Transcripts For CNBC Squawk Box 20100120 : vimarsana.com

the case. why would republicans cooperate? you re going to let lies and distortions by a couple of key baggers sway in the election? that would happen in massachusetts. you re going to read that. okay. i just like getting viewers to not know where the heck both sides are so incensed, that you say anything and you can get some interesting here is what i don t know. and we ll have harwood on. they can the i ve heard everyone say it, the least bad path now is to get the house to go with the senate bill as is. scott brown won t be a 41st anything if they don t need to go back to the senate, right? the question is, do the blue dogs, there are probably much redder states than massachusetts. so are we worried? do they care about their political viability, number one, and how do they get an excuse saying well, you voted for it the first time. this isn t the bill they voted for the first time. they voted for a house bill. that was a close vote in the house, carl, was it not? correct. but not as close in the senate. plus you have to go the progressives in line with this senate bill as well. is it a slam dunk that the senate bill can get rubber stamped as well? unlikely. and if they get get the house to vote and senate to vote in 7 to 15 days, that doesn t look likely, either. what about with reconciliation? they d have to take things out, but then they can put stuff back in later. anything would have to concern exchanging money. do you think the will of the american people is demonstrated not only by this, but maybe by things elsewhere. will that ever reach pelosi and reid to the point where they go, we re elected by the people. will it ever reach up to that level? you re going to hear the democrats say scott brown voted for health care in massachusetts. this vote is not about health care. you come up with these things so easily, though. when you hear it, you can say thank you, carl. and when you hear mine, that it was a couple of tea baggers lying and distort b, it is a it is a huge upset. unbelievable. this is happening on the one-year anniversary of the inauguration is just in massachusetts with ted kennedy s seat. i know. and did you hear last night with some of the scott brown headquarters, you had republicans chanting yes we can a year after the president was sworn in. unbelievable. oh, my word. and we have a poll today, too, an nbc wall street journal poll that everybody loves president obama. as a person. as a person. as a candidate. but the policies have everyone shaking. anyway, another top story. this is a big one today. ibm surging after hours after reporting better than expected fourth quarter earnings and revenue also raising 2010 the profit outlook. initially, they traded higher after the bell. it s only 139 i believe is the all-time high. and not too much tech stocks are xeeed where they were in that 1999 bubble. we will delve into the details of ibm in just a few minutes. once again, it is anemic o revenue growth, carl. it s hard to do that, but the company continues to chug along in terms of the bottom line. that s right. meantime, the federal housing administration is raising the minimum down payment for less creditworthy borrowers looking to get an fha mortgage. the requirement from borrowers with fico scores above 580 will remain above 3.5%. fha will raise the mortgage premium. those changes are part of a series of steps to shore up the agency s financing. what about financial reform? that s another thing. if cokely couldn t put brown with the label of being friendly to big barngs, right, he was opposed to the tax, if that doesn t stick, are democrats going to is that a working strategy going into the summer and fall? scott brown has wall street s back. cokely will have your back. and there s some other pieces of legislation probably that there is a whole new kcalculus with a lot of things, right? absolutely. people will be mad if they try and delay the swearing in. that s not going to happen, will it that would raise a lot of people s ire, i would imagine. the white house and congressional democrats reaching a tentative deal to set up a fiscal task force. the bipartisan debt commission would be charged with tackling the soaring budget deficit. the wall street journal says the group would provide the plan to bring this year s projected $1.4 trillion deficit from about 10% of gross of gdp to 3% by 2015. congress would vote on any findings reached by the task force. you know where becky is today, right? i know exactly where she is. she was traveling yesterday, i think. yes. it s cold there, is it not? there she is. is it rainey or what is it out there? it is icy/rainey. it s slippery on the streets out here. guys, we thought we got a lot of snow this year, but in omaha, you re talking about three feet or higher of snow. a lot of it is still here. you ve got a big, big almost cannons as you try and go down the streets that are still here. but we are reporting live this morning from the holland supporting arts center. this is the holland performing arts center where we ve been before. i think about a year and a half ago we were here, too, during io usa. but a few hours from now, this is the very stage warren buffett will be taking because this is the berkshire hathaway s shareholders meeting. those shareholders will be arriving for a special meeting. this time around, this is a historic meeting because this is for approval of a 50 for 1 split of berkshire s class b shares. this move is something, it s just the next step along the way. even if this vote doesn t pass, the acquisition could go ahead. this is something. if you re a small shareholder in the burlington northern, this would be a move that goes a long way so that you can keep your stake in stock and not have to get hit by the tax implications by not taking the cash area of the deal. here is what he told us when he called into the squawk line just minutes after this acquisition was announced. while we were touring various businesses of berkshire, i had my assistant call his office and ask if he would drop by the ashton hotel around 6:00 when we get back. and when he dropped by, i made him after offer and he said he would take it to his board. it took about 15 minutes. all right. that was warren on that morning. and this morning, mr. buffett will be joining us live coming up in the 8:00 a.m. eastern hour. and guys, this couldn t be happening at a better time. not only do we get to talk about burlington northern and the split of class b shares today, this would be the first time he ll be speak about what happened with that kraft bid for cadbury. as you know, he voted no. this is the first time that you ve heard from an activist shareholder, warren buffett, voting no in the kraft bid originally. he was concerned about that deal, especially because of it being purchased with so much stock. but he raised questions about just how high the bid was at that point. i think he called it a full bid when we spoke with him in the past. you also have wells fargo that will be reporting herbings later this morning. a big shareholder in wells fargo, as well. he was a supporter of barack obama. we ll see what he thinks about the health care debate and what this massachusetts win for senator brown or incoming senator brown is going to mean for the makeup of what s been happening in washington. we ve got a lot of different things to be talking to him about. originally he was supposed to be joining us at 8:30. but we have so much to talk about, i think he ll be joining us at 8:00. david soakel, he sits in the captain s chair at netjets. we ll get an update. he s been going to china to talk to byc. we have a lot of different things to talk to him about, as well. and guys, i m so sorry i was not there this morning to talk to you about what happened in massachusetts last night. fun. yeah, fun. oh, yeah? what happened? oh, nothing. and then i think ackman was a an obama guy, too. but a lot of the guys like ackman, when we had him in convenie recently, a time of them said, well, yeah, but i wasn t sure a lot of them had a little rediscriminations, i guess. i m sure mr. buffett is still pretty steadfast in his support at this point. that would be my guess. and joe, just a moment ago, you guys brought up the whole idea of what happens to regulatory reform. already, the expectation in the washington post and some other places has been that you re going to see a lot of pressure on chris dodd to go ahead and negotiate a little bit more with the republican side of the aisle, that this is not something that they can just push through. warren did say in so many words a few times we got him to acknowledge that the economy would have been his first priority, jobs, the economy, not cap and trade and not necessarily not necessarily health care. we have a poll today which shows the priorities of the american people and health care is like 8%. there s four things. i don t know. i saw it last night, but there s four things above it that are paramount on people s minds. security. everything else. and that was down here. guys, as you know, we re in omaha. nebraska is ben nelson s state. that is not the case. in nebraska, it hasn t really very well. that is not something that has played well and he has suffered in the polls here, as well. last night and the night before, watching television late at night, ben nelson has ads late at night here to try and reach out and tell people why he s supporting this and why he s in favor of this and lay out his stance. we can talk to mr. buffett about all these issues coming up later this morning. the republican governor of nebraska has been outspoken about, hey, we don t want this and they re kind of embarrassed to be in a cornhusker after that. even as nelson felt he was paving the way for oh, please. in other parts of the country, people don t want to see anybody getting a special deal even if it s themselves. it doesn t sit well than being treated differently than 49 other states. there s a lot of speed bumps. or a brick wall. we ll see. the union thing was just is just classic. 2008 gain and in a good way. yeah, oh, yeah, it s a great way. i love for the workers in the united states to be treated equally. how many are not covered by a collective bargaining agreement that are thrown under the bus for their union peers because they supported president obama? just looking if a republican tried to do that, carl, i mean, come on. on that note, a big day for berkshire and a big day for us. quick check on the markets this morning, big day yesterday, almost 116 points on the dow. now at fresh highs. the biggest jump since the 4th of january. we re going to give some of it back this morning. some concerns overnight in china, joe, they re raising again the capital requirements reserve ratios for banks, worries that maybe is china starting to withdraw some stimulus? it s hurting commodities. we re going to have a weak open despite what china did last night. i saw some running commentary. talking about polar opposites on china. they were, but then it look like rogers at least said maybe the possibility that there s some type of bubble in shanghai, hopefully that they can deal with it. but chanos, we ll see who is right about this. i don t know if i want him to be right. i know. i know. take a look at oil with the talk about the china economy. we re below 78 once again. the stronger dollar is not helping crude, as well. the 10-year note, right around 3.67. the dollar has been steadily improving over time. the euro, joe, this morning getting trashed once again. it s a five-month low. 1.41. we crossed the 200-day moving average at about 1.41 and change. everybody is paying attention to euro and to greece and for potential problems down the road regarding that currency. finally, gold has been been the driving for us of the conversation. with a driving dollar, you might expect action in the dollar metal. all right. tech giant ibm, the stock to watch for the day after reporting results after the bell. joining us now with analysis, thomas smith, computer hardware analyst at s&p. and the stock has moved up in the last week from 131 to 134. now it s indicated back down at maybe 131 to 132 this morning. thomas, is there anything in the numbers that we re disappointing or is it the move the stock has already made? i think the stock often perks up ahead of earnings. i think the whole report was pretty good. if anything, the street probably looks at the revenue line and probably says, yeah, it s the tail end of a kind of recession year and they haven t really broken through on revenue yet. some place out there, there is a better hardware recovery than is in the streets ibm numbers. they haven t broken through on revenue yet. could you be back five years, ten years to make that point? well, i mean, in this current cycle. right. but that s been the wrap on ibm for at least five years. it s a large company. it s a slower revenue grower. what is attractive about it, of course, is the steady margin improvement and in 2009 pretax margin improvement in all five segments, despite a harsh hardware recession going on. so that is a good strategic plan that has been going on for five years. service is more important and has been for a long time, right? that s right. it s grown to be more of a services company or a total i.t. solution eggs company. they want to sell you everything from the parts to the installation to the hardware to the use of it all. you know, we have the cfo saying, you know, we re seeing some good things happen, , we would really like to get a little bit more into this year, into this first quarter to get more validation that there is a recovery happening. they re saying many customers are still focused on cost savings. it s a big company. if you tell me gdp is worth, that s a risk for ibm overall. they did raise guidance as they have for the several quarters in a row here. and i would expect the street to keep rising up and the analysts are cautious. some point out, 22 contracts worth more than $100 million each that if there s any tech company that is leading technology out of recession, this would be the one that is doing it. well, that s it. the signing for services were very strong. this is a company that has very strong backlog in services. so this is one reason why it s kind of a it s a blue chip holding. all right. and they can guide with some confidence where pure hardware makers can t. thanks, john. appreciate it. running news at the bottom of your screen, joe. the u.s. geological survey reporting that a 6.0 magnitude earthquake has rocked haiti. we don t have timing on this. they add no tsunami has been generated from that quake. but we all know the difference between a 7.0, joe, and 6.0. ten times, yes. but given the state of the infrastructure already, after shocks of any kind would be very dangerous. yeah. and while they re trying to still get people out, they say if there was an after shock right now, i mean, the slightest movement so we ll keep an eye on that and see what that might mean for the people of that country as the rescue missions continue. meanwhile this morning, four of the neigh s largest banks will report quarterly results. we ll get earnings from baj of america, morgan stanley, wells fargo. paul miller joins us from d.c. good morning to you. good morning. as analysts go on the street, you re toward the low end, especially regarding b of a, right? yeah. we re towards the low end. really on the fourth quarter, nobody cares about what earnings are going to be. they re going to care what the top line revenues are going to be. really, the earnings estimates, a lot of news for all of they also estimates because of the t.a.r.p. payback and all that noise. i don t think people are going to focus on the headline noise. what in the outlook are you curious about? is it the trajectory for quarters to come? well, i think the credit costs, i think investors accept the fact that credit is going to be high and elevated for a long period of time. the pretax provision has been a focus and right now it s a did it of a disappointment so far. so far, the top revenue lines have not been that great. your broker-dealer type aspects are not doing that well. and morgan stanley is starting to decline in earnings. let s back up and specifically deal with b of a. i think they ll disappoint. what does that mean for the shares and in weeks to come? i m at negative 50 cents. if they come in there, the stock will stay relatively flat. a lot of the bulls would like to see that pretax number up in the upper 40s on a run rate, like at a $14 billion or $15 billion because a lot of the bulls think this company can make $55 building to $65 billion pretax provision to get to that $3 earnings number that people want. so it s really because of all the noise, the headline won t matter, it s that pretax provision this morning. wells fargo, underperform, as well, right? and even there, some of these outlook ex may end up looking okay. you have to dig through them to see what the truth is. that s exactly right. wells fargo, it s a great company. the issue we have with wells fargo, it s trading at almost 2.5 times book. they probably haven t recognized a lot of their losses as the b of as of the world. but wells fargo is one of the better companies out there. that company we re just a little worried about. it is ahead of its on a valuation basis. we think it will be difficult for valuations to trade above two times book. so your underlying thesis is bank stock trading for 2 to 2 1/2 times book, that s an investing counting on a v-shaped recovery. and that is not deserved, right? that s exactly right. because the housing sector is under so much weight it s going to take a long time to work through this. and we don t think you re going to start seeing a recovery anytime soon in the housing market in 2010. was diamond s commentary at least acknowledging the truth or getting somewhere close to the trukt? i think jamie dimon s commentary is the best out there so far. he says we re seeing stabilize, but it all depends on the economy. if the economy doesn t recover by the mid part of 2010, losses are going to stay elevated and banks earnings will