Transcripts For CNBC Squawk Box 20140505

Fighting in ukraine grew more widespread as the key of government stepped up a campaign to quell a prorussian insurgency. Meanwhile, germany is pressing for another round of talks in geneva to bring russia and ukraine together and the u. S. And european union. The german chancellor Angela Merkel and russian president putin discussed the crisis in a phone call on sunday. Joe . Chinas factory activity remains stuck in contraction for a fourth straight month in april. The hsbc purchasing Managers Index came in at 48. 1 and thats lower than the preliminary reading of 48. 3ment and below the 50 mark to separate expanding activity from a contraction. That shows a much bearer picture of manufacturing than the official pmi released by the National Bureau of statistics. Last week it crept up to 50. 4 from 50. 3. Lets take a quick look at the futures right now. And becky, as i know you are probably listening, watch the tenyear note go by every once in a while. Its i dont know whether you checked it today, but there you can see that we are looking down about 65 points. Theres the tenyear at a little thats sporty, isnt it . 2. 572 now. What . What happened . Do you think thats ukraine . I dont want know what the heck it is. I dont know, what was it last time . The death cross was right around 2. 6 and we had to get below that to where people started i think we needed 2. 3 before people really wonder. You know, the jobs number, 288,000, was strong but not much wage growth. And then we went to another low on the Participation Rate and got the 6. 3 on the Unemployment Rate and we were wondering, does that make people think we are any closer to rates actually being or going up. But you also had comments from fisher overnight talking about how he expects tapering to be finished by october. He said they wont start thinking about when they raise rates until then, but october out may surprise a few people, too. They certainly have cover to do things at 257. I saw that this morning and i wondered what the heck happened, too. But maybe it was all this youre partying out there, other people are partying in washington. Meanwhile, the tenyear, nobody is paying attention because we are too occupied, right . With all the was there any alcohol . No, no alcohol. I mean, it is around and about, but not in washington. Wait a second, andrew is lying. I saw him drinking. I may have shared some with him. A glass of wipe doesnt count. You can tell when hes lying. Or disassembling if you want a softer word. Thank you, sir. This is what warren drank all weekend long. Look at that. Hes got to drum up some revenue for the rich compensation packages at that joint. Becky how long did this last . Im not sure what the voice thing, it goes away at night. The voice leaves at night and comes back in the morning. Well, i will tell you i still get a cough at night when i get tired around 8 00 or so. I got some toxic stuff. Thats when its fighting a lot of whatever it is that and i havent had a chance to sleep, really, that much. We got back late. A little nap is in order. One final headline. Maybe right now as you read the headlines. You could get caught up on this headline. Joe mentioned this, the small Court Victory in apples battle with samsung. The jury ordering the Electronics Giant to pay nearly 120 million to apple in their Patent Litigation fight. That was far less than the 2 billion apple was seeking from the case. Apple accused samsung of violating patents on the samsung features including universal search while samsung denied wrongdoing. They had apparently infringed on two apple patents. They have been in this legal battle for three years and this is still continuing with a number of patent battles. Both companies would probably like to press a button to try to get rid of all the patent cases, i think. At this point, the patent cases have been going on for so long that but if there was a button to push they would push the button. Britains Opposition Labor Party wants an independent assessment of pfizers potential takeover of astrozeneca. They are adding that into the total number of deals already to make it the fastest start ever. Thats how they do it. So it will be done. So it is going to be done, we are going to lose pfizer. We should talk to warren about that because we asked him a question about inversions during our time. The party wants to know what the longterm impact of this bid on the science and Industrial Base on the country. Astrozeneca rejected the bid from pfizer on friday. The dow is expected to roll out Quarterly Results during the 7 00 a. M. Hour. I cant imagine that britain and the u. K. Isnt going to eventually welcome the whole id idea. And they are going to convince astrozeneca. Lets get back now to becky in omaha. Im going to i got the selfie, im warming up to the whole idea. I tweeted more yesterday, becky, than i ever have in my life. I dont know. Joe, i have to tell you, this is the year of the selfie here. We were talking about it here. This was at the annual shareholder berkshire meeting on saturday. This is a selfie someone took with warren and bill gates. I think never seen anything like this. Warren, the year of the selfie we were talking about. Its all the rage. The College Students come out and