good morning and welcome to "squawk box" on msnbc. live from the nasdaq markets, and becky quick is in omaha with warren buffett we'll get to him in a minute first, breaking market news. we're right around down 800. i was glad to say we're down 799 when i started this read but we're back below 800 again u.s. equity futures plummeting as the coronavirus outbreak widens about global health and the all-important supply chain china supplies for the rest of the world, that's really what's dampening expectations this morning. on the percentage basis it's not the end of the world but it will get your attention if it's down 800 in the premarket session, you might see a -- you might see four numbers up there eventually at some point. maybe it recovers. i heard some comments from warren buffett a couple minutes

ago about, you know, when stocks are cheap, that's when i like to buy them when they're cheaper than the day before maybe he can assuage market participant fear looking at the ten-year, which you would expect bonds to be strong this morning and you do see the yield at some of the lowest levels on the ten-year we've seen in a while. down below 1.4 1.389. >> let's break down what's going on with kroz krostz. china reported an additional 150 deaths and 409 new cases that happened overnight. south korea raising its coronavirus alert now to the highest level after the number of cases there ballooned from 31 to more than 750 that took place in less than a week now, stocks in asia are plunging overnight. hong kong's hang seng falling 1.8% in south korea, the exchange there down 3.9%. shares of south korea's two

largest airlines tumbled as they canceled flights to the city of daegu italy's government is scrambling itself to deal with the biggest outbreak of the coronavirus outside of asia. you're looking at stocks there tumbling as well now off about nearly 5% this morning. the government placing ten towns in northern italy under quarantine and canceling the last few daws of the venice carnival elsewhere in italy, schools, universities, cinemas were all closed and major soccer matches were canceled as well. all of this contributing to the red arrows you're seeing on your screen as joe mentioned earlier, becky's going to be talking to the one and only warren buffett, who may have some unique views about all of this. we want to get to both of them in omaha good morning to you, about he canny. >> good morning, andrew. bm good morning, joe we're in omaha, nebraska, with warren buffett, the chairman and

ceo of berkshire hathaway. he released his 55th annual shareholder letter to the shareholders over the weekend. in is actually the 13th year we're now in omaha talking to him after that letter. this is a show we call "ask warren" so people can write in their own questions to mr. buffett after they read that letter but this morning, given the news, there are a lot of questions people have concerning the stock market let's jump into it with mr. buffett, bhus here with me one of the things you touch on in the letter is when people should be buying stocks. when you're looking at the futures down 818 points this morning, i think probably the first thing viewers want to hear from you is your thoughts on what's happening with the coronavirus, if is a reason to panic and if you are worried about this >> well, i don't have any special thoughts beyond the news on the coronavirus the very first day i bought stock was march 12, 1941 -- '42.

and the stocks were down about 2% that day, as it turned out. unfortunately, i bought in the morning, so when i came home in the evening and my dad told me the execution price, it was down 2% if you're buying a business, and that's what stocks are, businesses in fact, people would be better off if they say i bought a business today want not a stock today because that gives you a different perspective on it. presumably, you buy a farm, an apartment house, if you buy a business you're going to own be it for 10, 20, 30 years. the real question is, has the ten-year or 20-year outlook for american businesses changed in the last 24 hours or 48 hours? and we're going to -- you'll notice many of the businesses we own, partially own, american express we've owned for 20 years, coca-cola we've owned for 40 years but those are businesses and, you know, you don't buy or sell your business based on today's headlines. if it gives you a chance to buy

something that you like and you can buy it even cheaper then you're a good mark, basically. >> a lot of people look at the market and say, i want to buy but i don't want to buy when the market is sitting at new highs, hitting new records every day. maybe it's off 800 points this morning but maybe there's more of a decline to come because the effect of the coronavirus is going to be an impact on the global economy imf said that over the weekend you are going to see weakness in not only china but other countries trying to address this you're right it may not change things over the five or ten-year span of things but if i think i can buy something for potentially 10% cheaper, maybe more than that if i wait a week or month, maybe -- >> if you're thinking that, you're going to get fabulously rich if you're right all you have to do is keep buying at ten-day intervals. if i knew what the market was going to do, obviously but i don't think anybody knows what the market is going to do

i do think you know if you're making an intelligent purchase at a given price everybody when you buy a stock, if you're going to buy, say, general motors that has 1,400,000 shares out let's say it's selling for 30. it's not selling that low. you should say, i'm buying the general motors company for $42 billion because, and you should get it on a piece of paper and then if you want to have a separate piece of paper that says, i think i know what the stock market is going to do so i know whether it would be high or low. you don't have - >> but if i worry the economy is going to slow down not just for want quarter but the year, that would impact how many cars i think they could sell or produce. >> i'll guarantee cars are going to slow down some day. in 1932, general motors had 19,000 dealers that's more than all the auto dealers in the united states today. there are only 125 million people then but 19,000 dealers

