spooking the markets a little bit today joe's right, it's a decline of under 2% for the dow but still down 360 points is a number that catches your attention and when you look at china's markets, down 5.5% and down 7%, that is certainly something that is catching their attention today, too i can't think of three better people to talk about this this morning. bill, you've spent so much time going back and forth with china. you know the chinese leadership very well and can understand maybe what they're thinking on some of these things charlie, you've spent so much time getting excited about investing there. and bill, you've invested there as well. warren, same thing all three of you have traveled there and spent this time. i just wonder what you're thinking about this morning as you hear these headlines and bill, you're the new one at the table today, so i'll ask you to start off with this what are your thoughts on what you hear with this tweet and the

potential for a real trade war >> well, i think good trade relations are incredible win-win for both countries and it's dangerous that people think this is a zero-sum game. and so, i'm hopeful that despite the latest announcement, there is a trade agreement and the two countries can find ways to work together it's the most important relationshipin the world both sides bring a lot of strengths. so, i understand why markets are a little bit worried, but these tariffs are going to get higher and higher >> when we first got the tweet, there had been some initial reports that liu he and the delegation from china isn't coming here. this is the first i've heard a moment ago that the chinese have confirmed they will be sending that delegation this week.

that itself is good news, but how do the chinese kind of deal with this when they're forced -- when they're faced with real force, like i think that tweet yesterday was? >> well, i'm not an expert on negotiation, but it creates a dynamic where both sides could start escalating against each other, which would be a lose for both sides so you know, this week will be -- it will be interesting even though china's not a democracy, the political dynamics don't allow them to look like they're caving in to a unilateral position. >> and charlie, you are an expert in negotiation. what do you think? >> well, hardly, but, well, if you go back, we put a tariff on

trucks to prevent the japanese from totally skellching the whole american auto industry, and that lasted a long time. it wasn't the end of the world so if we end up with some trade settlement that involves tariffs on both sides, i don't get excited about it at all. i see it as part of normal life. generally speaking, i think a good settlement is better than a lovely world war, you know >> some tariffs are one thing. 10%, we seem like our economy has gone along just fine, even with the 10% tariff that existed on those $200 billion to date. is 25% tariffs on potentially all $500 billion-plus of the imports coming in, would that concern you about the american economy? >> well, i don't think we want a full-scale tariff war that's just as high as both sides can make it. that would be massively stupid and if both of them are a little disappointed with the negotiations and feel a little roughed up, that's what they

should feel. >> what do you mean they should feel roughed up? >> well, both sides sense a settlement is so much better than a war, a trade war, for both sides they ought to just get used to having a little loss of face and make some kind of a settlement and i think they will. >> what do you think about us taking a stance, us being america, taking a stance with china to this point? >> well, i don't think trump is totally crazy to say that on some occasions you put a tariff on to save some domestic industry >> is he right that we have been on the losing side of the deal for some time? there's a lot of americans who think that. >> i think he thinks of it more as a loss, that we've got a trade deficit, and i don't think that's at all automatic. so i don't totally agree with him, but i agree with -- >> what do you think, warren, in terms of who pays the tariffs?

i mean, it has boosted the u.s. treasury, but a lot of those tariffs are being paid by the companies that import the goods and then passed on to consumers. >> yeah, they're a tax on consumers. and you know, as such, it changes what people buy, it changes where things are produced you can readjust the world through tariffs, and generally speaking, i mean, there's obviously exceptions for key equipment, military equipment or, you know, but i generally think that a world that adjusts to something very close to free trade, more people will live better than in the world with significant tariffs, and shifting tariffs over time i mean, if it's a subject of

constant negotiation, that sort of thing. >> probably less chance of a war, too, if there's more trade on both sides. >> you mean, a trade war, not a real -- >> real war, of course. >> you have to remember, our country, the united states, ran on tariffs for the first 150 years. that was all we had. this is not like some novel, new thing is coming in this is an old subject >> is it a good thing or a bad thing? >> well, of course i'd rather have total goodwill and everybody getting along, but i don't think it's the end of the world there's some little tension on the subject there has been since the start of the country >> bill just now said he's not surprised by the market's reaction warren said the same thing earlier this morning what about you >> well, what do i care about a brief, temporary reaction over some uproar over trade negotiations >> does that mean -- >> there are only so many ripples in time to me.