all want to take them. You walk out of a restaurant and people want to take them. Its caught on big time. I have yet to take one, however. You havent taken one yourself but a bunch of people have taken one with you. I have participated, yeah, but not taken any. So well see a lot more of those, but lets get back to our guest host for the next three hours. Berkshire chairman and ceo Warren Buffett. We are live from Nebraska Furniture Mart, one of many berkshire businesses, warren, this business, in particular, really sees a huge surge of business on the shareholders weekend. What kind of numbers have come through here and how many shareholders do you think were actually here this weekend . Well do over 40 Million Dollars in one week here at the furniture mart. And thats a lot of business. Most Furniture Stores dont do that in a year. And its our biggest week of the year. In fact, its a normal month. We do about 450 million a year at this store. So its a normal month. And we do it all in a week. And the stockholders get more excited every year. They i run into people in the elevator that a month or two ahead of time say thank you for holding the meeting. You know, they are patting me on the back for the meeting and explain they want to come out to furniture mart. So you had told us before that you expected maybe 38,000 people this year. What do you think the numbers were . Not any less than that. This was the biggest meeting by quite a margin because we filled utterly the main auditorium and all three overflow rooms and had spillover to the hilton and people were in the exhibition hall. So we never can get a perfect count, but im sure we beat anything in the past by at least 3,000 and wouldnt be surprised if we beat it by 5,000. So someone between 38,000 and 40,000 is what youre getszing . Yeah. I have not seen the tenyear yet this morning at 2. 75 . Why do you think that is . Is this a sign of concern about whats happening . What would be your guess . I dont know. Im no good on Interest Rates, but one thing i know is ten year from now they wont be at 2. 57 or 3. 57. Does that catch your attention, though, when you see the tenyear continuing to decline . Most people thought it would definitely go up this year. Well, its surprising but im used to getting surprised in markets. And we issue bonds from time to time, so the lower rates are more of an issue and the longer we like to issue them. Would a tenyear at this level change any of your behavior in the business . Would you do anything differently . No, we dont do anything differently. If it moved up 50 or down 50 basis points, we wouldnt do anything differently. We dont react to apple factors at berkshire. Our macrofactor is that the country will do better over time and that guides us in everything we do. Again, i know its not something you spend a lot of time on, but if you had to make a guess now, would you guess the tenyear will end above or below 3 . I really dont think about that, but yeah, if you told me i had to pick a figure, i would pick higher. I want to talk about one of the issues that came up repeatedly at the Shareholders Meeting a couple of times, but i did get a lot of questions related to it in my email box where shareholders were sending things in. Cocacola, joe eluded to that already this morning, and well talk about what has happened. Weve had a lot to say, but there was criticism, some people didnt understand why if you thought cocacolas equity plan was excessive you didnt Say Something before the vote and didnt take your 9. 1 at the outstanding shares and vote no. Yeah. We had no desire, never will have desire to go to war with cocacola. They are a Wonderful Company that have treated us wonderful. The management has been candid with us. Im sure we have the right leader there, so we had no desire to go to war, but we did think the program was a success. And with those two beliefs, we thought the best way to do was to express our opinions privately to the management who will listen carefully and to abstain from discussions with cocacola between now and any equity plan. There was an article in the back of this from carl i ccon, t this article says why buffett is wrong on coke. Hes got a different style than you do. I hope so. Do you think that, first of all, what do you think about what carl said and secondly do you think your style is effective in this situation . Yeah, i do think our styles will be affective. And i think our style actually would be more effective than might be proposed by carl, but carl goes into other types of businesses where often at least he goes in where theres a problem. There isnt a problem with cocacola, but there was a plan proposed that was excessive. It is very easy to make it nonaccessible. Spread the authorization. Whether it turns out excessive, they have not locked into stone that they are using stone for the next few years. Frequently carl was working with managements for different attitudes and probably have a different attitude toward him. Have you spoken to muchar kent at this point . I have not talked to him since the cocacola meeting which was on the 23rd. Okay, about a week and a half ago. One other pointed question that came from a shareholder this weekend, and i got several illiterations of this in my box. Your son Howard Buffett