they produced -- or sold -- there was one month when i think they sold less than a tenth of a car. right at a tenth of a car as a dealer that was a terrific time to buy general motors forget about the market. if you don't read balance sheets, you don't need to read any. you certainly can't previous dikt the market by reading the daily newspaper, that is for suree market by listening to me. but you're buying businesses if you planny a local business yesterday and it closed today. you wouldn't tear your hair out. you would make a decision on competition. people, because they can make decisions every second in stocks where as they can't with farms, they think an investment in stocks is different than investment in a business or investment in a farm or investment in an apartment house, but it isn't. if you get your money's worth in

terms of future earning power over the next 10 or 20 or 30 years, you'll have made a good investment you can't pick them from day to day. if you can do that -- well, i haven't met anybody yet that knows how to do it >> you made a point of that in a letter this year where you highlighted a book written by edgar lawrence smith back in 1924 you said until he came along, nobody really realized the compound interest effect of buying stocks. not just buying businesses, but buying stocks themselves >> edgar lawrence changed the world with that book, and people have forgotten all about it now. in the 1920s it became more and more gospel as the boom went on. but edgar set out to write a book on bonds versus stocks. and he said he went in with the idea that bonds would be a better investment in times of deflation and stocks would be a better investment in times of inflation. and the first line of his book was to say that he had been

wrong, but he had enough sense to look at his evidence. darwin said if you found evidence contrary to what you already believed, write it down in 30 minutes or your mind will just block it out. people have a great resistance to new evidence. he said if a stock yields 4% and the bond yields 4%, which is what he was talking about then, the stock was going to outperform the bonds because there were retained earnings building beyond that deal. that has been true for a long, long time, but nobody paid any attention to it. we don't get rich on our dif depds we receive, although we're happy to receive them. we get rich on the fact that the retained earnings are used to build new earning power or repurchase shares, which increases your ownership in the company. and berkshire is retained earnings ever since we started that's the only reason berkshire is worth a lot more is we retained earnings. >> that led him to say this was

an important book, people paid attention to it. you're right, it added to the frenzy that built up to 1929. >> that is true because you can get -- my boss told me early on, you get in more trouble with a good idea than a bad idea because the good idea works. it's a good idea to buy a home, for example, and then people go crazy. it's a good idea works and works and works. stocks work out better than bonds most of the time after a while, people forget there were some other limiting conditions with edgar warren smith's book it was when bonds yielded the same as stocks, which was the case then. stocks started going up in the '20s all of a sudden they were selling at five or six times the prices as when he bought the book the original correct perception on his part had experienced changing conditions but people just looked -- they got their

confirmation through stock prices that's what happens in bull markets. people start out thinking stocks are cheap and then they think stocks have gone up. a stock can be a good buy or a bad guy. a bond can be a good buy or bad buy. it depends on price. >> that leads us to today. if his premise was that stocks are always going to be a better -- a better investment than bonds, that's kind of what you hear today, which we've been hearing for while is there is no other lternative >> if you look at the present situation, we talked with this before, you get more for your money in stocks than bonds that doesn't have to be the case i mean, but it's usually been the case in america. very usually been the case and if you buy a 30-year bond today with yield 2%, you're paying 50 times earnings for an investment where the earnings can't go up for 30 years

someone said, i want to sell you a stock at 50 times earnings, you say, that doesn't sound very good stocks are way better than 30-year bonds. that's clear people really have three basic alternatives short-term cash, which is an option of doing something later on long-term bonds are long-term stocks and stocks are cheaper than bonds. >> charlie said recently, charlie munger, vice chairman at berkshire hathaway, had his daily journal meeting a couple of weeks ago at that meeting he said there's a lot of retch ed excess and there's trouble coming. >> there's always trouble coming there was trouble coming in 1942 there's all kinds of trouble in 1949 there was trouble -- certainly trouble in 2008 when i wrote an article for "the new york times. i said, trouble is coming but i said, buy stocks >> would you repeat that this

time if trouble is coming, would you say buy stocks right now >> i would say buy stocks, if you get enough for your money. you know, we buy a few stocks, but we don't look at -- we're not buying the stock market. we're saying, i am buying, let's say american express we own american express. there's 815 million shares out and sells it this morning for 126 or something like that it's selling for roughly $100 billion. the real question is the company worth $100 billion it's not what the stock is doing next week or next month. >> you said a few minutes ago when we asked you on "worldwide exchange," right now berkshire hathaway is a net buyer of stockses >> we've been a net buyer of stocks, well i have been a personal net buyer of stocks since i was 11, every year there's been 15 american presidents in my lifetime. more than a third.

i didn't buy stocks under hoover i was only 6 months old then but seven republicans after that and seven democrats. i bought stocks under every one of them. there have been a few times i thought stocks were quite high and i've even written an article once or twice. but that's seldom. >> you wrapped up your apartment once because you thought it was too expensive. >> yes >> but this is not a time like that >> we own $240 billion worth of stocks we look at that as worth $240 billion worth of businesses we own parts. i love owning those businesses. >> you also have more than $125 billion in cash sitting around. >> well, we'd like to buy more businesses. >> we'll talk about that in a bit. when we come back, more from warren buffett but back to joe and andrew. >> as we head to break, here's a look at futures. down 818 points on the dow here's a look at the biggest