be under pressure. and i imagine the housing survey yesterday, the people who are worried about another leg down in housing have they ve got some ammunition to work with this week. yeah, they do. and the issue is that the government has been supporting the housing market very strongly. and so what people are worried about is what happens when this fed backs out of buying mortgage-backed securities. all these things could have a negative impact on the housing market. it will be a busy week for financials, a busy week for you, the paul. thanks for the insight. we ll see what happens in about a half an hour. you re welcome. coming up, we ll head to the futures pits in chicago and ask what all of these earnings reports mean for the broader markets when we return. still ahead, squawk box live at berkshire hathway s special shareholders meeting in omaha. the next stop in berkshire s history acquisition of burlington northern. and before warren buffett makes his case to shareholders, he makes it to us live in the 8:00 a.m. eastern hour. welcome back. breaking news out of haiti this morning, the u.s. geological survey says the country has been hit by a 6.1 magnitude quake that hit at 6:01 this morning eastern time. it struck 35 miles northwest of the capital of port-au-prince at a depth of 13 miles. that s a little farther wear than the original earthquake occurred and a little deeper, so the effects might not be as strong. obviously, 6.0 is nowhere near a 7.0. but the previous one was. it s a shaker, though. but it shook belgs and sent people fleeing into the streets. wool see what the effects are later on today. but it s not good news for the people of that country. no, not at all. let s get to the trading day ahead on the agenda. we ve got december housing starts and the producer price index, brian, battle of performance trust capital partners is standing by at the cme. the election is over, brian. i know a lot of guys on the cme were talking about it yesterday. maybe we got our bounce in the equity markets yesterday. are we moving along to ppi now inspect. as to the election, we know it s buy the rumor, sell the fact. there seems to be momentum. insurance, financials, in health care the past couple of weeks. there s a lot of financial services that are headquartered in massachusetts and there s a large financial services overhaul bill that chris dodd is trying to wrestle through the senate. his own version of what barney frank has done. so brown is going to be a factor in that case, also, where he might be advocating for financial services. this today especially we re going to have the big bank earnings, you heard it, that s exactly right. do they have projections? do they have an outlook going forward that they have earnings? is there going to be the revenue to support the loss? housing is secured. it s being supported by massive government intervention on mortgage buying and by modification programs. we ll see once those programs are withdrawn whether the housing market holds up. the answer is probably not. so that might be a number to watch. what about are inflation numbers like the ppi expecting any outliars there or should it be as expected? no. the bond market does not fear inflation. if you look at the yield curve and you look at the nominal rates, the ten year and 3.75%, there s no long-term inflation. that is off the table. what is good for the markets is it s a great time for a lot of slope. you get to make all that margin. there s a lot of ways to earn your way out of this may lay with a lot of slope in the curve. the past year, we replaced private demand with sovereign demand and we replaced private credit with sovereign credit. so when uncle sam starts backing out, will the private sector start moving in? there has been risk seeking. we had the biggest jurchl on week ever last week. so there does seem to be some risk seeking. we ll see if that persists. risk seeking improves and that should help markets overall here in the states. not so much in china and certainly not in europe. they have their own problems in the eu and greece that will benefit us, ultimately. brian, thank you. thanks, joe. now back out to beck. becky. hey, guys, coming up, we will have more of this morning s top stories. the oracle of omaha wants to buy a railroad. today the berkshire investors get to weigh in on all of this. we ve got more from the site of today s super share 40e8der meeting. you know why i sell tools? tools are uncomplicated? nothing complicated about a pair of 10 inch hose clamp pliers. you know what s complicated? shipping. shipping s complicated. not really. with priority mail flat rate boxes from the postal service shipping is easy. if it fits, it ships anywhere in the country for a low flat rate. that s not complicated. come on. how about.a handshake. alright. priority mail flat rate boxes only from the postal service. a simpler way to ship. (announcer) we re in the energy business. but we re also in the showing-kids- new-worlds business. and the startup-capital- for-barbers business. and the this-won t- hurt-a-bit business. because we don t just work here. we live here. these are our families. and our neighbors. and by changing lives we re in more than the energy business we re in the human energy business. chevron. welcome back. our top story today, the democrats 60 vote senate super yort is now in jeopardy. republican scott brown beating democrat martha cokely in massachusetts. john harwood joins us to talk about the race, the effects of health care reform, financial reform. good to see you this morning, john. are you willing to come on tv this morning and declare this health care bill dead? no, it s not dead. however, this is a real gut check moment for democrats. it s a decision that they ve got to make as to whether an expansive health care bill is something that they can sustain politically. i think that if democrats decide that we can still have a large health care bill, they can move it through the house of representatives, move past the senate bill and try to then pivot to jobs and a focus on other issues, economic concerns. if they panic, if they decide that the message here is big health care reform is not possible, then we won t get it. but i don t think we re at that point yet. we don t know the answer to that. the house democrats were meeting last night. there s a lot of anxiety, there s a lot of concern. we don t know how it s going to be resolved. would you say there s panic at this point? yes. there is panic. i would say there is full panic in the democratic party. the only question is what happens when you sleep on it, when panic subsides, when you hear from the white house, you hear from your pollsters and you figure out whether or not you have a sustainable position you can carry forward. the fundamental issue in massachusetts, i believe, and in the country right now is the belief of middle class americans that a whole lot of money has been spent on wall street bailouts, on stimulus and it s not benefiting them directly. the same question arises in health care. this, by the way, is what sunk president clinton on health care in 1994. the belief that we re going to insure a lot of people, and it s going to cost me a lot of money, me middle class consumer, and i m not going to get anything out of it. the democrats think they have a solution to answer that but they haven t been able to persuade the american people of that in a way they can feel comfortable with. john, to take this senate version and try and get the house to pass that, as an expert on this, what was the margin the first time around in the house? five votes. five votes. yeah. it just seems like a lot of blue dogs or even progressives have cover now to say i voted for a house bill. i m not just going rubber stamp you can t just tell me that the senate bill floats through the house because you did it one or time with a five-vote margin. well, no, joe, look, you re right. it s not about floating through. it s not going to float through whatever happens. blue dogs have cover. they re not in states like massachusetts. joe, you re exactly right. however, a couple points on that. first of all, if you re a before you dog, you like the senate bill better than the house bill, anyway, because there s no public option, it s a less expensive bill, it has less on the affordability side in terms of subsidy. so it s easier for blue dogs to support the senate bill. one of the questions the blue dogs have to ask themselves is have i already taken the hit in terms of vote fog a big, expensive health care bill? do i make the hit worse bypassing the house bill or can we ditch the thing altogether and can i protect myself? what the progressives have to decide is comprehensive health care possible in our lifetime politically speaking, right? this is one of the deepest blooefts democrats have. and they have the white house and two majorities and they can still barely get it done. and that s the issue. if they don t do it now, they may have they have to look in the mirror and say, okay, we ll wait until 20 years and try it again, right? so that is the case that nancy pelosi, that president obama, that all of the white house team is going to make to those democrats. you either do it now or you don t do it for a very long time and we ll see how per zaf it that is. i want to roll through some of the poll numbers that the journal and nbc are rolling out today, john, give viewers a quick chance to look at 24e78 them. the direction, the nation, the president s approval rating, how does he have to pivot, whether it s involving health care or not, to avoid a replay of 9 4? here is the challenge, guys. some of this is atmospheric. it s a very bad economic storm out there. you ve got 8 % of the people in this follow saying they re dissatisfied with the economy. let s say that you didn t do health care and all you did was focus on creating jobs. what would you do? if you re a democrat, you would spend a lot more money to create jobs. guess what? people are upset about the level of spending and they don t think it s benefiting them and you may not be able to create a lot of jobs quickly. this is a terrible box democrats are in politically and the question is, do you try to tough it out? do you have have confidence in our strategy, have confidence in our president, follow the path he s taken and it s going to get better and hope you get better unemployment news later in the year, or do you see, junk it, we ll go small. the problem for democrats is if they ditch health care, they re not going to do much of anything this year. how viable an answer is that politically? unemployment will still be at 10%. you don t do a jobs bible you don t do health care and you run for an election saying, we avoided the stuff that you were upset about, re-elect us. how viable of a message is that? it s difficult. how long do you hack on to it? here is my favorite, john. apparently 43 weighed in and said, great job, brownie. that was one of our viewers wrote in. nice. great job, brownie. yes, we can. john, we have to move on, but what an epic night in american politics. a lot of drama in washington right now and everybody is going to figure out, over the next week when the president gives that state of the union address, exactly how he interprets these results and moves on from here and whether the democrats follow here. we ll talk to you later, john. thanks. i was thinking squawk on the street is sots. state of the union is sotu. i get confused easily. quick break now. still ahead, more from becky in omit ma what with warren buffett. plus, nbc bob jim zucker on the late night dramas. some people like to pretend. a flood could never happen to them. and that their homeowners insurance. protects them. it doesn t. stop pretending. it can happen to you. protect your home with flood insurance. call the number on your screen. for your free brochure. welcome back to squawk box on cnbc. we continue to follow the crisis in haiti. within the last half hour, a strong after shock in there. magnitude 6.1. that s the largest since the initial quake. now there are still glimmers of hope like this rescue overnight. the woman is 25 years old. three rescue teams, one from turkey, france and haiti got her out of the rubble. she was seen singing and praying as the rescue finally came. aid is pouring into haiti now. a steady stream of helicopters carrying in food and supplies. a giant hospital has been brought in and it will allow doctors to perform complex surgeries on the injured victims. aid is costly and the business world is pitching in. as of yesterday afternoon, the u.s. chamber of commerce tells cnbc more than 200 companies have donated to the relief effort and counting. robert zoellick says the quake can eventually offer an opportunity for haiti and build back better. he s calling for toners to give back in the form of grants and not loans. let s head back to becky in home ma what. scott, thank you very much. when we return, all aboard the squawk train. berkshire hathway. the shareholders will be soon gathering in this theater. the topic today, the historic acquisition of railroad giant burlington northern. it s the largest deal in the company s history. we ll be talking transports and much more, straight ahead. these are the building blocks of a perfect girls weekend. it all starts with having more hotels to choose from. that s why i book with expedia. so i can find someplace familiar. or somewhere more distinctive. nice! then i can compare dates to find out when i can save the most cash. done and done. we should do this more often. more choices, more savings. where you book matters. expedia. dot com in these turbulent times, you want a financial partner who promptly gets you. the information you need. at northern trust, our sophisticated technology. puts the most accurate information at your fingertips. so while you may find yourself waiting now and then, it won t be for the numbers you wanted by 7am. northern trust. wealth management. asset management. asset servicing. boss: hey, those gecko ringtones you put on our website people love em! gecko: yeah, thank you sir. turned out nice. boss: got another one for you. anncr: at geico.com, it s easy to get a free rate quote, manage your policy, make payments or even file a claim! boss: now that s a ringtone. gecko: uh yeah.it s interesting.. certainly not the worst ringtone i ve ever heard. ringtone lyrics: a-ringedy- ding-ding-dingy-dong, ringedy-dong-ding-ding. gecko (to himself): yeah, that might be the worst. anncr: geico. 15 minutes could save you 15% or more on car insurance. what are you doing.? calling chase sapphire, seeing if we have enough points to stay longer. now? you don t have enough time. and you have to push all those buttons. no buttons, someone answers every time. yeah, right. bet you a massage. yeah, ok. hi, julie. i have a question about my points. hi, what button do i press for a massage? hello? new chase sapphire. you call. we answer. no waiting. just press right here. go to chase.com/sapphire. chase what matters. reporting live from omaha, here again, becky quick. welcome back, everybody. berkshire hathaway shareholders, as you probably know, will be gathering here in omaha today to vote on splitting the company s class b shares. this is all a part of warren buffett s plan to go ahead and buy burlington northern, a $26 billion deal. joining us now is morgan keegan s transportation analyst, art hatfield. thanks a lot for being with us this morning. we ve been watching what s been happening to the railroad stocks and the traffic there over the last year. and traffic has come down pretty significantly. what is it down about 20% over a year ago for december? roughly, yeah. i think for the full year, it s been down about 20%. but the last few weeks it s gotten a little bit better because we re starting to cycle through some easier comparisons. yeah, what does that tell us, though? if you re talking about easier comps, you re still talking about numbers being down against some pretty lousy comparisons, right? no, you re right. it doesn t tell us much. it tells us that things aren t getting any worse. and i guess that s the first step to things getting better. but i will say this. while some aspects of the industrial traffic has gotten better, the big headwind all the railroads have right now is coal volumes are still extremely weak. and, in fact, in the latest weeks have been still down north of 20%. and i think that s very problematic for all the railroads with regards to profitability for most of 2010. why have those coal shipments been down, have been hit particularly hard? primarily the utilities have not had to burn as much coal. demand s been down both from a consumer standpoint and from an industrial standpoint. so stockpiles have gotten extraordinarily high. typically the utilities will have about 55 days worth of inventory. they re currently sitting on 70 days. additionally, the very low natural gas prices we had through most of 2009 allowed them to substitute natural gas burn for electrical generation. so coal stockpiles started to build up. art, berkshire hathaway will be paying a premium for burlington northern, about 18 times projected earnings for the stock versus about 15 times for some of its peers trade. what do you think about this deal? well, i think mr. buffett has a very long-term time horizon, and i think that could work out to his benefit here. i would say in the short run, though, berkshire hathaway is paying a healthy premium. me personally, based on the estimates i have for burlington northern for 2010, he s paying a little over 19 times. and for the rest of the companies, the earnings i have are trading about 17 times. quite frankly, as an investor, for this industry and for the fact that right now the industry is not generating returns in excess of their costs to capital, i wouldn t want to pay anything above 13 times. i think the valuations right now across the industry are extremely high, particularly in the short run and the fact that i think earnings have huge headwinds in 2010. you mentioned that the strategy here is a long-term one, but there have been some people who have raised questions. burlington operates mostly