BECKY: He is, he’s ready to go. JOE: with the a spanking new NetJets tie on, I see, huh? ANDREW: Is that what that is?
JOE: Yeah. BECKY: He does. You like that?
JOE: You said he had a nice… BECKY: Yeah. JOE: …NetJets tie, and I asked you did he also bring a nice NetJets card, and I’m sure he didn’t.
BECKY: And what did I tell you? What did I tell you? JOE: That I can ask him myself.
BECKY: I said you’d have to ask him. Yes. JOE: Yeah, and did you bring one, Warren, or am I getting another brick?
WARREN BUFFETT (Berkshire Hathaway Chairman and CEO): Just beg a little, Joe. We’ll get to it later. BECKY: He wants to hear you beg for two hours first, Joe.
JOE: I know, and then he doesn’t do anything. And I’ll you know, I’m going to try. BUFFETT: Oh no, I got I’ll come up with something for you.
JOE: I’m going to try. BECKY: All right, well, you know, Joe, we are very fortunate to have Warren with us here this morning. And, Warren, this is the first time we’ve gotten a chance to sit down and talk with you since the prostate cancer treatment.
BUFFETT: Right. BECKY: How are you feeling? BUFFETT: I feel fine.
I feel great. I you know, they gave me some hormones, too, so occasionally I get some hot flashes, which I we males call those power surges actually. And no, it was it got tiring after a while.
The radiation does. You don’t feel anything, but… BECKY: Of course.
BUFFETT: …I felt it was time to quit when I started getting the urge to pee sitting down. BECKY: But you’re feeling good. BUFFETT: I feel great.
BECKY: Well, you look great, and we are very happy to have you with us today. Thank you for joining us. You know, this is one of the best times that we’ve gotten to talk to you because there have been so many questions lately about what’s happening in the economy.
We’ve heard from major companies like 3M, Caterpillar, DuPont, all of these companies, UPS, who have all come out and said that the global economy is very uncertain, it’s slowing down a little bit. They’re not sure about what they see in the future. And it’s raised a lot of questions in the market, too.
The market’s been selling off over the last week or so. Real concerns. People sitting up and saying, `Oh oh, maybe there’s something really happening here.’ Do you think the market’s overselling the situation, or do you think it’s catching up with reality?
What do you see? BUFFETT: Well, I think I think the stock market generally is the best place to have money, and but I think that there’s no question that worldwide there is some slowing down going on. And in the United States, actually, residential housing is picking up, and we’ve been waiting for that a long time, and that will have a significant impact.
It hasn’t gotten to any big level yet, but our carpet businesses and brick businesses and all of that will come on with residential construction, and that has turned. But the general economy, I think it’s a little bit better in the U.S., certainly better in the U.S. than it is in Europe.
And in terms of the rate of decline in Asia, it’s reasonably steep and we’re still inching ahead. But it’s inching. BECKY: When did you first start to notice this global decline, this global slowdown?
BUFFETT: Well, we’ve got a couple of companies that really are kind of real time as to what’s going on. The number one would be Iscar because they sell these little tiny punching tools or cutting tools, and they fit in these huge machine tools that cost millions of dollars. So anybody that’s turning out anything big are buying these little, call them razor blade type items, from us.
And they don’t need a big inventory. They can we can deliver very quickly. So their purchases reflect usage, and there our strongest market is in the United States, but Europe and Asia have fallen off some.
And we’re gaining market shares. So there’s a decided decline in activity in all that manufacturing where you’re stamping metal and doing that sort of thing. BECKY: Oh, we heard from (CEO) Doug Oberhelman from Caterpillar the other day, and he says that he looks around the globe and he doesn’t expect to see a recession anywhere in 2013, but Europe is the biggest problem spot.
Would you agree with that assessment? BUFFETT: Well, it is at present. Its rate of decline I mean, it’s way off a lower base its rate of decline is not greater, in my view, than the regular decline in Asia.
It’s just that Asia was doing much better. The United States actually has got the steadiest trajectory, and I don’t see any change in that. I mean, you know, we got the freight car rollings, and that we got a big energy pick up in the United States, we’re getting a housing pickup.
Those are pretty big pretty big industries. BECKY: Well, let’s talk about some of those numbers because housing is a huge key. You had told us before that we are not going to see a turn in the unemployment picture until we see a turn in the housing.
BUFFETT: Right. BECKY: And Doug Oberhelman had told us the reverse of that the other day. He said you’re not going to see a turn in the unemployment picture until you see the turn in housing, and he kind of set the thing on its head and said it’s the other way around.
Which comes first? BUFFETT: Yeah. Well, demand I think comes first.
BECKY: Yeah. BUFFETT: I mean, you hire people when you start seeing demand, and you are seeing more demand. You’re seeing you’re seeing greater purchases of lots.
I was with a guy last night at the GE dinner that is in the business of selling lots, and the and the builders are starting to clamor more for those. We have the largest housing manufacturing company in the country at Clayton Homes, it’s manufactured homes. BECKY: Right.