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welcome back freeport, that's the world's largest -- they have divested some energy operations but you know what they produce, copper. >> right. >> world's largest user of copper, china. so, freeport, biggest -- >> that's the knock-on effects. >> time for the squawk planner no economic data of note but a few quarterly reports are due after the closing bell, including hp, intuit, hertz global and shake shack donald trump attending a rally at the world's largest cricket stadium. he's expected to discuss trade and geopolitics with prime minister modi. that stadium was filled, like 100,000 people throngs of people watching the

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good morning, everybody. welcome back to "squawk box" on cnbc i'm becky quick live in omaha with warren buffett. he's just released his 55th annual letter to shareholders

over this weekend. we've been taking questions from you. we'll be getting some questions in through this morning. we are here, warren, with you at berkshire hathaway's headquarters building. in is upstairs in a room that's called the cloud room. this is a room you often take students to answer questions they have when they come to visit you. you also do other things up here, too, other presentations. >> yes i've had students here for dozens of years. for many years, 40 schools would come in. they'd come in groups of eight, five days a year they come from all over the world. we have them from peru, from china, from israel and we had a good time always. again, i've given it up now, but i started teaching when i was 21 when i got to about 88, i thought, i'll take a rest. >> well, there are a lot of questions coming in from viewers that have been hitting here today. they're waking up this morning looking at the stock market indicated down by almost 800

points for the dow we're off our worst levels for the morning, which is something to say when you're looking at the dow down by 786 points but people have questions about the economy. they wonder what's happening pardon mely the coronavirus out there. you have a lot of economic data at your fingertips because not only are the many businesses berkshire owns but the businesses you own pieces in what are you seeing right now around the globe >> well, it affects various businesses i would -- i would say that i received commentary -- i get some commentary monthly from almost all of the companies. and a good many of them had some comment about how it was affecting them and however it was affecting them at that time, i'm sure it's accentuated. but they were affected by tariffs. they're affected by taxes. they're affected -- the most thing they're affected by is competitors and supply and demand over time i don't have the faintest idea what our businesses will be doing six months from now or 12 months from now.

i do think that not only our businesses but american business generally will be doing fabulously better 30 years from now or 20 years from now the long-term is very -- in my view, is very easy to predict in the general way but in an important way. i don't think there's any way to predict what the stock market will do ten minutes from now, ten days from now or ten months from now i work on what i think i'm able to do and, as desirable as it might be to know what's going to happen ten minutes from now, that's just something i'll never be able to master. fortunately, i can come to a pretty firm conclusion that 20 or 30 years from now, american business and probably all over the world, will be far better than it is now >> what are the momentary implications from coronavirus? >> for example, we have maybe 1,000 dairy queen franchises in china. and they're just treat only, so they're the older type, not with

food but a great number of them were closed but the ones that were open weren't doing any business, to speak of and apple, our much bigger holding is apple, we only 5.6% of apple and the company came out and said that it's affecting only its story but supply chain certain companies have supply chain arrangements that are being affected that i didn't even know i had. >> like what >> john mannmannsfield, or shaw carpets, you name it i would say a significant percentage of our companies are being affected by it but they're being affected by other things, too. the big question is, where will those businesses be in five, ten years? our candy business is a wonderful business but it loses money seven months out of the year the nice thing is christmas comes every year >> when you look at the economy and how things were kind of

chugging along, let's say, beginning of this year, when first things -- things first picked up, how would you gauge the u.s. economy >> it's strong but a little softer than it was six months ago. you look at rail carloadings, that's moving goods around there again, that was affected by the tariffs because people front-ended purchased -- all kinds of things, lots of variables. but business is down but it's down from a very good level. so, i would say that looking at our 70 businesses, and that actually -- they represent hundreds in addition they're a little softer. and i was out with the fellows from nebraska furniture mart just saturday night. their business was up quite a bit in february, but that's because weather was good so, you have a lot of variables that hit. >> why do you think business was down, let's say, the last six months is it a decline in confidence or

is it coming off levels where there was unusual activity ahead of that? >> it wasn't really down, it just leveled off and a little softer maybe now well, tariffs -- the tariff situation was a big question mark for all kinds of companies. and still is to some degree. that was front and center for a while. now coronavirus is front and center something else will be front and center six months from ow, a year from now, two years from now. the real requequestion is wherel these businesses be five, ten years from now some will do wonderfully, some will disappear overall i think america will do - >> you watch rail cars very closely. >> oh, yes i watch everything i don't do it to make specific investment decisions i enjoy -- i want to know what's going on, but i also don't think