>> if you look at chinese stocks in one market down 5.5% and the other in the shenzhen market down by over 7%, our futures are down, but that's still a decline of less than 2% this morning does that mean it's more painful to china than to us? >> well, i don't think china likes its market going down as a consequence of a trade uproar. i think they're more likely to settle the thing because they had this uproar today. >> settling is -- sounds like a great alternative, but -- >> it certainly does. >> but there have been a lot of friction along the way the biggest one may be just how do you enforce it. and the feeling, at least among many of the trade negotiators in the united states, that when we've cut deals with china in the past, they say things and then don't follow through on it. how do you make sure that if we have a deal, it's actually enforceable? >> i think china, by and large, is a pretty good place it's certainly worked for the

chinese, and i think it's desirable that it works well >> we want china to prosper. >> yeah, we do. >> if you postulate a world where the next 50 years china, or for that matter, the united states, but feel like they're being abused and that word isn't being kept and you ask for one thing, then you want to ask for one thing more you're going to have, always have tension between the two countries. you'll always have disagreements, but you can't really turn it into something where it gets out of control, and things can get out of control. >> but i guess i'm going back to try and figure out which side you think is right nobody wants to say that does anybody have a feeling -- >> well, they're both right to be as concerned as they are. and i predict they'll settle it. >> would you all agree with that same prediction? bill, what do you think? >> you know, it's a dilemma when

it appears you're reacting to an ultimatum. you know, in the chinese case, there's no elections scheduled, so their leader won't be unelected simply because they've had to take a tough stance on trade negotiations you know, markets up until recently, assuming this deal would get closed so that's part of why you see the delta, the rational thing would be for a deal to get closed and you know, i'd still rate that as likely >> i agree with bill. >> deadlines are tricky things, though i mean, they produce reactions

in people, and they can, particularly if you're responding to public opinion, they can flame people and they start reacting to their own -- they're tricky on the other hand, sometimes it's the best way to get things done. >> a good sign, though, may be that they just said that the chinese delegation will continue to come. because i had real questions about that, or doubts about that myself after seeing that yesterday. >> you want to conduct negotiations so it doesn't look like the other guy has to cave or something like that. >> right. >> the ideal thing is to make a hero out of him, still get the deal you want. >> over the weekend at the annual meeting, you two had an aside on stage that a lot of people kind of picked up on. you didn't follow up on it, so i thought we could do that here. you were talking about dairy queen and how your presence in china is not large, but you do have a presence in china >> yeah, we're all over china. >> for dairy queen, it is a very large presence, but not for berkshire hathaway. >> no. >> but you made the comment, warren, that you would have been a much larger presence, had a big deal gone through.

you made it as an aside to charlie, but it was over the mics. >> well, we've looked at -- doesn't have anything to do with dairy queen, though. >> no, no. figured not. >> you're not turning dairy queen into some global giant or -- yeah, we've looked at good-size things in china, and you know, we've done a couple things in china. and charlie's done more individually and it's logical, i mean, with the kind of capital we have, that big markets outside the united states are going to be the place where you're most likely to do something and certainly, china's going to be the biggest market outside the united states. there should be opportunities there. and i think we are someone at berkshire, i think, that if you're looking for capital

around the world, we're a very logical prospect >> why did that deal not work out? was it because of the trade tensions >> well, there's -- i can't go into any details on that >> i thought i'd try >> you'll be the first to know >> in terms of what you do with your businesses, do these trade talks have any impact on you, on your investments, even your own personal ones? because you all have a large individual portfolio that you do and charlie, i know you've focused a lot on -- >> some are larger than others >> well, charlie, i know you focused a lot on china does this diminish your enthusiasm for chinese investments in any way >> no. no, it doesn't really. if we got a call today from some business we understood and liked from china, and they were looking for a lot of -- this is big, you know -- we would be delighted to get that call

and we would follow through and we'd say whether something happened but that would be very interesting to us. >> bill, how about you >> well, certainly, you know, there is in parallel with the trade talks talks about what the technology export regime will look like, in terms of things like artificial intelligence. >> right. >> and so, i have some concerns about whether that will try and partition, you know, chinese students from american students. the general sentiment towards china right now has gone down a bit. and so, there are businesses or business deals that have to go through a new process, and they're talking about even making that tighter.