is on the board voting in favor of this plan and some people were question i questioning howard says shareholders need an ability to protect the culture when he voted for a plan he himself did not like. Yeah, i voted for plans over the years and have been on board for 55 years. I vote for plans and have voted for acquisitions i didnt like. Im opposed to it. And if you start objecting to this and this and this, pretty soon people dont Pay Attention to you. And you want to save your bullets for one they really cant. And i have never seen a Cop Committee come into a boardroom and all my time that i had with a recommendation, the board delegates to a committee and say, you go out and work on this. They may say that the governors committee, you work on getting directors and all kinds of things. Once the board is delegated to a community and they spent hours working on something and reported with 20 other items on the agenda, the german calls on the cop xhooi committee. It gives it 30 seconds to report. The it never gets old. And a short fuse. I have a better idea. I havent talked to compensation person in a little while, but it will happen. I dont think stunned by what you have said but just that you have said it. Theres been this idea that boards are clubby and basically came out to say thats the case. Ive ridden that for 30 years and have seen bars operate. It should be no surprises. Its always interesting to hear the academic discussions on board. Like you read in the movies or something, but boards are in part business organizations and in part social organizations. And people walk into those with their behavior formed by dozens of usually you hear people say some standing, so they have learned how to get along with other people. And they dont suddenly change stripes when coming into a Board Meeting, so theres a great tendency to behave in a socially acceptable way and not necessarily in a business m maximization way. People like to get along with other people. Most people. Do you, carl . Is that a gene . And i do enjoy battle. But generally you dont get invited on board if you have a person who actually loves a fight. And your point, i guess, people will say this is not too much different than the rest of the world. I think thats very true. And it doesnt mean because you dont get into fights that you cant get things done. And it doesnt mean there arent certain issues that ive been involved with in a couple situations where a proposal to buy a company has gone to the board and been shot down, but what happens is that one person finally pipes up and its a little bit like the kids saying the emperor is wearing no clothes and everybody comes on board. But at first person to speak, you know, its a belt shake at the dinner table. And sometimes other people start belt shaking and will move farther from you. But there are some people who have enough bravery to be followers in a situation like that but not initiate that. We have seen that in other aspects of the human behavior. Andrew has a question from cnbc headquarters. Andrew . I would say its remarkably honest what warren is saying, but the question is whether or not it should be this way . From the outside, theres a sense that people are more strident and more brave or more willing to come forward or that the social issues arent supposed to impact the way people behave and think, even though of course they do. So i hear you saying this is what happens, but my question is should it happen this way . Well, no, obviously, everybody would speak freely and all of that sort of thing and dialogue would be encouraged and the chairman would love to hear reasons why its ideas are no good, but it isnt quite that w way. And i think youll get some of that, but ill give you a good example. We have bought 700 million worth of solomon preferred. Our convertible was a 38 in the mid30s. We went to the very first Board Meeting and it was right after october 19th, 1987. Two brand new directors. One of the first items on the agenda was to change the option price of all the options outstanding in solomon from prices in their 30s down to 15 a share. But the 35 option, the employees were all getting change down to 17 a share. Charlie and i voted for it, we probably marbled our vote, but those things happen. And we later on cant object a lot of people. This is important. This money is important to them and what they really hope is that they get invited to go on the trip. If they say, well, she just raises trouble when bored. She has another 300,000 a year job, that is the real world. 