CNBC Transcript: Warren Buffett on China, the Economy, and Corporate Jet Tax Breaks (Part 7)

Published: Monday, 14 Nov 2011 | 2:21 PM ET
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By: Alex Crippen
Executive Producer
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 ANDREW: Let's get back to Becky who is in Omaha with the Oracle of Omaha. Becky:

 BECKY: Hey, Andrew, thanks very much. We've been live with Warren Buffettall morning long. We've covered a lot of ground, but one bit of breaking news he gave us this morning is talking about what he's been purchasing over the last quarter and even before that. When the earnings came out, we knew that he had been spending a lot of money on equities and this morning Warren Buffettshared with us what exactly he's been spending, what the big part of that purchase has been. IBM, Big Blue, that's an investment that Buffet's been making and making it very handily. Up to this point he has invested just over $10 billion, 10 point...

 BUFFETT: I'm not sure exactly. About probably 10.5, 10.6, something like that.

 BECKY: All right, $10.5 or 10.6 billion. He now owns about 5 1/2 percent of the shares outstanding of IBM. And, by the way, this is news not only for our viewers but also for IBM. You have never spoken with IBM about the idea that you've been coming into that stock?

 BUFFETT: I haven't talked to any—anybody at IBM whatsoever, or written to them or anything.

 BECKY: So you say at this point you're about done, that you've bought what you want to buy at this point?

 BUFFETT: I wouldn't be talking otherwise.

 BECKY: OK.

BUFFETT: That doesn't mean I want it to go up, though, because we do better if it goes down because they are repurchasing stock all of the time. And if they're going to spend $50 billion, some number that they announce in the next five years buying it, the cheaper they buy it the greater our interest goes up. Very simple. If you're a buyer of stocks, you want those stocks to go down. In fact, if I—if we had enough money coming in and IBM went down we might buy more.

BECKY: For those who have just been joining us over the last few minutes who didn't see in the last hour what you talked about, why don't you explain why you bought in to IBM because this is an unusual purchase. It's something that will come as a surprise.

BUFFETT: Well, I've been reading the annual reports for 50 years, I competed with them 50 years ago. I—but the 2010 report came in on a Saturday, I read it as I always do and instead of reading it through the old ones of glasses lens I read it through a new glasses lens and then I set out to learn more about it. They laid out some very specific things they expected to accomplish. I really compliment the management on that. I don't know of any large company that really has been as specific about what they intend to do and how they intend to do it as IBM. And they did that five years ago when they did it and they've done it since. So they...

BECKY: What are—what are some of the specifics?

BUFFETT: Well, they give you a road map and they spend—you can read dozens and dozens of pagers on—they explain it. You can go to their website and learn about it. But then I went out and—or people in the office did before me, and we looked at our own IT operations through many of our companies. We got lots and lots of companies. I don't—I don't know anything about the IT operations. But basically I was interested in learning how they came to the decisions they did, the stickiness, you know, what they might be doing three years from now or five years from now. And when I got all through I felt that IBM had a very good business and I felt that they had this terrific reverence for shareholders. They tell the—they're honest with their shareholders. They tell their shareholders what they expect...

BECKY: Mm-hmm.

BUFFETT: ...to accomplish. They expect to be held to it. They repurchase shares on a big scale. They do not use those repurchased shares. They go out and issue the same number of shares. They've taken down their overhang by 200 million shares. Now the base is a billion 180. They've done all kinds of things right.

BECKY: Andrew, I head you have a question, too?

JOE: Yeah, Andrew, go ahead.

ANDREW: Hey, Warren, I'm having a little bit of trouble with the IFB, but what is the average price that you paid for those IBM shares?

BUFFETT: Hundred and seventy roughly.

ANDREW: Hundred and seventy?

BUFFETT: Maybe just a touch under.

ANDREW: So it's trading at about 189—189 bucks now. So that's actually—and you started buying, you said, in April?

BUFFETT: March.

ANDREW: March. OK.

JOE: OK.

ANDREW: We had a couple—we had a couple of viewers write in to find out that answer.

BUFFETT: It takes—it takes a...

JOE: Mm-hmm.

ANDREW: So there are people who are...

BUFFETT: It takes—it takes a long time to buy a lot of stock.

BECKY: Yeah. What do you think about the new CEO, Virginia Rometty?

BUFFETT: Well, I don't know her but I've—but I've read things she's said and they are batting a thousand in the last two CEOs they've come up with. So I've got no—and she's been—she's explained these plans that they have for the next five years. I have no reason to be anything other than positive.