>> beyond? >> i'm worried about even sort of the intellectual cooperation being slowed down. we'll see where that goes, but it's a concern >> if they take our intellectual property at dairy queen, though, we can handle it >> gentlemen, we're going to take a break right now, but when we come back, i thought we could dig into a little bit about what joe and andrew had been talking about before, just the idea of capitalism it does seem to be under attack in some quarters these days, but maybe we can dig into that little bit deeper when we return andrew, i'll send it back over to you. >> thank you when we return, we will have a lot more from warren buffett, bill gates, and charlie munger, all in omaha this morning with becky. and we've got you covered on the market's action as well. futures down sharply after president trump's new threat to raise tariffs on chinese goods you're looking at red arrows with the dow off about 437 points right now stay tuned you're watching "squawk box" on cnbc we are back in men aomt.

warren buffett is berkshire hathaw hathaway's chairman and ceo. bill gates is the co-founder of microsoft and the co-chair of the bill and melinda gates foundation and charlie munger is berkshire's vice chairman. gentlemen, we've talked an awful lot on our air recently about socialism versus capitalism, defending capitalism, all of the different political pressures that are kind of being brought as we get into another election year and i thought maybe we could talk about that this morning, too. over the weekend, several questions came up about defending capitalism and warren, you did step out and say that you're a card-carrying member -- a card-carrying capitalist, in front of everyone what do you think about the attacks that we've seen to this point on capitalism? >> well, i think -- i don't think people exactly even know what they're talking about it isn't that capitalism is perfect. but if you look at what was here in 1776 and look at what is here now, this country has done an

incredible job in terms of the deployment of resourcesand human ingenuity. and that is a product of the system now, does that mean that every decision should be made simply by opening market determinant? you know, there's a need for regulation, obviously, and there are things that have long-term costs and might not get built in, but the idea of people unleashing their potential, using the resources they have to create what we have now from what was here 240-some years ago, it's absolutely a miracle and what all three of us have seen during our lifetime and if you compare that with any centralized planned economy, you know, i think we win, hands

down and i think we've just started with what capitalism can produce in the united states, but i do think it, obviously, it needs certain rules and regulations. >> bill, you did an interview in davos with someone, and you made a pretty innocuous statement that you looked around and you thought capitalism was the best system and you got attacked online from all of these people who came up with these crazy statements about how could you say things like that. i mean, what do you think about the climate when you see things like that? >> well, some people think when you defend capitalism, you're defending the tax rates we have today and saying that higher absolute tax rates or more progressive tax rates, that you disagree with them and i don't think warren and i are disagreeing that you can make the taxes more progressive. in fact, we've been very xlisive in some areas, like in the estate tax, in saying we think

that would be a good thing socialism -- >> you've got your way, she came back. >> socialism used to mean that the state controlled the means of production. and a lot of people are promoting socialism actually aren't using that classic definition so, what we're going to have is capitalism with some level of taxation most people really aren't arguing against capitalism there may be a few, but most people are just saying that the taxes should change. >> although you do have someone who i think is polling the second highest in the democratic party right now who was a socialist until recently, bernie sanders. >> well, whether or not he was a socialist by the full term of that now, there are some muddy areas. when you start to say there shouldn't be any billionaires, that you have some cap on wealth

or something like that, that goes beyond what i think, and you could say i'm self-interested -- >> really? well, yeah we will exempt the present -- but no, government needs to reallocate some resources. i mean, extreme case being world war ii that's the closest we've come to socialism. you had an office of price administration you had a war production board you had, i mean, but during peace time, you're always prepared for war and you do that through government government needs to reallocate some resources, but the market system which exists under capitalism is a extraordinarily effective way and has proven it, of using resources, human and