out of those west coast ports. you see a lot of traffic that comes through the long beach area. but there are some people who have said that traffic is not necessarily going to ever come back to the levels that it was before things really took a turn just over a year ago. that there s a lot of pressure that s coming from the mexican and the canadian ports as well. do you agree with that? i agree to some degree, but i think it s more pressure on the consumer. i think the amount of money that consumers spend going forward is going to be down somewhat. as such, i think volumes coming into the u.s. will be down. if you look at actually port volumes in december for l.a./long beach, interestingly enough, port volume inbound volumes were up about 3%. it s the first increase since july 2007. but export volumes were up 36%. so if we see a shifting dynamic here in the u.s. where we become more of an exporter, that could actually be somewhat of a nice benefit for those railroads that serve those west coast ports. i think it s early too tell if that s a trend that we ll see long term, but it s something to really pay attention to. all right. art, thank you very much for joining us today. it s great talking to you. great talking to you. thank you. okay. again, art hatfield. when we return, we have nbc s boss, jeff zucker, who will be joining us. plus, we are waiting for quarterly results from bank of america this morning. we ll get the numbers and instant analysis right after this. and then activist investor big ackman. he took a 2% stake in kraft just two days ago. now he speaks out on the food giant s bid to buy cadbury when squawk box returns. the nation s biggest bank ready to roll out quarterly results. the numbers and reaction straight ahead. plus, late-night drama, nbc s jeff zucker on the network s decision to let conan o brien go. what s next for jay leno? and why he says zucker, that is, this is the right move. authorities have issued a mudslide alert except for at nbc where they re issuing a mudslinging alert. a squawk box exclusive. bill ackman following warren buffett into kraft. he speaks about the deal with cadbury, the markets and more. a special shareholders meeting in omaha. warren buffett makes the case for buying burlington northern. we are live with a special guest. mid-american chairman david sokol coming as the second hour of squawk box begins right now. good morning, everybody. and welcome back to squawk box here on cnbc. i m becky quick live in omaha, nebraska, at the site of the berkshire hathaway special shareholder meeting. it looks like we have numbers coming from bank of america. carl and joe are back at headquarters. what are you seeing right now? $6.3 billion for 2009 net income. and then if we go to the fourth quarter, beck, we are talking about a gaap number of 60 cents a share which is including some items. we ll back those out and give you a better idea what to look for. as you can see initially, settling somewhere around $15.84. you wouldn t call this a blowout surprise. on the up side, the fourth quarter loss of 60 cents is on revenue of $25.08 billion. 25.08. brian moynihan says ceo says they re encouraged by signs the economy is improving, talking about the stabilization of credit costs, particularly on the consumer side. that said, they actually say, that said, joe, economic conditions remain fragile. we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth. credit quality shows some signs of improvement. signs of improvement at this point. i guess the share view for bank of america was a loss of 52 cents. so the question is whether analysts were aware of some of the charges and the extraordinary items that are already in the number. but just on face value, if you go apples to apples, you re talking about 60 cents versus a 52-cent estimate from thompson reuters. we re still going to see wells fargo today. i guess if you put it in the category of a jpmorgan and citigroup, pretty similar, isn t it? yeah, almost eerily similar. also, merrill is on track, cost savings surpassing original estimates for the first year. all right. not a whole lot guys, what s probably very interesting about some of these numbers, too, bank of america s got a better idea of what s happening to the consumer than probably anybody else. carl, you were talking about the comments based on the environment. they ve got one out of every two american households. they ve got some read on them. so anything they say about the economy, people will be watching very closely. yeah, citigroup yesterday, beck, at least bovais said you didn t see worse performance than you saw with jpmorgan. they ve got their own problems. not necessarily the consumer business versus its peers. a lot more to go today. state street. just got u.s. bankcorp as well. wells fargo. we ll have a good idea of financials by the end of the day. that s right. meantime, a changing of the political guard in massachusetts. a stunning blow to the president. republican scott brown defeating democratic state attorney general martha coakley in that bitter u.s. senate race to fill the seat that ted kennedy held for decades. brown s victory threatens the democrats 60-vote super majority and promises supporters he ll be the pivotal 41st republican vote against health care overhaul. most of all, i will remember that while the honor is mine, this senate seat belongs to no one person, no one political party, and as i said before and you ve heard it today and you ll hear it loud and clear, this is the people s seat! ibm, better than expected numbers both on earnings and revenue. big blue also boosting its profit outlook for 2010. but shares were down after the bell. ibm has already rallied about 60% in the past year. had all-time highs in the last several weeks. a couple additional notes on b of a. $25 billion, if we use that as the apples-to-apples comparison versus an expectation of 26.8. so once again, it looks like revenue s light. it s funny the way they said fixed income with jpmorgan was where the weakness was after, you know, much better earlier on and probably the same thing that happened if you re an investment bank and you do fixed-income trading, if it happened to jpmorgan, it probably happened to bank of america. plenty of attention over the past few weeks for the drama surrounding late-night programming at nbc. joining us is jeff zucker, president and ceo of nbc universal, the parent company of this network. welcome. good to see you. good morning. morning, carl. in the papers today, more conjecture about where the company is with mr. o brien on the deal to allow him to leave. is it done? well, it s not done at this point. i do expect that it will be completed shortly. and i think that we ll come to resolution on that in the next day or so. so i think we re very close on that. i think, you know, obviously, it s been an unfortunate couple of days in terms of what s happened. but i think it will be good for everybody to get on with where everybody s going. the deal that s been outlined, and everybody s got the same numbers. that s the way you see it playing out? $40 million he can go somewhere in september? i m not going to comment on the terms of the deal. i think that s not appropriate. i would just say that we ve made a business decision that i think is in the best interest of nbc universal and nbc. and we made that decision vis-a-vis jay and vis-a-vis conan. and obviously, i think it s in the long term going to be best for the company. you said, i think, on charlie rose, nothing tried, nothing gained. sounds like you would do this again if you had to, at least the initial stages of it. trying jay at 10:00. look, i do think that hindsight is perfect, obviously. sure. with perfect information, you do things a little differently. i think what we ve said and what we tried to do and what i tried to do was step up and say that the world isn t perfect in broadcast television and that there are issues with it. we had this opportunity with jay available to us. we wanted to keep him from going across the street to a competitor where we think he would have done even more damage to conan on the tonight show. and at the same time begin to think about network television a little differently. in hindsight, though, obviously, this wasn t exactly what the viewers wanted. and so i don t know that we would have done this exactly. but i do think that taking a risk and trying something new is something that we should always be willing to do. it is kind of like whack-a-mole, though. the numbers weren t any worse than what you expected at 10:00, but all of a sudden this other thing came up, other mole with the affiliates, right? look, i think that we actually were able to accurately predict how jay would perform on the network. he actually did exactly what we expected he would. i think we underestimated the impact that it would have on the nbc affiliates for their 11:00 news. we obviously looked at that. we thought we had it nailed. but obviously we underestimated it. it didn t do exactly what we thought. so, obviously, that became a big issue for the affiliates. ebersol, obviously, in some comments said that it s a specious argument that the lead-in to conan was what caused that loss of 50% of the viewers. is that your viewpoint as well? would leno, even with a weaker lead-in, have maintained his lead over letterman? you have to remember for many years, obviously, cbs had a stronger primetime than nbc and jay leno was still able to win at 11:35 even before jay went on in september, unfortunately conan was struggling during the summer with the tonight show at 11:35. you know, obviously, lead-ins can be interpreted in different ways. but we think that we have to remember that conan was on here for eight months, five nights a week. we had a lot of time to get a lot of information on his performance. and so at the end of the day, we thought moving the show back to 12:05, which is what we asked conan to do in this era where most people are watching those programs online or through different means anyway. we thought that it wouldn t have we thought actually it would be beneficial to conan. we thought he d have a stronger lead-in with jay. we thought he d be able to do the show he was more comfortable with. in the end, it s obviously something he decided he couldn t get his head around, and that s certainly his choice. becky s got a question from omaha. beck? hey, jeff, thanks for coming in today. you mentioned it s worth taking risks and trying new things. but what happens now at 10:00? do you go back to the tried and true? is it dramas play best there? is it reality show? now what? well, jeff gaspin has announced the new schedule that actually combines a little of both. he s going to have a couple of dramas, a reality show, a news magazine. so i think he s going to try everything. and i think that s the right mix that you ll see from us going forward. i don t think we re in an era where it will be five one-hour dramas at 10:00, but i think there s a mix. and i think that s the right kind of thinking. has the ship sailed still in your view on a network debuting just so much content, so much new creative content? can we afford to be the nbc of ten years ago, or does it have to be run from a cost perspective? does it have to be run with reality? well, i think good management dictates that you keep costs in mind. but i don t think that we can just have that as the only thing we re looking at. obviously, there are other factors. did i lose my microphone? you did. excuse me. that s okay, though. mike clip. there we go. exactly. cost control. yeah, exactly. obviously, i think you have to look at everything, good management dictates that. we re in a different era than we were ten years ago. the digital technology has changed the entire landscape. and we have to be cognizant of the fact that people don t watch television the same way that they did ten years ago. having said that, having good programs is what works in the end. and we need better programs at nbc entertainment. and so we could talk about costs and talk about doing a better job with that, and we have to because that s what good management requires. but at the same time, it also requires having better shows. and we have to do that. you know better than anyone how obsessed the country has been with the story for the past, well, seven months, really. does it say something about the nature of broadcast? does it reaffirm its relative strength? does it do anything to the notion that it s dying? yeah, i think it does. it s a great observation, which is that if people didn t care about nbc and they didn t care about the tonight show, then there wouldn t be as much interest in this. nbc, the tonight show, these are cultural touchstones of the country. they play a huge role in our lives. and so i think that s a great thing for nbc. that s why people care. you know, we ve talked i ve been here so many times. i talked about the fact that nbc is just 10% of nbc universal s bottom line. nbc entertainment is 5% of universal s bottom line. from a financial standpoint, i think that we ve done an excellent job in making sure that the company is on sound footing with our cable portfolio, things like cnbc. but on the other hand, people love nbc and they care about nbc. we could say it s only 5% of our bottom line and 95% of our perception but that perception matters. so we need to step up and acknowledge that. and i think that s the good news here for broadcasting is that people still do care. even if they don t watch it in the same way they used to. so jay comes back, obviously huge ratings when he comes back. do you let s not oversell it. the first night. but what i m saying, does he then go right back to the numbers start beating letterman again? we know how weird you can have hugh grant on, and it lasts for or you can sleep with an intern, and suddenly your numbers go up. i mean, do you expect jay to immediately i don t think we re going to make any predictions at this point about what s going to happen. obviously, we ve made the decision that we think that jay will be broader and attract a broader odd yents at 11:35 than we were. and i think that s all we re comfortable saying right now. is there any truth to the notion that nbc tried to get conan to broaden his appeal and he resisted? look, obviously, we want as broad an audience for the tonight show we want as broad an audience every hour that we re on. obviously, we would have liked we would have liked more people to awatwatched cona. certainly there were conversations with them about that. at the end of the day, i think people have to do the show they re comfortable with. and if that s not as broad as we need, then that leads us to make a decision that we have to make. you don t fear conan at fox versus jay. it s not that we don t fear people or things like that but at this point you probably have a good idea of what your competition is capable of. obviously, look, you have a long-track record of knowing how that show has performed. and we just, obviously, have made the decision that we think jay will be a broader and attract more people at 11:35. what do the guys at comcast think about this whole deal? and to what degree are you comfortable talking about your longevity at nbc? look, obviously, as you know, we re in this process, we re in the regulatory process. i m going to be spending the next few weeks in washington as part of that. lucky you. yeah. we re looking forward to that. that s okay. we love those people. so, obviously, while we re in the regulatory process, obviously comcast can t play any official role in this. we ve kept them informed of what s going on. i don t want to characterize or speak for them in any respect. as for me and the question that you asked, look. you know, i ve i ve been at nbc for 25 years. it s been fantastic the whole way. that doesn t mean that every day has been good or every week has been easy. i m just going to continue to do the best job i can do, and that s all that anybody, i think, can ask of anyone. have you seen any indication from who is it now? is it justice? is that who department of justice, yeah. was that a bad signal that no. no. any indication that they re, you know, looking in any way askance at the whole idea or i mean, it s going to take a long time. look, i don t think the process has actually formally begun yet. i think there s been an announcement that the justice department is going to take the regulatory lead on this side, on this deal. we re looking forward to telling our story. obviously, we think that the combination here is good for consumers and good for viewers of nbc, good for viewers of our films and motion pictures. we think in the end, it s an approvable deal that is in the best interest of the consumer. and i think as all the details continue to be known, people will see that very easily. i think the whole exercise has been a lesson in management to some degree. you talk about taking risks in a business that is traditionally risk averse. it s like rex ryan going for it on fourth and one against the chargers. i assume that s a style of play you re not going to change even after all this. i used the bill belichick example. i think the rex ryan example is correct. i think that the worst thing that could come out of this in my opinion is if we if the lesson that was learned from here is don t take a chance, don t take a risk, don t try to think about working on models that currently exist and thinking about the future, that, to me, would be a terrible lesson out of this. i think, look. you have to continue to take that chance. you have to go for it on fourth and one. i think it s okay to make a mistake. just don t make the same mistake twice. i think that s certainly, i think, an important lesson. we shouldn t assume that charlie rose is somehow a more adept interviewer or in any way has any of a favorite of yours. because we can lower the lights. absolutely not. absolutely not. i think what you should assume is the reason that i m here was to see becky. but that didn t work out very well. we knew that was coming. i know. down the center. give him his shot. thank you. good to see you, joe, carl, becky. good to see you, too, jeff. sorry