BUFFETT: But those that business is up in the area of 10 to 15 percent. We see it in our… BECKY: In terms of volume?
In terms of… BUFFETT: In terms of units, yeah. BECKY: Right.
BUFFETT: In terms of units. Real estate brokerage, we not only see about a 15 percent increase in transactions, but we also see a small increase in the median price. And this and this comes from all over the country.
I mean, we’re in California, we’re in Nebraska, Minnesota, Florida, you know, you name it. So that’s changed. Our you know, we’re going to make a lot more money in carpet this year than we made last year.
You know, more than double probably, and we hire people when that happens. BECKY: Mm-hmm. BUFFETT: So the United States economy is not tanking.
Asia from a higher level, I wouldn’t necessarily call it tanking, but it’s heading down, and Europe has been having its troubles for some time and they haven’t ended. BECKY: Does that does that catch up with us? Does that affect us at some point, too?
BUFFETT: Well, what we really hope is we affect them over time. And no, I don’t I don’t necessarily think so unless there gets to be chaos someplace. We’ve already adapted to what’s going on around the world.
BECKY: Tell me what you see in terms of the rail cars. You were saying you were watching loadings on those, Burlington Northern obviously moving a lot of materials. And natural gas is big for them, too, correct?
BUFFETT: Yeah. Well, at Burlington coal is down, as it is with the other railroads. Oil is up, and when you’re fracking you bring in lots of sand.
So sand would be up, for example. And the UP just reported, and they’re seeing small gains in things other than they’re seeing it in lumber. You know, they’re seeing it in cars.
We’re seeing it intermodal. They do we’re the biggest in intermodal. We carry 15 percent of all the freight measured by tonnage in miles in the United States.
I mean, it’s just the Burlington Northern carries almost half as much as all the trucks in the United States in terms of ton miles. BECKY: And you’re not seeing any downturn? You’re seeing actually numbers go up on those?
BUFFETT: We’re seeing numbers go up. Now, that was a little deceptive a month or two ago because we had these floods last year and so the figures were very easy there for July and August. But we are seeing small gains, but they’re small.
BECKY: And in terms of what you see at Mid-American, you talked about some energy demand. That had been weak for quite a while because companies weren’t using as much energy. How’s the how’s the picture on that?
BUFFETT: Yeah, well, you know, kilowatt hours we’re down this year. BECKY: Yeah. BUFFETT: But we well, look at it this way.
Berkshire Hathaway in 2010 spent six billion on plant and equipment. That was a record. BECKY: Mm-hmm.
BUFFETT: We spent last year eight billion on plant and equipment. Another record. This year we’ll spend nine billion on plant and equipment, another record.
And practically all of that’s in the United States. I mean, we see lots of things to do. Now, a good bit of that is in the rail business and the energy business.
BECKY: Right. BUFFETT: But there there’s a lot to do. And incidentally you hear a lot about infrastructure and, you know, the terrible shape it’s in.
BECKY: Right. BUFFETT: The rail industry’s infrastructure’s in the best shape it’s ever been in. BECKY: OK.
Joe has a question for you as well. Joe: JOE: Yeah, along the same lines, Warren. If let’s say that you were going to start a new Berkshire Hathaway, and it was just going to be based on energy.
Now, only energy stock could be in it and you were trying to play whatever happens in or trying to take advantage of what happens in this country over the next 20 years, what would how would you do that? Would it be natural gas? Would it be coal?
Would it be solar? Would it be how do you think you would do that? All of the above or I mean are you smart enough to see how this plays itself out with fracking and natural gas?
BUFFETT: No, but I but I, you know, I’m interested enough to follow it, but I don’t I don’t think I’ll be able to write the newspaper two years from now at the current time. But we are putting a lot of money into solar and wind. That’s just part of what we do at Mid-American.
You know, if you get into producing energy itself I’m not you know, I would be no good at that game. I’d have to join with somebody else that I thought was terrific. But I don’t know a blame thing about it.
I mean, I read about it and I and I feel very good about what I read, and we transport a lot of oil, but I don’t you know, you stick me in next to an oil well, and I go back to thinking of some Clark Gable movie or something as to what I’m supposed to do, and I think that’s a little out of date. JOE: Becky, have you shared your thoughts about, you know, exporting natural gas? BECKY: Oh, I know where you’re going.
Oh, he… JOE: Well, I just I just wondered whether you’ve talked to Warren about that. I mean, you listen in…
BECKY: I haven’t. Warren, let me let me tell you before Joe makes it even sound worse than it is. I have had some concerns about this idea of exporting natural gas because, look, this is from the Charlie Munger school of thought.
If you want to be energy independent, he thinks it’s a stupid idea. He thinks we should use all of their stuff. But I worry, if we really do want to get energy independent why would we ship this natural gas to other people?
Why don’t we build it and keep it here?
Go ahead, tell me why that’s wrong.