other kinds, to produce incredible goods and henry ford could learn, devise a system that could turn out a couple million cars a year, but he could only use half a dozen himself, or his whole family could use 50. i mean, he had to turn out a couple million cars that other people got to use. and that would not have, in my view -- i think if you'd set up a government bureau in 1850 and given him 100 years to develop a car, i'm not so sure he'd have ever come up with something like the assembly lines of ford and all of the things that have happened human ingenuity is incredible. and you want something that maximizes its use and then curbs a few of the ideas that some of those people may have to sort of have it all for themselves >> charlie, you've made the same point. >> well, the great proof of how capitalism works is china. when china copied singapore and let the farmers own their own

plots and let the manufacturers own their own businesses and so forth. china's productivity increased many times and they went from rural poverty to moderate to extreme wealth and they did it by adopting a fair amount of capitalism. now, if a democratic politician doesn't understand that, he's nuts. >> you've made the same point, though, charlie, that you think private sector does it much better than the government sector however, a lot of these people who are running also want to make government much bigger. do you have a quarrel with that or no? >> well, as they say, if you love your post office, you're going to love socialized medicine >> yeah, and they don't necessarily want to make it bigger in terms of redistributing they may want to -- the market system is brutal, and it leaves behind people who are perfectly wonderful people who don't have market-related talents >> or who are just unlucky. >> yeah, just plain unlucky. and in a rich society, believe

me, if we have a war or something like that, we call on those people and, you know, pay them practically nothing to go fight for us and we want goods flowing, but it's going to displace the textile worker that we used to have and so on so, the function of government is not necessarily to get bigger it may be in an important way to take care of people who for one reason or another get left behind in the market system that you also regarded as essentially this huge source of wealth and goods and services >> so, how do you fix the problems, or at least the perception of problems, which there's a huge perception out there in the american voting public -- >> obviously, it would help if our government were wiser, and it would be wiser if the two sides didn't hate each other so much anger drives out reason. and there is absolute cold fury between politicians on one side and politicians on the other

it's quite counterproductive for that reason, i don't allow myself to get angry at politicians. >> how would you fix it? >> well, i just don't let myself get that angry at politicians. i don't expect them to be perfect -- >> berkshire has worked better because charlie and i have never been mad at each other. >> yeah. >> it just does. i mean, way better if we got mad at each other, i'd try and kill his deals, he'd try to kill my deals it just doesn't work that way. >> don't need a couple alpha males blustering at each other or all this stuff. they ought to just cool and take a little recreational hit and get the -- >> but we ought to worry about the people that don't fit into the system we want the system and a lot of people are getting left further and further behind, because as capitalism gets more advanced, it gets more specialized, and there actually is greater difference between the haves and the have-nots. and the haves could take care of the have-nots.

interesting thing is both parties basically agree on that. they just -- >> yes, it's how you get there that gets complicated. >> income tax credit can make a huge jump in that direction. i mean, social security, we've done various things. over the years, we have improved we've improved the public school systems. we've improved things that do give people more of an equal chance and take care of people who fall by the way side we've just got to keep doing it. >> bill, you've spent a lot of time on education in this country, trying to figure out how to fix it and how to make things work. what's the answer, if that's one of the problems, that we're not getting people the advantages they need before they get into that system? how do we fix that aspect of it? >> yeah, i think better education is so key to the united states living up to the dream of equal opportunity and particularly, as more and more of our students are in the inner city, coming from

low-income households, we really have to take the best teachers, understand what they do, and spread that further. that is the best path to a stronger forum of equality the progress has been pretty modest, but there's a lot of smart people it's not just technology it's helping the teachers, finding out the ones who are doing things super well and spreading that around. even the college system, we still have very high dropout levels and the way you catch kids early when they get off track, some use of online. i'm hopeful in the education area, although progress has been slow. >> surprisingly slow >> yes when we compare the improvements in global health, which is the other big area for the gates

foundation, to the improvement in education, education's proven to be tougher to make big gains over the last decade. >> was that what you expected when you got started >> no, it's actually the opposite, because global health involved going out to countries whose governments are really weak, and there's not even stability. there's some corruption. we thought that would be the slow area to work in but very important, that we've been surprised by how much progress there have been in the overall statistics, like cutting childhood death in half. in education, although there's some points of light -- some great schools, some are charter schools, some are using new curriculum -- the overall figures -- u.s. math scores, dropout rates -- have moved only slightly