i missed you today. we ll catch up with you again next week in davos. up next, bill ackman in an exclusive interview. he ll be talking about the kraft/cadbury deal. and an interview you can t afford to miss. we ll be speaking exclusively to midamerican energy chairman david sokol live from omaha. and at 8:00, warren buffett joins us. very busy morning. stick around. we have a lot to talk about. this is not pay the doctor insurance. this is not major medical insurance. this is affordable-we-pay-cash -directly-to-you- fast-when-you re-sick -or-hurt-insurance. if all you know about us is. aflac! .then you don t know quack. to find out all the ways aflac s got you covered, visit knowquack.com he of he recent ly managing principal of pershing capital joins us at the table along with becky in omaha. do you like that term, activist investor? does that mean it precedes your name a lot. does that bother you? not at all. walk us through your thinking on kft over the past few weeks. sure. as a result of the cadbury deal, because of fear that the company would overpay, because of arbitragers shorting the stock, stock we thought was quite cheap. and warren buffett, really the catalyst for taking our stake, we followed the company for a while. when he came out and said, look, i feel strong kraft shouldn t issue too many shares, that was the big risk. once he said that, we thought the likelihood was small and started building a stake in the company. you re buying kraft at less than 15 times earnings. over 4% dividend yield. and they re buying one of the great businesses of all time. the candy business, you look at the price that buffett paid when he bought wrigley along with mars, huge price, phenomenal business, very economically resilient business and very little tradedown. when people go to buy trident gum, they don t buy the walmart version. you couldn t name a private legal version in the gum business. yeah, it s a high-growth business. and i assume you re happier now with cadbury in the mix. sure, and i think kraft did an excellent job. you know, they paid a fair price, what you need to do get a deal done, but she limited the amount of stock she used. even if you pay a fair price, an attractive price, but you give away 26% of the company and your consideration is worth you know, it s very lowly valued stock, it s not going to be a great deal. they cut back the stock piece from 26%. it depends on the multiple of the company of the acquiring company s stock. you re not just always saying that cash is a better way to go. if kraft was at 30 or 40 times earnings, it makes a lot more sense to use stock. sure. with the notion that kraft itself is undervalued, you don t want to use stock at that point. do you think we re going to ask him, i guess, it doesn t matter. buffett is probably okay with the stock cash pushings of the deal at this point. i m sure he was kept informed. i would imagine. even though there s no shareholder vote necessarily now for kraft to do the deal. he s an important shareholder. you know, i read a piece in the press saying he was very supportive of the traction. i m sure that s true. what s this do for kraft? you know, i ve been saying for a couple of days cheese and chocolate. i don t get it. but it s a shtick. this is an international footprint expansion for kraft, isn t it? when you think of cheese when you think of kraft but it s a relatively small part of the combined company well, toblerone. i ve been trying to tell him, toblerone is delicious. it costs $12 for a little bar. exactly. if you move something in the wet bar, it costs, like, $15. i don t even walk by the wet bar. so the combined company s really a confectionary business, cookies and crackers business. these are high-margin businesses. what kraft gets is improved global distribution. and the margins can decommodityize. it s a small part. if you look at the kraft brands, it s an incredible collection of the best brands. macaroni and cheese spirals are pretty good. i don t know if you ve had it. is that you, becky? hey. you know, it s good to see you, bill. i just had a question for you. you were talking about warren buffett s potential ideas on where this is. we don t know for sure. we re going to find out probably in the next half hour when we get the chance to ask himself about this. you mentioned that part of his problem was the amount that he was paying in stock. and that s certainly true. but he had said in the past when we asked him, i think it was back in september when this first deal was made public, that he thought it was a fairly priced deal at that point. obviously, they re paying more than they were at that point. you re not concerned about that? you don t think he d be concerned? i don t think so. i think his goal was to make sure they didn t pay more than they needed to. but i think he loves the candy business. he s been owner of see s i think he learned in some sense, he got away from ben graham value investing and bought see s because he thought he paid what he thought was a little too much for a candy business and he learned how valuable it is to own a franchise like that and participated in the wrigley acquisition, put up equity. he had a very high valuation. i m sure he s excited about the fact that kraft is becoming a confectionary candy business. what if he s not? would you change your mind if he said something different? no. we re capable of making our own conclusions, but i would expect he would be quite supportive. of the challenges facing rosenfeld sorry, beck. no, it s okay. are the challenges facing rosenfeld, integration risk, any kind of backlash in the uk, milking out more cost savings as a result of a sweetened bid or just keeping up with mars/wrigley, what s the chief challenge in the months ahead? i think integrating a business of this scale on a different continent is challenging but it s something kraft has done before. we made an acquisition not that long ago integrating a european company. i think, you know, already cadbury was on its way to cutting costs. the other opportunity here is you ve got two businesses, both are underearning. they re both not achieving what they should be in terms of margins. and cadbury has a goal to get to 16, 17, 18% margins in a few years. i think kraft s at 12%, 13%. and i think their goals are hit the 15% margins. then the combined businesses has synergies as well. so i think there s a cost-cutting opportunity. there s a cross-selling opportunity. there s an improvement in the channels. kraft really has more inroads into the supermarket channel than cadbury and cadbury has a better presence in convenience stores, gas stations. we re controlling the counter space right by the cash registers. it s very difficult to break into. kraft can now sell through some of their products. we ll talk more with you about other issues as well. we ll be back at the bottom of the hour. our address is squawk@cnbc.com. when we come back, we ll continue with bill after the break. then becky sits down with the man many consider to be a possible successor to buffett. david sokol, chairman and ceo of net jets. does he see blue skies ahead when it comes to the economy? we ll talk about that in a few minutes. host: could switching to geico really save you 15% or more on car insurance? host: does charlie daniels play a mean fiddle? fiddle music charlie:hat s how you do it son. vo: geico. 15 minutes could save you 15% or more on car insurance. [ male announcer ] introducing the all-new lexus gx. it has the agility to avoid the unexpected. .the power to take on any mission, and the space to accommodate precious cargo, because every great action hero needs a vehicle. the oil crisis is over. i don t think so. our economy is bleeding billions for foreign oil. importing nearly 70% - much of it from countries that don t like us. that s billions we should use to create american jobs. we have plenty of american natural gas, to power our trucks and bus fleets. it s cheaper, cleaner, abundant, and it s ours. we ve had our wake up call. it s time to act.  we are continuing our special squawk exclusive with hedge fund titan and activist investor bill ackman, managing principal of pershing capital management. what a year, bill. any of your positions, target, any of them, what was that other one that you had? it was a medical company that you thought was it long s? long s was actually a 2008 event. you re out of that? we re not a health care investment. cvs. what about that? cbs took it private. all bets were off i mean, your whole business and the way that you do business, it was just all sort of thrown up in the air, wasn t it, over the past no? you re okay? no problems. no problems. when target got down to what was the low? 25. we bought more. all right. i mean, it was different from most investors over the past 18 months. no question. it was exciting. and at this point i would think if i had some dry powder, that there might be some attractive things that you re looking at. no? they were more nine months ago. they were more nine months ago. sure. beside kraft, what did you do in the last nine months? let s see. we bought nestle. we bought adp, mcdonald s. we bought great high-quality growth businesses at very attractive prices. you didn t do anything ever do anything with debt or with i mean, i know you do with we bought a big stake in general growth equity before they filed for bankruptcy. we bought some general growth debt. can you comment on where that stands now? it s been a good outcome. i m limited because i m a director, but it s really gone according to plan. we bought the stock for 50, 60 cents after the company after the credit markets really shut for real estate. and the board and the company and management have done a great job and really the company s advisers in dealing with the bankruptcy judge and the judge has been very constructive. and so have the company s creditors. the company has extended maturities and expects to emerge from bankruptcy in june. it s a great story of a turnaround of a company without a taxpayer investing $1. it s been a while, but we used to have you on to talk about some of the structural issues facing housing, right? sure. what s your thought broadly on what s going to happen there? i think the world is recovering. i think housing is recovering. i think the economy is stabilizing. will it continue to? people are not worried about these new fha terms and what the fed does or stops doing in march? i think if you look at mortgage interest rates around 5%, with housing prices down, i think it s a very attractive time to buy a house. people look back and think housing is a great investment again five or ten years from now. so i think it s a great time to buy a house. so where are we with target now? the company, you know, stocks doubled since the low. the company s made some positive steps from a corporate governance point of view. same-store sales for december, really the first glimmer of hope. i think the business i think the company s executing well. and i think they ll be a beneficiary of a slight improvement in the economy. so you ve got more your stake now is high or higher than it was in the past? it s fewer shares. it s probably a similar dollar amount. the stock s doubled. we own fewer shares, but it s still a big position for us. still a big position. i remember the setback, and you were on a lot at the time. you took that very personally. that was personally hurtful, was it not? not really. i mean, i think the we ran a proxy contest knowing we were the underdog. it was the largest company that s ever been subject to a proxy contest. they had a lot of long-term shareholders who were very supportive of the company. and we went around. we had a lot of favorable feedback from investors. they said we re not going to vote to you, but we appreciate your doing this. and there was a list of items that people wanted manage to do for a while. one was to exit the credit card business. and really early on the proxy contest they said we re going to do our best to exit the business. not exit the business, but shift the credit risk and the funding risk associated with that business. and once management made that concession, they said, look, bill, what do we need you for. this is what we really wanted. shareholders also felt the board could be strengthened with some new directors and getting rid of the stagger board. and i think the company made some commitments. are you making money now on that? we re actually in the black finally on target. we started buying stock initially in the low 50s. we were down very significantly. and then we bought more stock in december and in february. that was my point. it wasn t necessarily a bad investment in target. there was a little bit of a setback economywise for a lot of people s positions over the past year. it s not been one of our best investments. you had a good idea with one that you were pounding the table on hoping that some government officials might take a look at with fannie and freddie. sure. it s still an opportunity to do. they haven t gotten better since the last time you were here. you wouldn t necessarily call it the what kind of balance sheet did you want with fannie and freddie? a fortress balance sheet. is that what you d use to describe fannie and freddie at this point? not like the fortress hedge fund. yeah. they took the caps off of potential losses. fannie and freddie, what upsets me about it, take a look at cit. cit was deemed a too-big-to-fail institution. got t.a.r.p. money, $2 billion, $3 billion in t.a.r.p. money and then decided it was too big to fail. they let it fail. before it failed, all the bondholders said we need taxpayer support. once we realized the government wasn t going to step in, the bondholders got together and they negotiated a deal. debt was converted into equity. the company emerged from bankruptcy in a prepack in, i think, 30, 40 days. and now it s a public company again. taxpayers didn t have to invest any more money. i think it s a great example of, you know, capitalism. you don t need the taxpayer. what we have going on right now is we still have taxpayer money going in. it s going in to pay interest to people who own fannie and freddie bonds. and they re getting it above a treasury return. and it s a subsidy for the likes of big bond fund managers and foreign governments. and it s really not the right answer. the right answer is convert debt to equity until you have a solvent institution. fannie and freddie have as much capital as they need. just too much is debt. not enough is equity. all of a sudden you take what is a significant liability of the u.s. government, you know, off the taxpayer balance sheet. you said good things about housing and the economy. do you think to you, you must buy individual stocks with the thought of a big economic backdrop. and when people talk about stubbornly high unemployment, banks reluctant to lend, do you see the risk of i hate to ask the double-dip question but is the risk of one in 2010 legitimate, for real? i don t think so. i think it s unlikely. what we do is try to invest in economically resilient companies. if you think about the business of kraft, oreo or triscuit, cadbury, gum and candy and hall s, you know, these are you know, you think about nestle or even adp. piece are generally businesses that are economically resilient. they won t do as well if the economy doesn t do as well. but if you pay the right price, you can still be a very successful investor even if the economy is not as strong as expected. so we re not macro investors. i m more bullish than most. okay. it s been a year since the inauguration. and i know you were a supporter of the president. what kind of grade would you give him in terms of being a hedge fund manager and an activist investor and a businessman? you know, i have the benefit of a good friend in the administration who speaks who knows more than i do and speaks very highly you know a lot. not a lot. i think you do. i ve got one good friend in the administration. actually, he s head of hud, shean donovan. he s an outstanding person. and i think he s doing a great job. he speaks very highly of his boss. and i trust his judgment. that said, you know, if you look at the election in massachusetts, i think it does send a signal that even a state like massachusetts where you thought a democrat would be almost no matter who was put up for election would win. i actually think it s not a bad thing. as a democrat, as a supporter of obama, i still think that you want a country with a degree of balance. and i think that health care legislation is a very complicated, important decision. and i think needs to be thoughtful. we can t just write unlimited checks. and i think the massachusetts election is a bit of a signal to the president that we have to be balanced in our approach to some of these big decisions. that s a constructive thing. it is. let s take him out and have some cocktails. i want to see what just about everything. is that what it would take? how do i get him you think you can translate that into something more candid? is that what you mean? that was candid. i know i get in a lot of trouble for saying that to my friends. as a man that runs pershing square, i think i d just like to do that on a personal level and just really get some good info from you. okay. very good. off the record, of course. off the record, of course. bill, thanks for coming in. good to talk to you, as always. beck, back to you. all right, guys. when we return, one of warren buffett s right-hand men often mentioned as a potential successor, we re talking about dave sokol joining us live from the berkshire hathaway special hair shoulders meeting right after this. stick around. still ahead, squawk box live at berkshire hathaway s shareholders meeting in omaha. the next stop of burlington northern. and before warren buffett makes his case to shareholders, he makes it to us live in the 8:00 a.m. eastern hour. and choose any car in the aisle. choosing your own car? 