i can make money by predicting what's going to happen next week or next month. i do think i can make money by what's going to happen in ten years. >> well, tell us what's going on, just since you like knowing about those things. >> well, you know, the -- certain businesses depend on weather quite a bit, for example, retail in certain months but the big trends you see are going on in terms of movement to online commerce. i mean, the big stuff keeps moving we have a big investment in the airline business and i just heard even more flights are canceled and all that. flights are canceled for weather. it so happens in this case they're going to be canceled for longer due to the coronavirus. if you own airlines for 10, 20 years, you're going to have some ups and downs in current business so will be weather related they can be all kinds of things. the real question is, is, you know, how many passengers are

they going to be carrying 10 years from now, 15 years from now, what will margins be and what will the competitive position be? but i still look at the figures all the time i'll admit that. >> you mentioned the airlines. you own stakes in all the major airlines. >> all four. >> not as much as delta. i think you own north of 11% of delta at this point? >> well, our largest position is in -- three of the four positions are mine one of the positions is one of the other fellow's of the four positions. but we own very -- roughly -- close to 10% of the four largest airlines >> there's been a lot of speculation, in fact, some of the questions that came in over this weekend were questions about those airlines wondering if you would buy any of them outright have you considered buying any of those companies outright? >> i would say it's very unlike unlikely i'm not saying it's impossible but it's complicated. >> why >> well, for one thing, they're

regulated. there's an interplay i'll just give you an example. but with delta, we own 18% of american express and american express is a bank holding company and bank holding companies have limits to what they can do and we're a passive holder of american express but if we owned up an airline tied up with them -- there's a lot of complications because it's a regulated industry any time you get into a regulated industry, you have more complications with transactions. >> is it fair to say you like these stocks and you would own more if it wasn't complicated? >> well, we -- to go beyond 15% in any company, we would have -- there's a lot of rules as you increase your ownership. obviously, almost anything we own, we'd like to own more of. >> are you buying more of any of those stakes right now apple -- >> i get press closed mouth when

it comes to what we're buying. >> you thought about that for a second fair to say -- >> it's fair to say, anything we own, we like you know, and there's very few stocks that we own -- and i look at them as part ownerships in businesses there's very few that are selling at some price where i would selling them a little higher >> let me ask a question that came from tony dickinson he said, in the fourth quarter, berkshire sold 55 million shares of wells fargo should shareholders view this as a lack of confidence in the new ceo turn-around plan and what is warren's future outlook for wells fargo? >> i won't give any advice specific on wells fargo but it's absolutely true we sold down our position some of it was sold down to avoid being over 10% because then you do have some filings with the fed and so on

but -- >> you've sold well more than that. >> yeah, we've sold well more than that. >> i think 8.4% was the last - >> yeah, that sounds right we've sold -- we sold wells fargo in the fourth quarter and we sold earlier. >> can i ask why only because i did get a number of questions >> i can understand that but the -- we just don't want -- we don't want to give any advice on what we're doing because i could change my mind tomorrow. we talk about everything except we don't give stock advice >> okay. i'll try one more from john dickinson because i think i got 15 or 20 different questions on this berkshire owns $32.58 billion of bank of america and wells fargo, one position has been increasing while the other has been decreasing does warren like bank of america twice as much as wells fargo and how should shareholders view this >> well, they see we bought bank of america and sold wells fargo.

>> let me ask you a broader question that comes in just on interest rates and the impact that might have as well. on facebook, hi, i'm a huge fan and student of mr. buffett please ask him what impact does the zero interest rate across places like japan and europe have on their banks, and does the prolonged low interest rate in the united states hurt the prospects of american banks like jpmorgan, et cetera? and in such circumstances do indian bankses which have high return on equity look attractive to mr. buffett. >> i can't comment on that generally speaking with a lot -- but there are a lot of other variables, too, but the banks are going to make more money if there's -- if there are higher rates with a steeper curve the curve makes -- is more important, in other words, the ten-year versus short-term rates may make more difference than

the absolute level but american banks have made very good money with very low interest rates around the world, if you look in the uk or europe or japan, even lower rates have made it pretty tough for banks, the returns on equity are not as high and they have to use more leverage to even get the same returns. and i don't like that as well. >> if you are talking about the curve that we're looking at this morning, the five-year two-year is inverted. the ten-year is below 1.4% this morning. >> the ten-year at 1.4%, that means you're paying 70 times earnings for something that can't increase its earnings for ten years. now, somebody -- somebody came to me with a stock and said, this is a terrific stock, sells at 70 times earnings and the earnings can't get up for ten years, you'd say, well, explain that to me again. >> right >> but we've never seen a situation like this in the

world, literally you can go back and read adam smith and read all the great ones and they don't talk about negative interest rate it never crossed their mind, supply and demand and all these marginal costs but brilliant economists never really anticipated that you would have negative -- you've got 13 trillion or something like that worldwide at negative interest rates and we don't know what that means. we've got a lot of people who can speculate what it means but ten years from now or 15 years from now, we'll look back and say well, it's obvious and we'll see it but it's not a normal situation. and it's -- well, interest rates are the basis of all value i mean, you know, if you knew interest rates were going to be zero for 100 years, you would think 1% was a great rate of return but you also would know if you wanted something that was yielding 1% or that's what it paid and rates went to 8%, you'd