>> charlie, just getting back to your idea of people not hating each other so much and getting along -- how do we make that happen how do you try and push towards that because it seems like things have gotten worse and worse. >> well, i think you have to do it one relationship at a time. and of course, i think it would help if both parties did not commit suicide in the primaries. if we get these extremists on both sides, and they take over each party, it's just awful. the california legislature has two kinds of people -- right is nutcakes and left is nutcakes. they've kicked everybody else out. this is not a good system. >> why did it wind up like that, particularly in california >> hatred. lots of hatred. >> is it redistricting i mean -- >> there was redistricting is part of it, but mostly it's just the wonderful product of hatred. >> are you hopeful when you look at some of the campaign slogans or campaign thoughts that you hear in the early days of 2020 campaigns? >> well, i'm not hopeful over

the short term i have the feeling that over the long term, there has been progress, and i don't think it's over >> all right gentlemen, thank you for this portion of the conversation. we're going to continue with much more when we come back. andrew, i'll send it back to you in the meantime. >> okay. we're going to come back in just a moment to omaha with much more from warren buffett, charlie munger and bill gates. as we head to break, though, want to check on u.s. equity futures, been under a lot of pressure this morning, in large part because of new questions about whether there will be a trade deal with china, given some of the comments the president has made overnight dow jones looks like it would open off about 145 points, nasdaq down 140 points, s&p 500 down about 44 points and we also want to check out what's happening in europe as well, right across the board with most of those markets down about 2% and finally to show you what's going on in asia, where the hits have been a lot bigger -- shanghai composite off 5.5%, shenzhen composite off over 7% we're going to have a lot more

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welcome back to "squawk box" on cnbc, live from the nasdaq market site in times square. futures right now not as bad as they were, but not much better, down 457 on the dow. the s&p is down about 46 the nasdaq down 146. right now let's get back to omaha with becky quick and her three very special guests. becky? >> hey, joe. thank you very much. again, we are joined this morning by warren buffett, the chairman and ceo of berkshire hathaway, bill gates, who is the co-founder of microsoft and the bill and melinda gates foundation, and berkshire chairman charlie munger. looking at the markets today, obviously things are better a little bit of pressure today, but we have been looking at much higher markets, if you go back to the christmas eve low and the concern about what would the fed

might or might not be doing. since then, the fed has sounded much more dovish, and i just wonder if you could talk a little bit about your own take on the markets and bill, again, i've spoken with warren and charlie earlier about this little bit, so how about your take? when you hear that the ferve is probably not going to be raising interest rates any time soon, how does that change your outlook on equities or equities versus treasuries? >> well, the interest rate is like gravity and all these valuations are dramatically affected by it at the start of the year, people didn't think the ten-year bond would be where it is today, and that's provided a lot of lift. so, it was a big first quarter for u.s. equities. we still, if you look forward, are at these very high valuation levels and so, it's hard to see that the market will be gaining a lot

over the next few years. i think people should have fairly modest expectations on what their portfolios will make in the years in front of us. >> have you changed your positions, your own portfolio as a result of this have you done any major -- >> no, it's a very equity-oriented portfolio. it's overweight in the u.s., even though it's got a lot of overseas exposure. you know, it's a bullish portfolio that the american economy over time will do well, you know fortunately, even if we have a few years here where markets aren't doing that well, you know, we've been lucky, we have a cushion. the foundation continues to spend generously