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[ male announcer ] when you compare, there s no comparison. at&t. a better 3g experience. get an exclusive pantech messaging phone free after mail-in rebate. only from at&t. welcome back to squawk box. get a check on the markets. a little bit of a selling picture in asia and in europe overnight. we ll give back some of what we got yesterday on the dow. but a positive day for the dow yesterday, almost 116 points. b of a reports a quarterly loss of 60 cents a share, 8 cents larger than estimates. revenue also slightly short which is becoming a running theme in the financial space this week. the u.s. geological survey says a 6.1 magnitude aftershock has struck haiti. it comes eight days after a massive quake left tens of thousands dead. we await further details out of haiti on the impact of that quake. also, this upset in massachusetts could upset the president s agenda. republican scott brown defeated democrat martha coakley for the seat that had been held for decades by ten keddy puts the democrats super majority in danger. the aftershocks of that are rippling through the world and the markets today. yeah, certainly something we re paying attention to here in omaha. we ll be talking a lot about that this morning, carl. but before all of that, let s talk to one of warren buffett s right-hand men. he sits at the helm of three berkshire hathaway subsidiaries. we re talking about david sokol, the chairman of midamerican energy holdings and a nonexecutive director for byd which is the chinese car company that has so many people talking about what s to come out of that company and when it will wind up here. david, thank you very much for joining us today. glad to be here. you know, we have a lot of things to talk about this morning, but why don t we start with net jets because that s where we ve seen so much activity where you ve been so closely tied to a lot of changes that have been happening there. where do things stand at the company right now? well, i m pleased with where we are. all the corrections we needed to make we got done in 2009. we end the year with about a 65% market share in that sector. a fantastic group of employees that do a great job serving our owners. so i think hopefully 2010 will end the year with having expanded that market share, most of our competitors are struggling in this economic times. and so i m very pleased with where we are. we ve got a young, extremely talented management team. i think they ll do a great job. you said expanding market share, but you didn t mention anything about turning a profit. is that something in the cards to 2010? i think at a minimum we ll break even and i think highly likely we ll turn a reasonable profit for 2010. what had to get done? we know about some of the layoffs. were there other things that you changed substantially behind the scenes? well, basically just the economic correction created a lot of visibility of issues in many industries. you need to take heed of and resolve. and that s really the issues there. the dramatic shift in global economics for high net worth and corporate incomes needed us to make sure we had the right fleet size, the right type of aircraft to be in place as well as the right staffing. so that s behind us. you know, you mentioned what happened to the high net worth individual over the course of the last year, year and a half. is it something we talked to some of our guests who talks about the new normal who say people won t be spending like that. is that your sense? or do you think this was a downturn that people ease back out of and we get back to levels we were talking about maybe two, three years ago? well, i don t know broadly for high net worth people. it does seem that the housing sector, less is more today. when it comes to private aviation, this is really a productivity tool. a good portion of the downsizing occurred because corporate profits were down and people were traveling less. we re starting to see that come back. the fourth quarter of last year, we started to see corporate travel start to pick up more. and i think frankly, as the economy grows, you ll see this tool used even more. i actually think in hindsight, we ll look at this period as something that really stimulated significant growth in the use of aircraft. why don t we talk about housing. you mentioned what s going on there, less is more. is that the new mantra? well, i think at the high end it is. we re seeing less of the stellar homes, if you will, being built is and more downsizing occur. i think the biggest issue is the fact that we still have this very stubborn, real-end shadow inventory. roughly 10 million homes for sale in the united states which is about four times the balanced market. that sounds a little vicing perhaps because most people look at the current data which says maybe seven or eight months instead of 24 months. you have to remember, there s almost 8 million mortgages in this country that are currently in default in one fashion or another. and a good portion of those mortgages, if they end up in foreclosure, are homes for sale. the shadow market and real market, i think, have quite a ways to go yet. you talk a little bit about what s been happening with some of the inventory levels there. how important has it been to have the federal government step in the way that it has to support the housing market? well, that s the other thing you just need to keep in mind about our economy in general is the housing market is seriously still stressed and has significant overhang. and we re at 40-year to 50-year lows in the mortgage industry largely created by the federal government. if that goes away, and at some point it will have to, that s going to add additional strain, being able to clear the market, if you will. it appears we ve got another good 18 to perhaps 24 months of work to do to just work through. having said that, you know, the u.s. housing market s lost $7 trillion in value the last three years. and it just takes time to work through those problems. i know carl has a question back in studio, too. carl? beck, david, good to see you. thanks again for being with us. you guys look terrific there in omaha. i m just wondering, on the broadest level, people are pointing to inventories in the economy as a way to get us through q4. it looks like it s going to be pretty good. people are using that, though, to argue to the second half of the year, or at least maybe q4 of this year will not be as strong as unemployment stays high, banks reluctant to lend, the double-dip argument. does that hold water in your view? well, i think, you know, on a broad basis, the economic environment is still, you know, recovering. and it s going to be recovering for quite a while. unemployment, underemployment and overleveraged folks in this country, you know, just the unemployment and underemployment represent about 27 million people. you look at the overleveraged, there s been more than $1 trillion of purchasing power exit the economy. again, i think the economy s doing well given what s been thrown at it. it just takes time to work its way through. what about what you see at midamerican energy, too, in terms of power usage. you ve talked to us over the last year, year and a half and told us a little bit about how consumer usage was way down, but so was industrial. where are those trends now? consumer usage has come up a little bit predominantly because of weather conditions. it s a much colder winter than normal this year. when you look at industrial levels, greg and i were talking yesterday, a statistic that s interesting, wholesale prices going into the spring are about $10 a megawatt below last year and last year was extremely low. you ve got excess production capability and you still have not seen any substantive response yet back into the economy. the energy side i would say we re still looking pretty as a slow recovery. that has ripple effects through the rest of the economy as well. we spoke with art hatfield in the last hour on the show. he s a transportation analyst. and he pointed out that when you look at the railroads, the biggest decline they ve seen in what they re carrying is coal. and he blamed it squarely on the utility companies. he said they re not seeing the demand. so you re not seeing that pulled through the railroads. that s right. you ve got very low, very reasonable priced natural gas. you ve got a lot of renewable energy that s come online. and you ve got reduced demand. all of that equates to coal plants being operated at a lower level. last wreer and clearly going into this year. david, we ve talked about cap and trade in the past. and you ve made your stance very clear that you re opposed to this 100%. is it your view that this is becoming less and less likely with everything that is happening in washington right now? yeah. well, we re opposed to the trade side. we think the cap from a utility perspective is fine. that s government s role. they should place the capital where they believe it needs to be, but then let the utility industry achieve that cap. the trade side basically doubles and triples the cost of doing it which we think is just a redistribution of our customers dollars to other customers. i think that bill is dead going into 2010. probably little chance before 2011 and hopefully industry and government and nongovernment organizations can get together this year and spend some time really trying to get it right because if government wants to put a cap on carbon emissions, we can do it. it s going to be expensive, but we can minimize that expense if we work together to do it. what s your sense of what s happening in washington after the massachusetts election last night? i know you don t often foray into commenting on politics, but you have to be in washington a lot with the regulatory issues. if you get to a position where it s more of a deadlock, is that better for business from your perspective? i don t know that deadlock is good. what i would hope, we have a long ways to go to recover this economy because of the holes that were created a couple years ago. what i think will be helpful from that election perhaps is if people take stock of the reality that we ve got to let the economy heal. too much change, too much uncertainty is not going to allow for job growth. ceos, you know, sit and think about, is it time for me to start adding employees if there s uncertainty about climate change, health care, card check bills, things of that nature, you ll tend to make the more conservative decision which is let s wait another six months or a year and that s the last thing this economy needs. you spoke of that happening as ceos at large, but is that something you ve experienced with subsidiaries that you re following, is that you have held up on hiring as a result? you have to think about it every decision. on the energy side, we would be crazy not to because without the certainty of where carbon legislation is going, you don t know where to expand and make the decisions. so on one hand, we need quality decisions to be made that allow us to go and react to them. on the other hand, no decision s better than a bad one, particularly in an economy that s this fragile, i think. why don t we talk a little about byd as well. you know, a car company that s talking about now, making this announcement at the detroit auto show that it s going to be bringing an electric car here by the second half of this year. how is that possible? yeah, the e-6. well, you know, byd is a remarkable company. they ve just finished a spectacular 2009. they sold over 440,000 automobiles. and that s particularly impressive when you think they got into the auto industry in 2003. yeah. they have the largest selling model in china now, the f-3 sold for several months in a row in excess of 30,000 units a month. the chairman has done a remarkable job growing that business. his focus from the beginning was the electric vehicle which he thinks is a game changer globally. so it will be interesting. the e-6 will be kind of an suv-type vehicle, roughly 200 miles capability on one charge and should be priced somewhere in the $40,000 range. expensive but my guess is it will find quite a bit of attraction here in the u.s. i know you hate when i bring up the question of succession, but you are the person who was mentioned more and more frequently as the potential successor to warren buffett because you re taking on more and more roles. what can you tell us back, if we keep saying this and i know you shoot me dirty looks from over in the corner but you are mentioned as the most likely name. how has your role changed and broadened? well, again, the reality is, the fact that people keep saying it doesn t mean it s right, as i ve said to you before, there s more than a dozen ceos within berkshire that are more talented than i am that i would love to work with and for when it ultimately that opportunity occurs. but the reality is none of us want warren to leave. he is the maestro of this organization, does a phenomenal job. so it s really speculation that i think is decades away. okay. well, we want to thank you very much, david, for joining us. it s always great to talk to you. good to see you, becky. thanks. david sokol. when we return, more results on wells fargo and morgan stanley. both companies are expected to report at the top of the hour. plus, our live interview with warren buffett. he is going to be joining us ahead of the special shareholders meetings. he ll make the case for the burlington northern acquisition. oh, yeah, we ve got reaction to the kraft/cadbury deal. that s the first time he s talking about it since the company raised its bid. squawk box on buffett watch. becky live at the special shareholders meeting in omaha. before warren buffett makes his case for burlington northern mega deal, he s talking to squawk box. plus, what does kraft s largest shareholder think about the cadbury deal? the bank tax plan. results from financial giants and much more. buffett, breaking news, earnings central. take it to the bank. squawk box begins right now. welcome back to squawk. i m carl quintanilla with joe kernen and becky quick who is in omaha this morning. we re waiting on results from wells fargo, morgan stanley. becky, quite an interview with sokol. you get such broad economic perspective when you talk to both him and when we talk to warren buffett in a few minutes. that s right. we ve got a lot of things to talk about this morning. you ve got the numbers right now? no, but we ll do a couple top stories. we are waiting for results from wells fargo and morgan stanley. about an hour ago b of a reported a fourth quarter loss of 60 cents a share. analysts had expected a smaller per share loss of 52. revenue also falling a bit short which, as we ve said, is becoming a recurring theme among banks in america. this quarter, at least. jpmorgan and citi as well. futures have i think we might be getting wells fargo right now, joe. do you see it? yes. i will eventually see it. i love these things as they happen. fourth quarter, looking at 8 cents a share for the period. where s mac? temporarily unavailable. i love that. $22.7 billion is what we re looking or what the revenue number is on wells fargo. average total loans, 792.4 billion in the period. and fourth quarter net chargeoffs, $5.4 billion. $5.4 billion for wells. right now we ve got that stock. about $28.44. $28.50. we already saw bank of america move into positive territory after initially trading down, right? earlier today. yeah. yeah. bank of america. right. earlier today is now trading positively even on a weak revenue number. so it s unclear at this point whether there s going to be a problem. they did reverse course in the premarket, but up 0 .7%. becky, we ll send it to you in omaha. you were talking about the wells fargo numbers. berkshire hathaway is the largest owner of wells fargo shares. we ve got plenty to talk about with him today. berkshire hathaway, of course, is holding a special hair shoulders meeting today. this is to shauk about the acquisition of burlington northern. this meeting today is primarily to vote on a 50-1 split of berkshire s class b shares. this is an historic event because, as you know, buffett has never wanted to split these shares. we ll be joined by him right now to talk about berkshire hathaway and what it s doing today with this vote. joining us is the chairman and ceo, warren buffett. thanks for joining us. thanks for having me. i don t know how much you heard the wells fargo numbers. i heard a little bit, yeah. what was your immediate takeaway? i didn t get the earnings at all, but i got the chargeoffs at $5.4 billion, and that s exactly what i would have expected. i think they expect them to peak toward the end of 2010. but that number is exactly what i would expect. what other headlines would you like to us pull up? what else would you be interested in hearing about? my guess is that the revenue and all of that is more less what they expect. i mean, wells right straight through this period has done pretty much exactly what they said they would do. and they ve made money consistently through it. they ve run into much larger losses than anybody anticipated three or four years ago. but they can handle them very easily. last year we talked about them having $40 billion of preprovision income. in 2009, they had it, and that easily handles $20 billion roughly of losses. they also issued a lot more shares to pay back the government. what did you think of that? i didn t like it. i mean, the government forced them to issue the shares. the government s done a lot of good things for the company. and net, i m a beneficiary and berkshire hathaway is beneficiary over all they ve done, but they cost us real money at wells fargo. but was it the right move by the government or not? well, it was the right move by the government to show that they were willing to act very promptly and decisively. the key actions by the government actually were in september and october of 2008. at that point, if the government had showed any hesitation about stepping in and doing whatever it took to get us past a financial panic, you know, things would be a lot different today. so the government did the right thing in acting fast. they didn t have to do this action a or action b or action c perfectly. what they did have to show, it was not going to be a herbert hoover type of