lose practically all your capital. it's an enormous factor and we don't know the answer. central banks don't know the answer all we know is that it's been useful in stimulating things, particularly asset prices now for ten years. and what we thought was temporary in 2008 and '09 in the way of monetary policy to stimulate, we just put our foot on the gas even further. the whole world has. >> you made a point in the letter of saying that you don't know how long these interest rates will last. you and charlie never try and figure these things out, but we did have st. louis fed president jim bullard on the program last week he said that he expects to see these low interest rates for a long time to come. that does raise a lot of questions. if that happens about what this means for the stock market, what that means for banks, what that means for insurance companies, which you touched on in the letter, too. >> it's bad for insurance companies, but it's good for stocks

>> bad for insurance companies what happens to the insurance companies as a result? are they getting more -- >> well -- >> some insurance companies have - >> well, the ones that really get hurt on it are either life or annuity companies that have promised returns the property kausht business doesn't promise returns. they still hold money so it hurts them but if you promise someone an annuity that's going to pay them 3% or 4% and now you find you're reinvesting your money at 1% or something, you know, you're going to disappear. >> are insurance companies being forced to make riskier and riskier bets >> well, they shouldn't. i mean, the answer -- if you need to get 3% and you're only getting 1%, the answer is to quit giving 3% it's not to try and get the 1 up to 3 and do more dangerous -- you should always adapt your consumption to your income you shouldn't try and adjust

your income to your consumption. that's a basic principle for businesses, individuals, and everything else. reaching for yield is really stupid but it's very human i mean, i understand it. people say, well, i saved all this money all my life and now i can only get 1%, what do i do? the answer is you learn to live on 1%, unfortunately you don't go and listen to some salesman come along and say, i have a imagine, way to get you 5% >> do you think, though, that's what should be happening do you think there's more risk taking place in the insurance market >> sure. and you see that in -- you see that in what they call leverage loans and weaker confidence. people are reaching for yield, there's no question about that and that's stupid. and it has consequences over time but it's very human. >> consequences that could have a big market impact? >> depends on yhow far it goes, yeah, yeah

it's something that -- thinking that get built in slowly people go crazy and tech companies in the late 1990s said, it can take a lot longer than you think but eventually everything turns to pumpkin and mice. >> that's the downside of low interest rates, pensions, savers, anybody who gets left in a raw position of that on the alternate side of that, if rates were to rise rapidly or maybe not even so rapidly, what does that mean for the federal debt >> well, it depends on the average maturity of the debt but our maturities are fairly short. they've gotten lengthened a little but if you take $20 trillion and you're borrowing at 2%, you have $400 -- what have you got? $200 billion -- you have $40 billion of expense, but if it goes to 5%, you have -- no, at

5% you have a trillion of expense. i'm sorry. we are benefiting enormously in our national budget by the fact that interest rates are very low and so interest cost has not gone up as you would have anticipated if you were looking at the scene 20 or 30 years ago, would the increase in national debt austria issued 100-year-bonds at 2% or thereabouts and they've gone way, way up and i think they yield 1.1 or something. i don't know where they are now. it's great if you're a borrower -- everybody should refinance their mortgage. >> is that an argument for the federal reserve -- i'm sorry, for the treasury department here issuing longer notes - >> i would have said the same thing five or six years ago and been wrong but if we, under the present

slope, it would still cost more to lengthen it out but you're lengthen it out at very, very low rates. it would be what i would be inclined to do if i were secretary of treasury, but i would have missed a lot of bets in the last ten years, too >> we're going to have much more with warren buffett. when we come back, we'll talk a little bit about conglomerates and whether berkshire hathaway is being discounted because it's a conglomerate back over to you. >> thanks, becky great conversation can't wait to get into it more. when we come back, a lot more from warren buffett and more on today's big market selloff. you're looking at red across the board. dow looks like it would open down right now about 735 points. we're back with warren buffett right after this key. along with support, chantix is proven to help you quit. with chantix you can keep smoking at first

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good morning and welcome back to "squawk box" on cnbc live from the nasdaq market site in times square. stock futuresare tumbling, plummets as the spread of coronavirus accelerated outside of china south korea raised its virus alert to the highest level,

virus alert as confirmed cases there top 760. and italy's government has quarantined about a dozen towns in the northern part of that country. that means about 50,000 people woke up this morning unable to leave their towns italy is trying to contain an outbreak of more than 130 people who have tested positive for the virus. stocks in italy are lower this morning, as you can see. down about 4.5%, almost 5% in this country, we are seeing 700 to 800-point decline in the dow. let's get back to becky quick and warren buffett in omaha, nebraska hi, about becky. >> hey, joe, thanks very much. warren, again, for people just waking up, they're tuning in and want to know what you think about this selloff this morning. to see the dow down 700, 800 points in the morning. what's your reaction when you see something like that? >> well, my reaction is i like to buy stocks, so i don't wish