BECKY: OK. Why don't we switch gears and talk a little bit about some of the other news that we've been focusing around the Capitol. Jack Abramoff, the disgraced lobbyist, is out with a new book, and he talks about how people on Capitol Hill, specifically congressional staffers, have been trading based on inside information that they know. Now it's not inside information that the SEC would necessarily crack down on, but do you think it's right that congressional staffers be trading on stocks when they know that there are investigations from some of their committees that are going into some of those companies?

BUFFETT: No, obviously it's wrong. I mean, I saw two different "60 Minute" programs.

BECKY: Right.

BUFFETT: One last night that was on this trading. It focused more actually on people in Congress themselves on that one. Abramoff was—I mean, when saw him a week or go or so he was talking about the incredible power of lobbyists. And, of course, that gets into this whole question of why the rich have low taxes. I mean, you know, if there's a class war, you know, we're the ones that are waging it, the rich. And our soldiers are the—are the lobbyists. And the poor have a bunch of little toy soldiers and we've got these guys that have got the ins with the staffers and all that sort of thing.

BECKY: Administration after administration has promised that they would crack down on the lobbyists and lobbyists seem to be as powerful as ever.

BUFFETT: That's right. It serves the interests of the people on both sides.

BECKY: So what can be done?

BUFFETT: People have to get outraged enough that they hold congressional feet to the fire. But this system works for the people involved. It works for the—it works for the wealthy, it works for the special interests, it works for people in Congress and it works for the lobbyists. And it may not work for my cleaning lady, but, you know, what can she do about it?

BECKY: I guess one argument could be that if we actually saw a tax code that didn't have the exemptions that we have now that you'd be looking at a much better situation because the lobbyists are the ones who push for these exemptions and they're pushing on behalf of the powerful corporations and people.

BUFFETT: They're powerful and often rich. But powerful people. Sometimes they're powerful because they control a lot of votes, too.

BECKY: Right.

BUFFETT: I mean, it doesn't have to be money. But it often is money.

BECKY: So is that an argument for a tax code that is stripped down the way Simpson and Bowles laid out?

BUFFETT: Well, it—you can go back to what, you know, Kemp-Roth and all of that, too that we were working on. But it—I think what happened with Simpson-Bowles was an absolute tragedy. I mean, here are two extremely high-grade people, they have somewhat different ideas about government. But they're smart, they're decent, they've got good senses of humor, too. They're good at working with people. They work like the devil for 10 months or something like that. They compromise, they bring in people as far apart as Durbin and Coburn to get them to sign on and then they're totally ignored. I think that's a travesty.

BECKY: Why are we starting over with a new congressional committee?

BUFFETT: Well, because we ignored the last one. You know, Congress basically has said put us in a position where something so unpleasant happens that it'll force us to do something we don't want to do. And the sequester is supposedly that. Now they talk about getting rid of the sequester if it—if action doesn't take place. People are sick of it. And it—it's pretty transparent what takes place. And democracy is messy, though. We will get to the—we will get to the answers eventually. We will not be spending 25 percent of GDP and raising 15 percent of GDP 10 years from now. We'll get there somehow.

But going back to the lobbyist question, you know, everybody in the country is trying to figure out how to have somebody else pay for it. But some of them are better equipped to fight that fight than others and they're the people with money that care and that hire lobbyists.

BECKY: Do we get to that point? You say eventually we'll get to a position where we figure it out and we're not spending 25 percent and bringing in 15 percent of GDP in revenue. Do we get to that position on our own or does it take a crisis like we've seen in Greece or Italy to make the United States government sit up and actually pay attention?

BUFFETT: It probably takes a general feeling in Congress, and maybe in the administration that they've got more to lose by sticking with the old system if nothing happens and stalemate than they have of finally getting something done. In other words, it takes a feeling that incumbents are going to get turned out unless they get some action.

BECKY: We're not there yet.

BUFFETT: I don't know. We may be—we may be getting close. I think that's what incumbents are worried about now.

BECKY: OK.

JOE: Hey, Warren...

BECKY: All right.

JOE: ...listening—I don't know whether we got to take a break—we got to take a break? We don't have to take a break—we do? All right. All right, if we have to, we have to. But, all right, then I'll hold my thought. But it has to do with what you were just talking about. When we come back with more Warren Buffett we will continue this conversation. SQUAWK will be right back.

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