situation, that they were going to jump in and do whatever it took. before we get to the other questions, this brings us to a jumping-off point about what the government s doing, i want to talk about what we re doing here today, and that s for berkshire hathaway s special hair shoulder meeting. the idea of splitting the class b shares 50 for 1, why? it shows what happens when you get to be 79. some people are asking if you are completely changing your stance on a lot of different issues. no. somebody was saying does this mean a dividend s coming soon, too? no, i don t think it means that. it makes sense in terms of the burlington northern acquisition because otherwise we wanted to give a stock and cash option to their shareholders. and really effectively give it to the smaller shareholder, we had to have something with a lower denomination than our class b shares which were in the $3,000 plus range. the big shoulder would have gotten a different deal than the smaller shareholder. it was an easy decision. do you think this is going to be an easy vote as well? i m sure of that. i m like a politician in chicago. i ve got the votes. so you re going into this today knowing you have the votes. there are some people who say hey, this could mean berkshire hathaway could now become a member of the s&p 500. what do you think of that? well, i don t know. i d never talked to s&p about it. i do know we re probably four times as large in market cap as any company that isn t. and we will have when we get through with this, we could have, like, 700,000 shareholders or something of that sort. we ll have a lot of trading volume. but that s up to s&p. would you like to be in? i think probably for a net loss. i know joe s got some of those numbers you were asking about wells fargo, too. berkshire could be a dow component. don t stop at the s&p 500. get rid of alcoa. that would be great. hey, warren, the revenue number on wells was 22.7. and the estimate was, i think, 21.9. so unlike any of the other banks, i think that s the first one. i mean, i didn t look at u.s. bankcorp, but the major ones we reported on, this is the first one on the revenue. and it was also a profit of 8 cents with the t.a.r.p. repayment even though the street was looking for a loss of a penny. seems to be a little better and the stock s now 29 it s almost up a dollar at this point. yeah, wells runs a terrific bank. they re very customer-oriented bank. they re almost like thousands of community banks when you get right down to it. they have a lot of services they sell for each customer. their rev menues are going to ce through. when the stress test was done in the spring of last year, that s where the people evaluating them were way off on the revenue number. wells did not disagree with them on the possible losses number. they felt that the people just didn t understand their revenue potential that were looking at them. and i agreed with them. but unfortunately, they had to issue a lot of shares in conjunction with that stress test. i think i don t think wells is ever going to disappoint on revenue. they have a lot of customers, and those customers do a lot of business with them. we ve got so many things to go over. beck, i don t know i think of wells and i think about the bank tax. is that a good idea to pay for the gm bailout with a bank tax, warren? no, i don t understand that. i mean, if it s some kind of a guilt tax or something of that sort because banks were among the whole united states that was saved back in 2008, everybody was taken care of then. and the banks the banks basically somebody like wells, it s cost them a lot of money to be in the t.a.r.p. and it was basically forced upon them. dick didn t want to take the money but really had no choice. so that s cost wells a lot of money. the government s made a lot of money off wells, a lot of money off goldman, a lot of money off jpmorgan. and where they re going to lose at least where it s possible to lose money is in the auto companies. so if you re going after the people you save, you might say, gm stockholders or bondholders didn t get saved. what happened there was they kept employment. i m the last guy to suggest you should put a special tax on autoworkers. if you re really looking for people that benefited from government losses, you d have to look there. or if you look at fannie and freddie. you know, are you going to go and tax the members of congress who ran freddie and fannie? that s what i said! that s what i i can t believe he just said that. that s exactly what i you could almost tax any company in business that wasn t going to be able to float any commercial paper, you could tax them, too. because they were saved. absolutely. in september don t give any ideas. that will be next. no. what was done in the fall of 2008 was designed to save the american economy. it wasn t designed to save the banks. and a good job was done. but the banks are the ones, particularly i just named a few they paid it back with huge interest. the government s made a lot of money on that. and to say that they should be paying for the fact that the government lost a lot or may lose a lot of money in freddie and fannie and perhaps with the auto companies, it just doesn t make any sense to me. what about aig, though? goldman sachs and a lot of the other banks did make a lot of money back from aig. is that a different category? they got paid what they were owed but so did millions of policyholders. if you look at aig, aig, primarily through its ub sid years, but it had contracts with millions of people getting paid on their life insurance, annuities, property and casualty claims. and the government s actions enabled those people enabled aig to live up to millions in contracts. and it makes them mad they lived up to a good contract with goldman sachs. i m just not sure why goldman paid, i think, $1.1 billion for the warrants to buy them back. they are not the problem. the banks have generally done a good job. carl, i m sorry, i interrupted you. i was going to say, aig, other insurance companies, warren, likely to fall under that taxing category. people worry that the real fear is not just the feel-good measure that the tax will take but the distraction it will create in dealing with financial reform in a real way in this country. yeah. it s a popular tax to propose now, obviously. the american people love the idea, you know, of goldman or aig or anybody like that. those are bad names. they don t think so much about fannie and freddie which are expensive in which congress ran. i just think a tax that s enacted with the idea that the headlines will be appealing and that a certain amount of vengeance will be achieved, i don t think that s the greatest form of tax policy. in terms of going after a debate with massachusetts, the president went up and actually campaigned for coakley and started saying things about the banks, about how brown is for the wall street banks. and she s not. wrayeah. well, banks maybe if i were running for office today, i d be chewing out banks, too. basically, the government s going to get its money back. the fdic, which is funded entirely by banks, has taken care of the failed banks. there were 140 banks that failed last year. most of them were small community banks which everybody, you know, they re the hero of things generally. and in the end, that s been taken care of by the fdic. and the fdic is funded by the banks. the banks are cleaning up their own mess, in effect, on that. and like i say, the banks have come through very strongly. they re not earning they talk about obscene profits. well, let s just jpmorgan, you know, their earnings on equity were less than the average over the last ten years last year. you take wells fargo. their earnings on equity were less than the average over the last ten years. b of a and citi, if you want to call their profits obscene, you may be thinking of a different sort of obscenity. at the same time, compensation is coming back to the levels that we haven t seen in the past. compensation at the investment banks. i don t think that if you look at the commercial banks, you will find that their compensation practices are significantly different than a few years back. i would love to have no compensation at banks because we own some banks. i mean, the choice isn t the federal government or bonuses. the choice is the stockholders or bonuses. but people say that the real difference is should the government be backstopping not just the safe banks that are doing loans, doing things that need to be done, but also the investment banks at the same time? should they be in the same house, and should the government be backstopping the investment banks as well when they can turn around and pay out these high compensations? i don t think they should be backstopping them. but how do you split them? short of doing something like glass steep snl if you look at morgan stanley and goldman sachs, the two big ones ran independently, i don t think they should be backstopping them. incidentally, in september of 2008, goldman went out to raise their own money. i mean, they saw the situation that was developing, and they raised $12 billion in late september of 2008 which we participated in. but they felt they needed capital because they didn t know whether the world was going to come to an end or not and they went out and raised it. they were a participant, then, in the t.a.r.p. subsequently, but they were given no choice. i don t want to put words in your mouth, though. when you say the government shouldn t be backstopping those investment banks, how do you get around this idea of if the commercial bank is with the investment bank, how do you get around backstopping that if these are so important to our nation and we have to keep them supported, this notion of too big to fail? i think i m not even sure how you draft this into statutes. the banks that got into big trouble, it was management at the top. a number of those went away. they didn t go away richer than they were earlier. i think that s terrible. i think if i were on the board of directors of the bank, you d do this in conjunction, but i think you should have something so that if a bank ever has to go to the federal government, not to the fdic, because that s funded internally, but if they have to go to the federal government to be saved, the ceo and any ceo of the previous two years before that and his wife, i mean, they sign something so that they are essentially wiped out. i mean, if an institution that s so important to this country really causes the country great difficulty, i think the ceo i want that ceo s equation to be that if this place goes down or needs government help, i m busted. and i can t put it all in my wife s name and she s busted, too. and then i would have strict penalties for directors probably five times their average compensation or something. i think that would do more to change behavior the kind of behavior that gets us into trouble than anything else you could do. so you re talking about the guys like chuck prince and others who walked away? yeah. when they walk away, you know, we ve got unemployment insurance, you know. millions of people are on it now. and certainly anybody that causes that kind of trouble and i would have it extend for two years after they left or something of the sort. and like i say, i would just, as a member of the board of some super-large institution like that, i would just say that that s part of taking the deal. if you can t keep this place away from needing the federal government for help, you re going to be broke. but back to this idea and i m sorry to keep harping on this but back to this idea of the investment banks teamed up with the regular boring bank side of things, should there be a split there that s forced by congress, or do you think this idea of attaching it to the ceos and directors would handle that problem? i think well, i would like what i just suggested. but i do think that i think when very large banks that are really, if anything happens to them, i think they should be reined in on leverage, and i think they should be reined in on some of the activities they can engage in, yes. what do you like you see in proposals from financial regulatory reform right now, and what do you think s missing? i think the hard part is to restrict leverage. i mean, leverage is what gets people in trouble. the trouble is you can t measure it by a single ratio. i mean, you can have a lot of leverage-owned government bonds and you can be doing other things where a 2-1 leverage is too strong. i think you do need a regulator that can draw up some kind of sensible regulations as to different kinds of instruments. and maybe prohibit some in terms of the activities of commercial banks. you need a new regulator or the existing regulator? i would trust the fed. you would trust the federal reserve? but there are a lot of movements in congress right now, both from the right and the left, to go after the federal reserve and strip some of its power. i think that s a mistake. i think that an independent fed is incredibly important to the economic future of the country. ben bernanke is looking for this reconfirmation. they say a vote could come as early as this friday. should he be reconfirmed? if i could vote twice, i would. he should be he did a magnificent job over this period. everybody can do it someone better. we can sit here and armchair quarterback him. but when i look back at particularly september and october of 2008, he took some extraordinary actions that if they hadn t been taken, willingness to act like that and even stretch his authority some, but he did what you do we talked about it being an economic pearl harbor he did what should have been done in response to that pearl harbor. no, i think he s done a stellar job. what happens if he s not reconfirmed? what s at risk? well, just tell me a day ahead of time so i can sell some stocks. you think there would be a strong selloff in the market? oh, i think so. sure. kroos tacross the board. yeah, i think it would be justified. you do? yeah. i think one of the i think congress generally is a worry of the american people, particularly what they ve seen over the last 12, 18 months. if congress essentially said we can do this better than a ben bernanke, and we think i would get very worried. you mentioned americans frustration with congress. do you read this vote in massachusetts last night as some sort of a referendum on the job congress is doing right now? on the job the white house is doing right now? on the health care reform bill? or something else? it s those three things plus the economy. i mean, it s some mix. who knows what goes on in somebody s mind when they enter a ballot box. somebody said the word motivation should never be used in the singular because you get these things all mixed up in your mind. but certainly people generally in the country do not like the health bill. i mean, whether it s a good thing or not. but they don t like it. and they don t feel good about congress. and they feel less good about the administration than they did a year ago, clearly. and they feel like the economy is dragging on for a long time. so all of those factors converged and probably to some extent the particular candidate. if vicki kennedy had been the democratic candidate, i don t think there s any question, you know, she would have won probably 3-2 or something. it was a referendum of sorts, sure. it was a big one. you say american people are less happy with the administration, they re frustrated with congress. they don t like the health care bill. what about you? you re a big support either of the president. going back to the american people, i think their expectations were probably too high on the economy. and i think incidentally to president obama s credit, he tried to dampen those. every time i heard him speak, he d say we didn t get into this in a short period, we won t get out in a short period. he s attempted to do that. but when it grinds along, you know, people are hurting. a lot of people are hurting. and they perhaps unreasonably, i would say it would be unreasonable, but they expected better things by this point. and that wasn t in the cards. you talk a little bit about what has happened with the economy. is there anything different the administration could have or should have done? you know, probably. if you re going to spend close to $800 billion on a stimulus bill, it could have been done in a way that had more immediate impact. you know, what we saw with the stimulus bill, was it 8,000 earmarks or something. that is the sort of thing that s depressing to the american public. it s depressing to me. that is washington old-style washington square. and so i think in a sense, even, on the stimulus bill, some of the benefits of the stimulus were lost by the fact that it was washington as usual. hey, warren joe, you got a question as well? i do. i ll ask it in the converse, warren. that s something that they did that maybe could have been done differently. but are there things that were done that actually hurt the economy? we hear it all the time about the uncertainty of a lot of the pending legislation, tax policy, cap and trade, health care, down the line. there are people that say that that is causing corporate managers not to hire and that we re actually lengthening the slowdown. is that your view, too? yeah. well, i hear that, joe. i would say this. at berkshire, we re down 25,000 maybe or something in employment from 245,000. off a base? off a base, in the last year, year and a half. take our carpet business. our carpet business is down 6,500 people. and that s concentrated in a very fairly small not all of it but a lot of it s concentrated in a small area of georgia. we will hire people when the orders come in. i get the orders every day, the incoming orders. i look at them. and we want to hire people, but we re not going to hire people just to stand around. so we re not reluctant to hire people in georgia or at acme brick in our brick business which ran up the worst year in many, many decades. we ve got 1,000 people perhaps from the peak that were down at the brick business. not because we re losing share market. we re gaining share