12k one quick followup about a comment you made in 2009 speaking out on the most egregious cases of ceo compensation and said the way to get big shots to change their behavior is to embarrass them. Explain the distinction between what you were talking about then in 2009 and perhaps this cocacola situation today. Yeah. Well, i dont really want to embarrass cocacola company. I mean, i like the people and everything, but i think we have some people that, i dont know if they would use the word embarass, but they would frefr that i didnt do it. I guess i used to have word before 2009, so i was not looking to embarrass him and was certainly looking to reexamine it because they are in a great position to reexamine it as they have not used a share in this authorization yet. Even though they said in the proxy statement they expect to use it over four years. But they generally issue their options in either january or february. So they have a lot of time to think about what is best and they are, the one thing i can guarantee you, they are decent highgrade people. And i think they will do what is right, but i dont believe the best way to do that is to go to war with them. Warren, if i could ask just quickly, you said in the past there have been dealing that youve shot deal down and fi mirs thought is to this. There was a meeting hastily called in new york, and the directors we want into the room. I was not the first one to say that giving away 11 or so in the cocacola company, although primarily a bunch of other foods came with it, but the girls didnt want food but just gatorade. We just didnt think that the first proposals would or opposed opposition to it i should say, i just departmeidnt think it mad. And i had come into the meeting feeling the same way, i just didnt speak first in the case. And then i spoke and by the time i finished the deal did not go through. And the whole table was belching. Most of them were belching. It was sort of a belching contest there for a while. And the company, the whole thing was a breeze with the press there. It was an evening. Everyone was on deadline to get this done. Theres usually that sort of momentum attached to any deal. And you cant impose five in a row. I mean, it just you become totally ineffective at that point, but that was a big deal. And a number of the directors had reservations about it. And that became apparent as the first director spoke up. But the other ones probably wouldnt have i think i probably would have, and that was not something that made sense to me. Warren, bear with us. We have to take a commercial break, but we do have much more to come with Warren Buffett. Well be back after that very quick break. Also, starting at 8 00 a. M. Eastern time, berkshire vice chairman charlie mongor and bill gates will be our special guest. All three of the gentlemen will be with us live. Andrew, back over to you. Thank you, becky. Relax. Can you think of, as far as contrasting styles, buffetts approach to like dealing with the company . You are bored. Just think of the an analogy or something to add up. Think of the way carl goes in there. Guns blazing, morons, the accusations about ceos in government. Think about the way warren does it. And most are pretty successful and get the jingle belch. Im not going to do it. You can do it after the break. No, im not going to do it. In the meantime, coming up, the reported price tag on the most expensive home ever sold in the United States. We have that and Warren Buffett coming up when we come back. Passenger road trip buddy. Lets put some music on. Woman welcome to learning spanish in the car. Passenger youve got to be kidding me. Driver this is good. Woman vamanos. Driver passenger vamanos. Woman gracias. Driver passenger gracias. Passenger trece horas en el carro sin parar y no traes musica. Driver mira entra y comprame unas papitas. Vo get up to 795 miles per tank in the tdi clean diesel. The volkswagen passat. Recipient of the j. D. Power appeal award, two years in a row. Time now for the executive edge. Microsoft founder bill gates is no longer the largest shareholder. According to new regulatory filings, gates has sold 4. 6 million shares of microsoft. With that sale, his holdings now fall below steve balmers. Balmer is the biggest individual shareholder now with 333 million shares. And now gates has 330 million. And i think ballmer has already sold 3 billion worth. He has that cash at this point and all the shares. Hes done well for himself. He still wants to go buy the clippers. The clippers rose to the occasion, too. Did you see them on tweets yesterday . I was not following them. I followed your tweets on saturday. I missed that being in omaha. It was the seventh game of the anyone else on the show . I will try to tell you this, it was a seventh game of the Brooklyn Nets and raptors. The toronto gm said to get rid of brooklyn and all that. Seventh game, i spent about seven hours in church yesterday for a confirmation. So while they were winning by one point. Thats one touchdown. While they were winning by one point, i think i was, i dont know, doing something with satan, reviling him or we have to sitting in a church, in a cathedral, and i tweeted that out. Thats good. Thats what you should do. Tweeting in church . I did tweet in church. I dont know about that. Its episcopal, not a big deal. We have another story. Did you hear what happened to my house over the weekend . No. Youre funny. Not that funny. Barry rosenstein purchased the most expensive house in america. The New York Post reporting that he is the fund manager set to pay 147 million for an 18acre beach front home in the hamptons on long island. The east hampton home formally belonged to christopher h. Brown, managing director for tweety brown. The home sale was two weeks ago. Another home in greenwich sold for 120 million. And warren is still living in his house from 1950. You know what street were talking about . You know who one of his neighbors is . Steven spielberg. Well, jim chinos. Remember, that was the hedge wars with the Hedge Fund Guys arguing about a hedge. We dont get stories like that a lot. That was a good one. This is 18 acres. Who has 18 acres on the beach . This guy does. Coming up, more in our conversation with Warren Buffett. We may have some shots from did you take any pictures while you were there . I have some to share. Selfies with warren . We have pictures together from years past so we didnt i have some. 