ill on anybody else, but i like to -- if they want to sell them to me cheaper, i prefer it so, if that's a -- roughly a 3% decline or thereabouts, i don't know how many 3% declines i've had in my lifetime, but there's been a lot of them and i -- -- i can't think of one that you shouldn't have bought on, basically. that doesn't mean stocks are going to go up or down next week or next month or next year if you like to own american businesses, you're getting a chance to buy them 3% cheaper. i don't consider that a lot cheaper but how can it be bad news unless you have to sell stocks if you have to sell them for some reason, you're worse off. if you don't have to sell them, someone can come around and offer you a quote on your house and it could be 2% less than they offered you yesterday but if you like the house, it doesn't make any difference. >> does that mean berkshire will be buying stocks today >> well, we certainly won't be

selling. yeah, we could easily be buying something, sure. >> let's talk a little bit about a baron's cover story out last week the good news on the cover story is they think berkshire is worth more than it's selling for the bad news they think that's in part because it's got a big conglomerate discount. they think if you weren't running it, it might get broken up what's your response to that line of logic? >> well, conglomerates have had a bad name and for good reason over the years i closed my partnership up at the end of the 1960s there was a run of very abusive run in con grglomerates where t played with numbers, pooling of accounting, they called it they were kind of chain letter arrangements there have been a lot -- there have been a lot of bad conglomerates and probably disproportionately so compared to honest to god single

businesses over time we don't think we're that kind of conglomerate. we never wanted to issue shares, we never touted shares it's done for business leans the interesting thing is the american public has been going wild in their enthusiasm for conglomerates in the last few years if you think about it. it's been incredibly popular area, but they call them index funds. you buy 500 businesses - >> figure out what you were -- >> yeah, 500 businesses all put together that's the ultimate conglomerate, isn't it i recommended index funds to lots of people when they do it, they're buying into 500 businesses and they're going to have 500 businesses a year from now and five years from now and they think that group of businesses will do very well and i think our group of businesses will do okay. >> the difference with an s&p 500 index is it's 500 different companies run by 500 different management teams who are all focused on their business. maybe not having a centralized

operation that is loosely running all of those businesses. >> well, we've got -- our businesses are run by separate people i mean, i -- we just finished valentine's day. i >> it's been ten years at least. i don't pick out the new locations. we have the businesses that we own pieces of like american express and there's a couple of things that we can do. we can determine the dividend policy of our subsidiaries we can control their capital allocation to some extent

they know what they need to do whatever it may be so our managers i'd say in a sense they're almost more independent than the managers of the s&p 500. we go around and report to wall street week after week they have an investor relations meeting and they're always explaining what they're doing and we just don't argue. it makes sense. >> okay. outside of the idea of them not having to report to individual shareholders or the investment community what's the advantage of having them capital allocation part of it? >> we can move capital within. >> noouf it from one stock to another there's a lot of taxes incurred in moving from one to

another. and several billion dollars to other types of businesses. and we free up our managers from all dealing with wall street, dealing with all kinds of things that are not what i would regard as much productive. >> but you have a situation where you have gotten some activists that have been interested in the stock including bill akman he built up a stake and hasn't said too much about it but he made some comments about how the margins could be improved. you could look back at the experience with the canadian pacific railway and wonder if he is building up a position

because he would like to see you take a more active role. >> we notice their margins are better and i mean we -- we certainly put way less pressure on than wall street might who would want next week but our managers are well aware of what's going on in other industries and businesses are performing as well as they should and we decide how much they distribute and in certain industries a consolidated tax position is really very helpful. >> there's a viewer question and he said it was recently pointed

out by bill ackman that some subsidiaries at geico and do you approve of that. >> well, we bought control in 1995 we have about 2.5% of the market during all of those years. geico has been the envy of every other company in the auto insurance business except for progressive. they have done a good job too but geico is worth tens and tens and tens of billions more than

when we bought it in addition to all the earnings just the good will value so it's been extraordinarily well run and with burlington we think we paid a dividend of 5 billion last year and we paid 35 billion for it so it's gained in market share it's operating margins have improved but they haven't improved as much as some others. >> do you believe in precision scheduling railroading >> we'll see. >> for those that don't know what that is, its something that irritates customers because it makes things more rigid. >> it makes the customers adapt to the railroad more than everybody has done it. >> worked with bill ackman. >> yeah.

and there's a book about it. he developed a method where a customer does adapt ore. >> i mean would have gained share. over the long-term we'll see it isn't like it's something that we can't do you have potential breaks. >> thank you coming up much more on today's market sell off you're looking at red arrows increasing fears

and open down right now 30 points off we're going to talk more about the hardest hit stocks including these nasdaq laggards. you can see there lam research up 8%. you can watch or listen to us live on the go on the cnbc app we'll be right back with warren buffet in just a moment. when we started our business