market in these cases. we re not reluctant to hire at acme brick or shaw carpet because of what s going on in washington. we re worried about hiring there because what s going on in our order books. if we get orders for brick or for carpet, we re going to put people back to work tomorrow, but we re not getting orders yet. but is it possible to bite off more than you can chew? maybe a lot of americans would have been content with economy, security. the economy and security. maybe that would have been enough. you re not going to have people feeling good until jobs come back. it s that simple. and jobs haven t come back. one of the problems we have is that we have these people who are dropping out of the work force. normally you need about 100,000 a month in jobs just to stay even in terms of unemployment. we d have people dropping out of the work force. but those people may very well come back in in addition to the normal gain in the next two years to come. so unemployment will be a tough figure. that s going to determine the mood of the american people. the food of the american people is going to be go ahead. joe talks about economy security. and those are really short-term concerns. but you ve talked a lot about the longer-term structural issues the government needs to address. and when you can t get health care reform through, when you have the white house, a majority in the house, and a super majority in the senate, how in the world do you think we re going to tackle things like medicare and social security? that s one of the things that bothers the american people is when they see how government has functioned not just in the last year but prior there, too. but i think people who are expecting a year ago with a new administration that you were going to see different a different style of behavior in congress, probably become pretty disillusioned in the last year. incidentally, over the longer term, it s going to work extraordinarily well. i mean, we have not come close to fulfilling the potential of this country or our people. but we are going through a rough patch now. and it ties in very directly with what you said in terms of jobs. nm y until you get jobs a better jobs picture, you re not going to have a happy american public. as a cornhusker, did you not like that what do they call it, the cornhusker husk or whatever it is? were you embarrassed by that as well? i don t think it was that popular out here. i think the whole idea if you look at that, that was you can call that a special form of earmark. people don t like the idea that if you pass a bill like the stimulus bill, that various congressmen and senators find 8,000 items. this christmas tree approach and, of course, bad behavior begets bad behavior. after a while they feel silly facing their constituents when everybody else is doing it. if the other guy s doing it, that becomes an argument for it. and it gets to be, you know, it gets to be the k street and lobbyists get to be terribly important in sticking special items in the bill as they go along. i think our cornhusker thing was one example of that. but it wasn t the only example. as i remember, louisiana, massachusetts, you know union. it s not what you ve seen in the last year has not been encouraging, i ll put it that way. you know, you mentioned there s more of the administration maybe could have done even though the american people had expectations that are out of whack. paul krugman wrote this week in the new york times, says all of these bad things happened and, you know, the failure of the democratic candidate in massachusetts, it s all because they didn t spend more on the stimulus. is that something you agree with? i don t think it would have made that much difference. you know, people talk about the stimulus having created 1.5 million or saving 1.5 million. i generally am very skeptical of figures that economists talk around or even sometimes projections of ceos that they toss around. we have a lot to work through. it really goes back to what we talked about almost two years ago in that this country got very, very leveraged up in a lot of respects. you know, at the individual level and housing and the government levels, every place. and deleveraging is a painful project process. it takes a long time. and we re not done. we haven t even gotten a chance to talk about one of the issues that people have really been waiting to hear from you on. kraft yesterday raising its bid for cadbury. and cadbury accepting that raised offer. you voted no when they asked you if they could be issuing more shares. what do you think about the bid now? i feel poorer. kraft, in my judgment, well, just in the last two weeks, there have been two things that caused me to feel poor. they sold a very fine pizza business. and they said that they got $3.7 billion for it. but because it had practically no tax basis, they really got about $2.5 billion. so they sold the business for $2.5 billion, and nestle is willing to pay $3.7 billion. can nestle run it that much better than kraft? i doubt it. that business that was sold for $2.5 billion earned $280 million pretax last year. so they sold that at right around nine times pretax earnings in terms of their own figure. now, they mentioned paying 13 times ebitda for cadbury. for one thing, ebitda is not the same as earnings. depreciation is a very real expense. but on top of that, they got the $1.3 billion they re going to spend in terms of various rearrangements of cadbury. they ve got $390 million of deal expenses. they are using their own stock which are 260 million shares or something like that. that their own directors say is significantly undervalued. when they calculate that 13, they re calculating kraft at market price. not at what their own directors think the stock is worth. so the actual multiple, if you look at the value of the kraft stock, it s more like 16 or 17. and they sold earnings at nine times. so, you know, it s hard to get rich doing that. i ve got a lot of doubts about the deal. you are the largest shareholder at 9.9% of the company. you don t get the chance to vote this deal up or down. what do you do? they took that away. yeah. they needed the vote originally. but if they get a consensual arrangement sort of thing with cadbury, and that may be you know, if they paid up enough, they were going to get it. so who knows whether the last 20 or something, what it did was eltd my chance to vote on it. there s another way to vote, warren, and that s with your feet. is that what you re telling us to do? that gets expensive. if i don t like what s going on in government doesn t mean i have to leave the country either. i know, but i can t believe let me stop you. we ve got breaking news to bring you. it is almost 8:30 bp let s get to rick santelli who is at the cme in chicago. here we go, buckle up, up .2, strip out food and energy, unchanged. close to expectations. year over year, headline up 4.4. core year over year up .9. in terms of housing starts, also december number, a bit disappointing. last month it was revised slightly from 5.74 to 5.80. this time you shave off a bit down to 557,000. adjusted annualized units and permits. well, permits were a bit of a bright spot. they were revised to 589,000. and this time, 653,000 seasonally adjusted annualized units which means that permits would lie ahead potentially for housing starts is looking better. however, if you re one of these inventory people out there that believe that is the culprit, maybe a rise in permits isn t exactly your first choice. the result of the market really hasn t changed much. dollar having a bonanza day. and there s a lot of reasons for it. some people think it has something to do with massachusetts. if you look at the interest rate complex, it s a bit lower in rates. none of that has changed with this data. knee-jerk reaction aside, i think they ll look at permits. and that s something to factor in. i can t wait to hear diane s interpretation later on today. back to you. thank you very much, rick. we ll pay close attention to housing and inflation numbers. meantime, we ll go back to becky and warren in omaha. joe and i, our jaws are agape at the comments you made about kraft stocks now. watching the bid ask. we had ackman on and talked about the deal and assumed because it appeared to be going through pretty well, that it had your tacit consent. that s clearly not the case. no. if i had a chance to vote on it, i d vote no, but i don t have a chance. one of the interesting things particularly for the people that pay attention to corporate governance, kraft issued a 78-page proxy statement close to a month ago. and the sole issue was the issuance of 370 million shares of kraft stock. that was the only thing to be voted on. and in 78 pages, they told you about a deal that wasn t going to happen, and they told you a lot of other things about how the directors recommended this and everything else. there s one thing that they didn t tell you. they didn t tell you what the directors how the directors felt about the value of kraft stock. now, after i came out and said kraft stock was significantly undervalued, the directors immediately came out and said they thought it was significantly undervalued, too. what could possibly be more important to issuing 370 million shares is the director s views on whether they were going to get fairer value for these shares? in other words, if the directors thought those shares were significantly undervalued, when they issued that proxy statement, i think they had the duty to tell shareholders that they felt that way. otherwise, you know, the shareholders could assume that they were getting fairer value for the shares. warren, i know at management, you go into a company and you talk about you re comfortable with management, you love the company s business, things like that. this is the hallmark of irene rosenfeld s stewardship of kraft. you re just saying it s a bad deal. is that not going to cause you to reevaluate your stake in kraft down the road if the manager, in the most significant decision she makes, goes directly against what you think is the right thing to do? well, i think i think kraft has got a wonderful portfolio of businesses including their pizza business which nestle now has, having paid $1.2 billion more for it than we received in terms of cash. i think the products you know, i d love to own oreo cookies or a-1 sauce or whatever it may be personally. and i think irene has done a good job in operations. i like irene. i mean, she s been straightforward with me. we just disagree. she thinks it s a good deal. i think it s a bad deal. i think she s a decent person. she could be a trustee under my will. i just don t want her making this particular deal. we called ackman the activist investor today. hello. i ll go back into my shell. this may be groundhog day or something. who knows? i told you about that pizza deal, but with me it was, kraft makes cheese. pizza has cheese. then there s chocolate. and it just didn t seem to be this, you know, smucker s with j jif, i understood that one, peanut butter and jelly. i said your analysis was a little more astute than based on what flavors go well together. you talk multiples and all this other stuff and pretax. but, i mean, it is telling that selling a very good business to be able to do it, you know, looks like a good idea unless you look closely, right? well, when you look closely, you find $3.7 billion becomes $2.5 billion. and it was an enormously tax inefficient way to get rid of it. if you wanted to sell it, it was tax inefficient. back when kraft got rid of post cereals, they did it in a tax-efficient way. it s not that they don t know how to do it, but in this case, they did it in an enormously tax-inefficient way. when you have a business with virtually no basis, procter & gamble s gone through this, kraft, other people. there are ways to handle spinoffs that avoid cutting the government in for almost one-third ownership of the business. and unfortunately they headlined the $3.7 billion. i don t think i ve read anyplace about the fact that they re only getting $2.5 billion. and it was nestle that pointed out that this business does $2.1 billion in sales and makes $280 million. and giving up $280 million of earnings in a business that s been growing over the years for $2.5 billion of cash, i think, is a big mistake and i think it s a bigger mistake when you re paying probably cou counting all of the costs involved, you re probably paying in the range of maybe 17 times for cadbury i think is a big mistake. you said at this point you don t have a vote in this. the only way you can vote is with your feet to sell the shares. you said that gets expensive. does that mean you re staying in this despite the fact that you hate the deal? i think kraft is still undervalued. i just don t think it s as undervalued as three weeks ago. we saw the shares are off by more than 2%, based on your comments today, people will think you re off your rocker. you re shooting yourself in the foot. no, kraft is, in my view, and probably bill ackman s view, kraft was significantly undervalued. it s just less undervalued because it s issuing a bunch of stock at a cheap price, and it s paying a full price and it s sold a good business. that hurts the value. now, how much it s hurt the value? does it hurt at the $2, $3 a share? i thought it was worth a lot more than $27 or $28. how does the cadbury valuation measure up with the wrigley slshz mars valuation, warren? well, the wrigley mars/valuation was a very high valuation. we were a financing partner in that. there s no question that the wrigley valuation was a high valuation. mars that s the difference, though, as a financing partner. but that is no reason that is no reason to pay the same price for something else. i mean, i have investment bankers come around me all the time and say this thing sold at 14 times earnings and therefore you could pay 13. i say, you know, we set our own standards for what makes sense. why does burlington northern make sense? if you re going to be splitting the stock and paying for part of the deal in stock which you traditionally hate doing. i hate it. i ve written the annual report and i say that i enjoy issuing shares at berkshire about as much as i enjoy prepping for a colonosco colonoscopy. this is not my idea of fun. and truthfully, burlington shares shareholders are receiving $100 a share. it s costing us somewhat more than that because i do consider berkshire at selling lower than it has in many years. we are giving up something that i don t like to give up in which i think is somewhat underpriced. so it s costing us a little more. on the other hand, we already own 22.6% which we bought for cash. we gave the minimum amount of stock we can do in this. we re getting $22 billion deployed in cash that i like overall. but it was a very, very close thing. if we had to give any more stock, we wouldn t have done the deal. i ve never said this is a bargain deal. i think it s ate great long-term asset for us to own. and i think it s something where we ll get a chance to use cash intelligently over the next century. but it is no bargain deal. i wish i would have bought the pizza business at nine times pretax earnings. but one doesn t preclude the other. wow! does irene rosenfeld you said you ve had conversations with her. she knows exactly how you feel? sure, i know how she feels. it s very cordial. she s a very decent person. and she is saying exactly what she believes. there s no question about that. i m saying what i believe, as you can tell, too. it s a difference of opinion. you know, they may evaluate money. of course, you get investment bankers in the picture. everybody basically there s a deal momentum that gets created in any transaction. that s not unique to kraft. i ve seen that i ve been on 19 boards. i ve seen it for 50 years. maybe i m susceptible to it, too. maybe when i hear that choo choo, i get carried away myself. we did pay right up to the absolute hilt for burlington, no question. other companies you own major stakes in, once they see you taking this activist route, does that worry them? they figure i ve gotten it out of my system so they don t have to worry, and they re right. no, we feel good i feel good about irene as an operator. she will do as good a job with this as can be done. it s just what was paid for. you recognize the irony that when you came out and voted no against the issuance of stock for kraft so that they could go ahead with this deal, you drove up kraft s share value. people thought, okay. they re not going to overpay for this. and that, in turn, allowed kraft to go ahead and make this higher bid without having to ask your permission on stuff. it s worked out that way. i mean, i guess they would have gone up anyway. they would have. i don t know that and nobody knows. clearly, they want the deal, you know. i ve seen this so many times. if you really want the deal, you know, you ll have all the people that work for you telling you to do you know, it s team spirit. it s winning. it really isn t a win. whenever a company makes a deal, i go to the store and i buy a congratulations card and i buy a sympathy card. and then five years later i decide which one to send. let s talk about a couple of year other holdings. there was some news, i think it was yesterday, costco, the korean steel company, but out a press release and said warren buffett plans to buy more shares in the future. is that true? i think i have to brush up on my korean a little bit. i said that i like the company a lot. i said i wished i had bought more when it was a lot cheaper within the past year. it got way down in terms of price. it s a wonderful company, but i don t have plans to buy more. if it went down significantly, i might very well buy more. certainly i have no plans to sell any. but no, we have no buy orders in. so that could be lost in translation? i think it was, yeah. another deal that was a big talk this week was swiss. your taking on a little over $1.25 billion worth of business for them? over time, that contract will probably result in perhaps $50 billion of premiums. it s the largest to my knowledge, it s the largest insurance contract ever written. the largest insurance contract ever written. i wouldn t be surprised. i can t prove that. i read the swiss release, and it said that they are doing this because they think that they can get more for their money in other arenas. i think their goal is to get more than 14 times. right, 14%. 