but i'm amazed at how high the valuations are, if you look broadly. >> charlie, do you think that? >> well, sure. i think that if you drive interest rates down to zero and all the countries print money like crazy, it's lifted the asset boat for everybody, and i think it really is a, they didn't have anything else to do in the great recession, and so, they took the only weapon they had and used it aggressively i don't think we should quarrel with that. it did cause the people who were already rich to get richer but that wasn't done on purposor anything like that and i think that will correct automatically. >> do you think we should still be using that weapon aggressively, which is what president trump would like to see happen he wants them to cut interest rates again, i think he said by 1%, and also push up quantitative easing once again, build up -- >> i am so afraid of democracy

getting the idea that you can just print money to solve all problems and eventually, i know that will fail singapore, which has a marvelous economy, has zero debt if i were running the world, i would like the united states to be in that position. that is not the typical -- that's nobody's position all these politicians in europe and america have learned to print money. >> and if we keep at these extraordinary measures for the fed -- i guess not just the fed here, but central banks around the globe -- >> yes, but who knows when money printing runs out of control and we -- at the end, if you print too much, you end up with something like venezuela >> you're not suggesting that happens any time soon, just -- >> no, but i don't like the idea and both parties, you've got politicians who say, what we've learned is we can print all the money we want. >> right. >> we don't have to raise taxes.

we just print. >> warren, you share those concerns >> yeah, i probably could not have conceived the world -- as recently as ten years ago, i would not have conceived of a world where you would have full employment, 5% budget deficits, with actually the probability of those rising from that level, and at the same time have the long bond at 3%. i would have said that that couldn't happen. and then, then people now -- you have this modern monetary theory, which there's no question you should borrow -- any country should borrow money in its own currency. i mean, that is not like it's some great discovery or something -- >> no, but it can be overdone. >> yeah, and that's the point. i mean, that hasn't solved

anything, just to say, it's much safer to borrow money in your own currency but the convergence of these factors would have seemed impossible to me, and generally, if i feel something is impossible, it's going to change over time i don't know in what way, but i don't think we can continue to have these variables in this relationship now, if we can, then stocks are ridiculously cheap >> the one thing i will say, though, is this is a conversation i feel like we've had for at least four or five years. >> right. >> where you're watching and continuing to wait for these interest rates, the yields to rise we're still sitting at 2.5% on the ten-year, which is shocking. >> and we're sitting with very, very little inflation with a federal reserve that put a target for 2% on it not that long ago, and it looks like

nirva nirvana. it looks like we've found the promised land, where just, essentially, money doesn't cost anything, and you can print lots of money and have full employment and no inflation. and i would have thought that something would have happened before now i don't know what would have happened, but i wouldn't think you could have these things at these levels -- long-term rates, inflation rates, budget deficits, and have that be a stable situation for a long period of time and i still believe that, but so far, i'm wrong >> so, in the meantime, you haven't really changed how you -- >> i think stocks are ridiculously cheap compared -- if you believe that you're going to have the 3% interest, well, 30-year bonds make sense. >> that's a big if, though. >> well, that's what makes going to work interesting.

>> well, this threesome is comfortable if everything goes down that way to 90% -- >> what was that >> i say this threesome is comfortable if everything goes down by 90%. >> stock prices. equities and all the rest? >> yeah, but we wouldn't want that kind of a world happening to everybody else. >> right can we talk a little bit about health care? because you all have spent plenty of time focusing on health care in the united states and abroad bill, you're probably the foremost authority on global health care. your foundation has spent billions and billions of dollars on it, i think more than $13 billion just from inception through 2017 on global health care initiatives what's the progress? you touched on it a little bit earlier, that you've seen more progress here than in the education front in the united states how has that kind of shown up? >> well, it's phenomenal that by

taking the new vaccines and getting them out to more kids and a few other tools, like malaria bed nets, that we've gone from over 10 million children ten million children every year to now plus to five million. five million is still a lot. the pipeline as and innovations are looking good this is a phenomenaly positive story that those deaths are down and that'll continue >> what's the thing that gives you the most hope of advancement you made or research you dounfo? >> one we are working on is reduce malnutrition because if the kid is growing well, their ability not only to avoid these