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[ male announcer ] see if your business qualifies. Good morning. Welcome back to squawk box here on cnbc. Im joe kernan along with Andrew Rosssorkin and becky quick is in omaha. Apple was awarded some money over the weekend after samsung was found to infringe on their patent. A legal expert says more money is unlikely. And General Motors is recalling suvs because of Faulty Software that can cause up accurate fuel gauge readings. The 2014 model year buick enclave, Chevy Traverse and gm acadia are involved in this recall. And the amazing spiderman 2 topped the box Office Taking in 92 million in north american ticket sales. International sales are excluded and sold about 370 million, sorry, they are included. And that surpassed the 200 million production costs. And i hear that i didnt see it. My family saw it, but its sad, becky. Theres a sad part. But thats all im going to say. I cant maybe, it could be anything. It could be sad or you can construe sad. Dont tell me. Im telling you. Mr. Spoiler. In almost every movie something sad happens. And in almost every movie something sad happens. Yes. Otherwise its not dont say it im not saying it. Or i will start watching game of thrones and ruin it every monday morning for you because i know you cant watch it sunday night. I dont know. If you check out the commentary on both the president and joel mchale, you will see it was not universely the president said i read some funny comments. I was not there but did read funny comments. It looked good on both accounts. The president said ive been doing a lot of executive orders. People are cutting it the imperial presidency and cut to a shot in the oval office and had super imposed the game of thrones crown. It was the iron crown, the iron throne. So that was the funny thing is, i can read his comments and know which ones you would like, which i wont repeat. There were a few of them, only a few. Only a couple. There were a couple i thought that i bet joe laughed at that. Biden is hilarious and the biden movie was the best part of the night. It was hilarious. Back to you, becky. Thank you, joe. We are back with Warren Buffett. Warren, after the Shareholders Meeting this week, we talked about 38 to 40,000 shareholders here, and there are a number of really interesting people to see in the audience. Kathy ireland was there tossing newspapers with you on saturday morning. She was a Newspaper Carrier before. She did a good job. Bill ackman, david winters, many from the financial world, also georgie polo was here. The partnership you have with 3g when it comes to heinz, first of all, how is heinz doing and would you do more deals with 3g and Georgie Pollo . The heinz deal is coming along well. That doesnt surprise me at all. We would not have done heinz by ourselves. Certainly at that price. But theres no one im more impressed with than georgie and his associates in terms of their operating abilities. So to join them was terrific. And i would love to join him again. And one thing i like about them is they think big. So they are likely to come up with a big one some day, maybe next year or the year after, who knows when. And i think that if they need some financial partner, i think they will do it with us. So its a big plus for berkshire to have an association with Georgie Pollo and his associates. Anything you two are cooking up right now . Well, he does the cooking and i do the tasting. But his mind is incapable of not thinking about possible deals. And we will not do anything ever hostile at all. Thats rule of foul, but i dont when the phone rings and say its georgie calling, i feel good. So he was here this weekend. We talked a little about that. How much cash do you have on hand at berkshire right now, close to 48 billion . Counting everything except the regulated subsidiaries, we probably have around 47 billion, Something Like that. You like to keep 20 billion on hand to give you 27 billion to play with. Yeah, and we could raise more pretty fast. I could raise that on my death and over 100 billion in securities. Well over 150, but as far as thats concerned, so we could come up with i would like to be challenged on that. Well, if that were the case and you had to come up with some money because you saw a deal you like. What would be the security you would sell first . We had to do it very quickly. We might borrow money first and then get into the monitor from time to time. But we would look at the Security Prices that change daily and what i think about the companies which doesnt change daily but does change over time. And if we needed a lot of money, we would have to be looking at some of the bigger things. But since i i dont have a deal today, i dont have to think about what i would sell today. Just to get to some of the securities that you do own, you mentioned over the weekend