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>> the moves you need to make with your money. >> we're tracking stocks on the move the sector being hit the most and market reaction. >> perspective on the global economic impact. and straight ahead as the second hour of squawk box begins right

now. good morning becky quick is in omaha this morning with investor and berkshire hathaway ceo it couldn't be a more important day to hear from them. dow off 702 points right now and we'll talk about those in just a minute. nasdaq looking to open down about 250 points and looking to open down about 75 points and all in check out european markets and italy putting pressure on stocks there and you're looking at numbers across the board with 3 and 4% off we want to show you oil prices really quickly at this hour as well barrel will cost you 51-35

that's down nearly 4% right now. >> here's the latest on the coronavirus. an additional 150 deaths and 409 new cases. the coronavirus alert over the number of cases there. ballooned from 31 to over 750. hong kong's hang seng fell 1.8%. and two largest airlines down as they cancelled flights to the city where many of the new cases were detected meantime the biggest outbreak of the coronavirus outside of asia. the government placed at least ten towns in northern italy under quarentine and cancelled the last few days elsewhere in italy. schools, museums and universities and cinemas were

closed and major soccer matches were cancelled and at this point, the risk to u.k. citizens just over there remains low. i would say that our officials would say that here too. the rest of them remain low but there's a significant difference between supply chain disruption slowing dozens and dozens and hundreds of companies and that's dampening global growth. what worries me is that we don't know three months, six months, nine months, if it ever gets to the point where we start to see in a lot of countries around the world the break out where is they don't know the origin of some of these and they multiply like that, that's when it could really get -- it's still a global growth slow down. nobody in most of the world is worried that they're going to catch coronavirus and they can't

go out or go to the movies or the health club or a restaurant. we don't know. there's major travel being changed right now. there's real implications here the farther we get to the spring, there's a whole sort of thing about how the flu. >> i was looking at some of jim's tweets earlier if you go too far with the fear and the panic, you're accused of one thing if you don't go far enough you're accused of the other thing so we really need to sit here and each day report on the facts and try to remain detached but there's something about a pandemic that's just different than others. it's frightening

and release his annual letter to shareholders over the weekend, and it's just in the back. and it's low. >> it goes back to 1918. if you look at the numbers of what happened in that pandemic when it came around the globe, up to 50 million people were killed in that it was a third of the planet's population that was infected 500 million people were infected 675,000 americans died at that point so inevitably your mind goes back to what's happened in the past because as humans we always look back to history to try to predict the future. it doesn't always work it's not always prophetic but it does give you something of what to play out if this were to get worse and worse. we just don't know if this is

one of those viruss that does die off in warmer weather. >> actually, i think that from what i have heard from people that know a lot more about viruss than i do that unfortunately this will make it through the summer and in terms of having a vaccine it's a long ways off so you have got -- it is scary stuff. i don't think it should effect what you do in stocks but in terms of the human race, it's a pandemic. >> i guess this one is particularly frightening because it's new and so there's no natural immunity that's built up in any of the populations and you wonder what happens particularly in areas where there's not the same health care structure that we have in america or in some of the developed nations. that's a big part of question. >> yeah.

>> we have questions from viewers asking just that will it be any different this year you have a large contingency of chinese shareholders. >> flu is particularly tough on old people so you're going to have two guys on the stage whose combined age is 185 we'll -- we won't be looking for people showing any signs of con stay i don't kn tagion it is highly transmitable. >> you talked about it earlier it's something that you see in the results of the businesses. >> it effects businesses now actually, my dad used to tell me stories. he was 14 and 19to 18.

and two days go out there and he's bullish on the long-term. and going to be there in ten years. >> what are those concerns as somebody that spends a lot of time traveling around the globe as somebody that's trying to help medicine in some of the lesser parts of the world. >> it's very active in trying to be helpful on this and also the cdc is the best in the world we have got terrific resources

in this country but a pandemic is a pandemic and and all evaluating and i have heard that the summer is not likely to cause the end of this. >> do you know why >> i don't know. you shouldn't be asking -- i shouldn't be offering my opinion on that because i pass along things that i hear from people i think are smart but -- >> i'm actually asking for bill's opinion not yours >> i shouldn't quote him but he's the guy i ask they're taking it very seriously. >> is money going from the gates foundation to try to find a vaccine. >> i'm sure they're expending numerous financial resources. >> maybe this is more than you

know, but do you know if they have put human resources out either into china or other places >> i don't know that i don't want to comment on that. but i know that that is something that they have always been very involved in is human health and even particularly this bill knows alot about vaccines >> let's talk a little bit about berkshire hathaway there has been a question raised about whether berkshire hathaway would be worth more if it were split up. >> that's a good question and i'll tell you -- let's say the stock market didn't change for two years and interest rates didn't change. so if you had a two year period and sell off all the businesses, i don't think -- i mean, you have the expenses of selling them now if you sold them all to people that leveraged them up to

their maximum, you might get a little bit more than the stock itself up until 1986 it wouldn't have been so you can dispose of businesses or securities. you could dispose of securities or businesses that are appreciated without a tax at the corporate level. that was done regularly in various ways up until 1986 they revised the tax code big time you can't do that now. now you can go -- you can have spin offs. this business or that business you probably have to lie a little in terms of your purpose. and it takes time. you cannot break up -- you cannot dispose of the entire