diseases like diarrhea, killing them but also they'll develop their full mental and physical capacities and contribute for their own life and their country's well-being dramatic production and malnutrition is a huge thing we are gaining an understand that we think that will be possible it has been a long time journey having to do with the information and now we see that we'll get more of those kids on their growth path so i am super excited about that >> the malnutrition is not just having the food to eat there is a problem >> what happens is that because their diet does not have much protein in it, their intestines

get into an in flamed state. that means you get a set of bacteria in there that don't let them absorb nutrition, that's a no downward path and even twins will get that, the other one will achieve normal growth an intervention that stops the information shifts the micro bio to a healthy mix and that'll get rid of malnutrition for that child. what's a really good intervention, we can see the problem and stop it? >> with pro bottiotics or something? >> yes, here we'll make it to scale it out, probably a pill. it will probably be a couple of

vitamins and drugs >> does that translate to things that can be useful here in the united states? >> the basic understanding and we'll finally lead us to understand not just malnutritio but over nutrition, why is it so hard to control people's hunger? i would say over the next decade that we'll finally succeed even though that's not the foundation site, the science of micro bio, i have a lot of companies working on things of malnutrition >> back here in the united states figuring out how to pay in healthcare, and the cost,

what's the problem that you have been focusing on at bershire hathaway where are you on that process? >> we are talking the first step on what is founded to be a long journey. it is a lot difficult than i expected we have an industry basically which is about the same size and everybody says every dollar in the budget has a contingency and every dollar has the continge y contingency. we have the right person and right partner. we have the right partner. capitalism is the key part we'll spend whatever money it takes if we are making progress.

it is going to be a long tough jou journey to make major changes. there is no guarantee of success at all there is nobody i think in a better position in terms of the people, partnering to get along and all kinds of things. perhaps we'll come up with something that makes the system works and we'll try but nothing will happen quicker so there is no reservolutionary move or anyf those sorts. interviewing people to run the place, we interview people of all aspects with medical, profession and activities. they all agree of 100% this indeed will change and of

course not my part >> that's understandable and we'll expect that. we'll find what happens. i rather have the private sector coming up with the solution and throw in the government. the private sector does come up with some solution of the increase of cost and quality and medically. it is unbelievablunbelievably the cost of 5% gdp of my lifetime in my adulthood up to 18%, the federal budget is st staying constant and out of control. and here federal receipts i should say >> charlie, you have been a good samaritan for how many years

>> the example -- they spend about 20% of what we spend on healthcare and they're healthier. they're all kinds of abuse and activities morgan is right. human beings are profiting may look like an unnecessarily operation to me but to them looks like god's work. >> where would you suggest after your years of good samaritan, where would you say focus here first? >> this system is out of control. the deductibles and ordinary corporate health insurance are ridiculous if you are a family, you get a $5,000 bill for a baby that you

don't have medical insurance, it changes the system and then if you take unnecessary treatments where people find a way to tap into these governments and to a lot of unnecessary work or inevitable death and all kinds -- i would say we have a pretty disgusting system on the other hand, it is the best of the world in terms of scientific capacity. you take all the unnecessary operations and all the procedures and all things, it is discouraging i look at sample, i look at the united states, how do we get from here to there if you ask me what's going to happen, i think we'll fail to get to intelligence system >> we have about a minute left, if i can ask you what you are

reading because it is something we hear back from our viewers. >> warren, what are you reading? >> i read it at one sitting. a book by melinda gates just same out recently. it is a terrific -- it is a story but you learn much about the world that you should know i would say most people don't know the experience is sensational. >> warren took all your time, bill, i guess you are not upset about that >> gentlemen, i want to thank you very much for being with us. warren buffett and charlie munger and bill gates.

>> thank you three of you for several hours together >> a final check on our market we have been in the red. 450 points on the dow and s&p. nasdaq is off 141 points on a threat by president trump about the china deal may not happen. "squawk on the street" begins right now. >> good monday morning, i am carl quintanilla with jim cramer and david cramer the president tweets he'll raise tariffs on chinese goods buffett on the tape ahead of the big week of earning and youtuber shanghai was down and our road map begins with trade threat for stocks china considers skipping the next round of trade talks. rr