14% for the investment they re putting in. what s your reason for why you take it on? i think we ll make money. it s very simple. now, if there s something terrible, pandemic or if there were some incredible terrorist attack that resulted in mortality in the united states, increasing by a dramatic amount because this is u.s. life business, it s spread all over. it s not just a few policies. it s millions of policies. probably hundreds of thousands, certainly. but anything that would change the mortality rate of the united states dramatically upward for any sustained period would be bad for us on this. but if mortality is more or less normal, and particularly if there s some improvement due to medicine over the years and so on so that mortality improves in the country, then we ve got a decent, long-term real. but they ve got their own reasons in deploying capital in other areas. it can be a good deal for both sides. we talked with dave sokol before you came on about an hour ago. he was talking a little bit about what he sees in the housing market. obviously, berkshire has a pretty good feel from a number of its different businesses on where things are headed. it was interesting. i heard rich a few minutes ago talk about the housing numbers housing starts being a bad number. you want a bad number for a while. the only way you clean up an excess inventory is to have more demand than supply. we had more supply than demand for three or four years in housing. we produced 2 million housing units a year. we created 1.3 million households. result, trouble. and the longer you do it, the more overhang in inventory you have. the only way to clean it up, one way, you can start getting 13-year-olds to start co-habiting and create more households that way. i m sure we d get a lot of volunteers among 13-year-olds. but if you re going to have normal household formation, you ve got to have subnormal housing production to work off the inventory. the lower the number is temporarily, the better. it s bad for our brick business. it s bad for our carpet, it s bad for our insulation business, all kinds of things. it s bad for jobs or for the administration. we could have a cash for clunkers program on houses. if we would blow up 3 or 4 million houses today, it would be in the right place. it wouldn t be my house or your house. but if you have an inventory overhang, you have to have demand be greater than supply for a significant period of time to work it out. and we re well on the way to that. a lot of the housing problem is behind us. the commercial real estate problem is not behind us. but the housing is. but are you saying that the administration should not have put in some of these programs to try and ease the pain along the way? like a cash for clunkers, like the mortgage tax deduction that you can get? well, cash for clunkers, the idea is if you destroy a bunch of cars, people will need to buy more cars. you could have cash for cream puffs. bring in your brand-new car you bought yesterday and blow it up, destroy it, and then you d have demand for one more car. you can always create demand in something like cars, you know, just say half the cars in the united states have to be destroyed tomorrow morning. you d have the biggest car you ve ever seen. so those kind of programs and we did some of that in the new deal. you do it when you force farmland to become fallow for a while. you decrease the output of crops. all kinds of ways of interfering with, you know, with changing the supply/demand situation. but overall, i think particularly if you go back to the fall of 2008, overall, our government has warded off something that would have been very, very, very much worse. i mean, i give the government credit overall. i can knock this program or that program. but overall, the government s done a good job. warren, we ve come back the market s come back a long way, as you know. and you ve commented. and i know on any given day you re not going to say whether it s expensive or cheap or whatever. but have we fixed enough of what got us into the mess to warrant being back at 10,700, or is this a bit of a bubble from all of the fed accommodations and in all the things that the extraordinary measures we ve taken. do you have a feeling for whether this is real and supported? well, i have no feeling at all, you know, as you ve said, i don t know where the market s going to be in a day, week, month or year. i do know that if i had a choice between holding cash or 30-year bonds or owning equities, i wouldn t hesitate for a second to own equities. you know, the market is up quite a bit from march. but it s down a lot from three or four years ago. and if i were going to buy a farm, joe, and somebody said, well, with great certainty, they said, you know, this is going to be a terrible year in terms of weather, i wouldn t say, well, i ll only pay $1,100 an acre, but i ll pay $1,500 an ache esche acre. i ll have a few good years and a lot of pretty good years. and the idea that you try to time purchases based on what you think business is going to do in the next year or two, i think that s the greatest mistake that investors make because it s always uncertain. people say it s a time of uncertainty. it was uncertain on september 10th, 2001, people just didn t know it. it s uncertain every single day. so take uncertainty as part of being involved in investment at all. but uncertainty can be your friend. i mean, when people are scared, they pay less for things. we try to price. we don t try to time at all. and preissing, i would rather own what it is today people say all the toxics people say all the problems that we had in march at 666 on the s&p that nothing s changed. toxic assets are still somewhere. we re still overleveraged. you hear that all the time. that nothing s changed, and here we are 70% higher than where we were. they say it s just not supportable. well, i would say they re making a mistake in terms what they were selling for in march. i mean, you know, if, like i say, if i buy a farm near here, you know, and it turns out to be a terrible year and pests come in and there s no rain and all that sort of thing, am i going to sell it for half the price it was selling for a year earlier when i know over the next 100 years there s going to be 90 years that are pretty good and a few bad ones, it doesn t make any sense to try and time things that way. nobody knows what s going to happen tomorrow, ever. the only thing is they get very apprehensive about it at certain times, particularly when other people are apprehensive. when people get scared, they get scared as a group. the confidence comes back sort of one at a time. there has been a lot of things that have been cleaned up in the economy in the last 18 months. a lot of the toxic assets are in better shape. there are going tore 4.5 million homes or thereabouts sold in year. thereyear. there are 80 million homes roughly in the country. 25 million don t even have a mortgage. of the 4.5 million homes that are sold the people that are buying those are putting down reasonable down payments in many cases, buying much more cheaply, covering it better with their income, so the liars loans have just disappeared to a great extent, so every day those homes are going into better hands. 4.5 million homes will be in better, stronger hands, people that can handle payments better at the end of the year than the start of the year, so the system is cleansing itself but it doesn t do it in a day, a week, a month, or even a year. warren, there are those out there who argue that the economy is being held together in a way with tape and glue. right? with nbs purchases and stimulus measures and cash for clunkers. bill dudley of the new york fed is out this morning and he says the prospect of another financial collapse, in his words, sort of a reiteration of what he said before, is extremely remote. do we have the cushion to with stand another big shock or would you side with what dudley is saying this morning? well, i think we have the conditions in place to take care of any normal shocks. if you talk about some, you know, major terrorist activity that is carried off or something, i mean, there are exogenous factors that could cause problems now just like they could have five or ten or 20 years ago. and we didn t know them ahead of time but if you re talking about a world where there is nothing of an extraordinary nature i think the chances of a second financial panic are extremely low. warren, when you talk, people listen and people are watching right now. in fact, jamie dimon wrote in. he is watching. he says he agrees with most of what you re saying. he wrote in when you were talking about washington. i feel good. jamie is a very smart guy and he has run a bank the right way. well, when you start talking about some of these issues, do you talk to other ceos especially who are involved in the financial institutions? what s their take on what s happening in washington and how much of this, i guess, political rhetoric and the back and forth about the enemies on wall street, how big of a concern is that? well, they don t like it, obviously. but washington doesn t like i mean, it s, you know, bankers get pointed at, whenever there are problems bankers get pointed at and there are some things to point to but i don t think, you know, that s affecting jobs now. i mean, people say, you know, i don t think anybody is not hiring. if wells fargo needs people they re going to hire people. you know. if they have five or six more percent customers this year than last year they ll need more people. they ll need more people in their mortgage department because it s increased their share of market. businessmen make self-interested decisions, you know, just like all of us, and they re not going to expand if they don t see demand. on the other hand if the orders come in, and they will at some point, i mean, i will guarantee you that our brick business and carpet business will be doing a lot better five years from now. i won t guarantee five months from now. i don t know when it will change. when it does we ll be employing more people. are banks lending money or is it simply what you re saying people aren t looking to take more money out because they don t see the demand? yeah, well, there are relatively few businesses that need more capital now to support more business. now, there certainly is an economy where that wouldn t be true, but the people that need business, that need loans to take care of operating losses are that s a mistake to lend them money in most cases and there s all kinds of people that are having financial troubles that would like to borrow money to get their way out of financial troubles. most of the time that doesn t work. there are times when it does but most of the time it doesn t. people wanting money for expansion, where they ve got profitable businesses, i don t think are having any trouble getting but there are you do not want to go around lending money to people using it to cover operating losses. and there are plenty of people that want you to do it. i the bankers i talked to are dying to get loans. i mean, the last thing they want to do is sit around with money at fed funds. there is no money in that. they want loans. but they want loans where they re going to get paid back. they took out a lot of loans a few years ago that weren t so good. i do not think there is a general reluctance at all among banks to lend. short of an extreme act like a terrorist act, what s your biggest concern when you look out over let s say the next year and the economy? well, that would be my biggest it s going to take time. you know, next day these things take their way to work through. i mean, people don t have to buy carpet tomorrow. they don t have to buy brick from us tomorrow. they don t have to buy insulation from us tomorrow. now we re doing business but not the kind of business we will be doing when things get back to normal. and that will happen but we are working off excesses. and huge excesses in the leveraging field and it was the first thing i talked about when this happened, that the world was going to deleverage and the only party that could really leverage help was the u.s. government. thank god it did. i mean, ben bernanke has taken on a trillion of mortgages, you know, i mean, he s got a great hedge fund now. i mean, he s got these 5% assets and no cost on the liability side of it. he had to buy that trillion. i mean, things yoare getting righted. balance sheets are cleaning up. you can take a goldman sachs or, you know, the leverage ratio is in half. their capital is like it s never been before. so it s getting righted but, you know, it goes through the wringer and state farm does wonderfully. the world will go on and we will have a better world five and ten years from now but five months from now who knows what it ll be? warren, there is a go ahead. there is a school of thought along those lines that you could have stubbornly high unemployment and could have consumers reluctant to spend but you have companies in the sweet spot of the profit cycle where margins are going up and cash levels are high and productivity is through the moon and you could have the markets diverge somewhat from the overall economy over the next 12 months don t you think? well, i think markets frequently will diverge from the economy. that s why i think it s a big mistake for people to start when they think about buying a stock i think it s a big mistake to start, to think about what s going to happen in the next 12 months or the next six months either to the company or to the or to the economy generally. i do not if i m buying xyz company i am not concerned about what they re going to earn in the next year. the next year is going to be over and then people are going to be looking at the year after that. if i m right about where they re going to be in five or ten years we ll make a lot of money but i can t time stocks based on what they re going to do this quarter and next quarter. i don t know anybody else that can but maybe they can. you know, we are just about out of time today but you ve got the shareholders that are going to be coming in here in just about an hour, hour and a half time this morning. this meeting today you say you think you already have the votes. we have the votes yeah. you feel pretty confident about that. will the shareholders be asking other questions? no. this meeting is just about the split because we didn t want to turn this into a second annual meeting. we ll have the annual meeting on may 1st. we ll have so many people here you won t be able to believe it and we re going to take questions even a half hour longer than normal and go from 9:30 to 3:30 even and then, you know, the press the next day and all of that sort of thing. so this is this vote, you say you have the votes going into it. burlington northern shareholders vote next month. right. their vote is tougher because they need because we own the shares we do already they need 66 2/3% of all shares not owned by berkshire, not just the ones at the meeting. so they have a pretty high hurdle right now. but the vote is coming in well, but this vote is a lot easier. there s been some legislation proposed in congress that would regulate more of the railroads. do you have any concerns? well the railroads are regulated, should be regulated. on the other hand it should be what i would call enlightened regulation. the country needs both our utility business and our railroad business to make investments for the future. we should earn a decent return on the capital employed. we shouldn t earn a fabulous return. we re not entitled to it but we should earn a decent return and i think regulation over time will provide that and we ll do our share. we ll invest billions and billions and billions to have our facilities prepared for the society of tomorrow. all right. well, warren, thank you very much for joining us this morning. we ll be here through the day talking a little bit more about what happens at the meeting today but, again, thank you for being so generous with your time. thanks for having me. gentlemen, back to you in the studio. with 700,000 shareholders, warren, you ll need a bigger auditorium. need a bigger boat. thank you. that does it for us this morning. our thanks to warren and to you for bringing it to us. squawk on the street is coming up next. live from a pineapple under the sea. this is squawk on the street. good morning, everybody. i m mark haines. woo. you re blinding. wake up. sunshine. wake up, sunshine. good morning, everyone. i m erin burnett. we have a lot going on. in addition to the fantastic haines tie, let s tell you what else is on the front burner. we start with reports from the banking industry wells fargo better than expected. the profit came in, profit, $2.82 billion, eight cents a share. morgan stanley, though, fell short of estimates, still posted a fourth quarter profit, $413 million. bank of america lost $5.2 billion in the fourth quarter. full details in earnings central dead ahead. and republican scott brown won the late ted kennedy senate seat in massachusetts. in the democra in it ends the democrats filibuster busting power. and warren buffet. we have highlights. producer price up in december 0.2% the third straight monthly rise. housing starts fell a bit more than expected. and the federal housing administration will raise the minimum down payment to secure fha-backed mortgages. so we ve got a lot going on today. we sure do. but lord almighty. all the people can see is the fluorescent luminescence of your lovely tie. futures are going to a lower open. we start with cool breeze here at the big board. predictly hmo stocks are up a little bit on the scott brown victory in massachusetts. of course that was a big topic yesterday but today we re back to earnings. and many of the stocks trading down as we ve seen as we had the earnings reports come out and ey