business having them together there's some very valuable we don't use leverage as much as the people that would buy them peace by peace so we could leverage berkshire up to the sky. i promise people we won't because we have insurance promises to people 50 or 100 years. but there would not be a profit if we were to announce that you could come in and buy anything and sell it to the highest bidder. >> you made a point of talking about this in the annual letter. you said key to my berkshire only institutions is my faith in the future judgment of fidelity in berkshire directors at many companies they might

win. >> that's true there's no question that wall street would love to come along and sell anything that we have got. so we have had all kinds of people snoop around and they know they're not getting it with me but it won't get done later on either. i am leaving every share and goes to charity and it's 99% of my network so nobody cares more than i do about the most money to those filanthropies over the years and that's going to take place over 15 years and i say keep it all on berkshire but if i thought it was goingto be ru

people buy it to own for a lifetime and we're going to run it in a way that they won't be disappointed. >> do you think that the people that are newer, relatively newer shareholders have the same mentality as the people that have been in it for 50 years >> we tried it because that's who we encourage in effect all the streets are filled so look, we want to have these people that are in sync with us. you can run a french restaurant or you can run a hamburger stand

and and you can't run the hamburgers now so we advertise in our deeds, in our words and every way we can what we're about and we're looking to have the seats filled in our church by people that are in sync with us. the only way is to throw somebody else on that seat >> so you get the shareholders that you deserve. >> exactly. >> not to mix metaphors but can you have a decentralized office running the french restaurant and the hamburger place? >> well, they aren't trying --

we're not trying to have the railroad management run the utility. >> decentralized that's what i mean decentralized headquarters that's in charge of all the different businesses. >> well, we could run -- look, we have decentralized management as it s. they probably save 25% of their time and i want them to feel they own their businesses that's all they're responsible for. if we mess up some other way they get paid based on how they do and there again we attract

managers that like to operate on that basis we don't attract managers that think they're going to keep moving step by step through various divisions and eventually run the whole place. >> we can talk more about succession later because you did write a lot about that but right now we'll send things back over to andrew. >> thanks, becky we'll have a lot more from omaha right after the break. do take a look at futures as we speak. we're back by 700 points on the dow. nasdaq looking to open down. the s&p 500 looking to open down about 77 points. all on new fierce about the spread of the coronavirus. we'll talk more about that right after we return. >> reaction to home depot earnings plus the house minority

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welcome back we're here with a special show with warren buffet in nebraska but before we continue with that let's get a quick check on the

financials this morning. we have seen levels as worst than 800 off this morning. the banks if you look across the board are down by about 3% if you're looking at goldman sachs, bank of america, citigroup down by 2.9%. j.p. morgan chase off. wells fargo down 1.9%. we're with warren buffet the chairman and ceo of berkshire hathaway today one of the things that people wrote in, a lot of people had questions about the anks >> so what do you think about

banks? because you don't look at day by day? >> banking is a good business if you don't do dumb things on the asset side basically the banks earn between 12% and 16% or so on that tangible assets that's a good business it's a fantastic business against the long-term ond. the question is really whether they do something done i feel pretty good about the banks we own they're very attractive compared to most other securities

and most of them are by bank of america -- bank of america is buying in a lot of stock every year so our ownership of the bank of america this year will probably go up 7 or 8% without our spending a dime. they're very attractive against interest rates and against bonds and other stocks in my view. maybe you're talking about wells fargo? it just settled on friday. does this mean that they have kind of finally gotten through that and can move forward?

he says it's an ounce of prevention is not worth a pound of cure. an ounce of prevention is worth a ton of cure and we have seen that time after time the interesting thing was a whole lot of phony accounts. i don't know how you make any money on it at all the shareholders didn't make money. >> well, the incentive structure was set up so that some of the employees could make money. >> and you can devise incentive systems. we have done them ourselves. because they will do what they are insented to do

you're going to do dumb things in business and we do every them day and you have to attack a problem as soon as it occurs and you know about it and if that had happened wells fargo shareholders would be well off they did not profit from opening up accounts that were phony accounts that had nothing in them somebody was getting paid so much account and the practice spread because bad practices do spread if they're allowed to spread and they were ignored which was a total disaster and look at the consequences so two or three years later, who is paying? the shareholders are paying. is that why you sold off the shares >> no, not specifically. >> i know you don't want to get specific on why you -- >> i'm not recommending -- what stocks -- people have to make up

their own mind. >> so i want to ask you a question about todd combs and his new role at geico. let's just use this one. during last year's interview on cnbc after the 2018 letter was released you were asked about succession at geico and you mentioned that in a recent meeting at geico you met about 40 of their top executives and after each introduced themselves they stated their length of time with the company the shortest was 19 years. please explain why none of these 40 top executives were qualified to take over as ceo after the retirement of bill roberts. >> bill roberts took over not even two years ago. >> geico is my first love absolutely you can compete for my second love but n