you metro septemberly with mary barra of gm for lunch, what did you think about that . Had you met with her before . I just met her briefly at conferences eight to ten months ago. Was that at the most powerful womens conference . Yes, that was the first time i had seen her. And i dont own that stock personally. Mary was there and i think shes terrific. She can run a company like berkshire does for sure. She loves cars. I mean, i told her she was a car guy. I mean, it just is all the way through. And she knows cars. Every aspect that you get into, she knows the impact or the tradeoffs involved between weight, style and price. And she loves General Motors. Shes made for the job. Have you had concerns about the gm recall news . Obviously that happened before her time, but is there anything thats risen to the point where you think, wait a second, maybe we should reconsider whether we own the stock right now . Well, that wouldnt be my decision. Actually, it is ted whistlers decision, but she she inherited a mess. And now its not a small one, but its a particular concern to the american public. It did save General Motors in 2009 and thats the switch that happened prior to that, but general motor is in the forefront of Many Americans minds because cars are important to them. So mary is basically on a hot seat but not of her own making. And theres nobody better at handling it. It wont be handled in a week or month. It is just the nature of the problem. Warren buffett is our guest this morning. Andrew, coming up well have more, but back to you guys. We look forward to talking to warren more. Plus, getting stuck in new york city, but not in crazy traffic. We have an interesting story for you just ahead, right after the break. Weekdays are for rising to the challenge. Theyre the days to take care of business. When possibilities become reality. With centurylink as your trusted partner, our visionary Cloud Infrastructure and Global Broadband network free you to focus on what matters. With Custom Communications solutions and responsive, dedicated support, we constantly evolve to meet your needs. Every day of the week. Centurylink® your link to whats next. Welcome back to squawk box. Well look at u. S. Futures for the week. Monday here the dow opens down off about 61 points of nasdaq opening off 15 points and the s p down 8 points. We should also tell you an odd story over the weekend, the coast guard tugs a cruise ship into the port after it got stuck in the hudson river off new york city. The coast guard says that staff from the Norwegian Cruise Line ship, its called the breakaway, i dont know what to make of that ironic name, reported a problem with its steering problem around 7 40 a. M. Eastern time sunday morning. The coast guard then tugged the ship into the pier just after 10 00 a. M. A passenger onboard said they were returning from a sevenday caribbean cruise. The ship was delayed because of strong currents in the hudson river. Weirder and weirder. This is why i dont go on cruises. When we return, well pick up the conversation with Warren Buffett. And coming up at 8 00 a. M. Eastern time, buffetts partner is going to join us as well as microsofts bill gates. They are going to join becky in omaha. We have a lot more squawk coming up. You dont want to miss it. [ girl ] my mom, she makes underwater fans that are powered by the moon. She can print amazing things, right from her computer. [ whirring ] [ train whistle blows ] she makes trains that are friends with trees. My mom works at ge. As the company thats all about printing. But did you know we also support hospitals using Electronic Health records for more than 30 million patients . Or that our Software Helps over 20 million smartphone users remotely configure email every month . Or how about processing nearly 5 billion in electronic toll payments a year . In fact, todays xerox is working in surprising ways to help companies simplify the way work gets done and life gets lived. With xerox, youre ready for real business. Its disgusting youre trying to parse your words now. I believe the markets are right. Youre part of the rigging. If you want to do this, lets do this. What do you do in your matching . We use direct feeds. No. Yes, we do. You had a 300page commercial. So lets talk. You were writing a book about it. I was trying to figure out what the hell was going on in the stock market. Brad is doing all of this to promote a business model. Hes outrageous. Hes part of the problem. Welcome back, everybody. We are with our guest host Warren Buffett at the Nebraska Furniture Mart. A lot of business. A lot of serious talks but fun times. Yesterday you spent the day going the to borsheim and selling jewelry yourself . Right. A couple hours. Crazy warren. My prices cant be touched. You also played a Little Bridge and table tennis. Ping pong. I want to show new shot. Warren, you were going up against ariel. Yeah. Shes the Womens National champ. Played the olympics. Won a couple of matches. You got the great shut off. You said forget it. One shot a year. So there has been a lot of stuff we talked about very serious business. One of the issues that came up was another one of your holdings, bank of america. Bank of america very recently had to pull back their plan to increase the dividend and buy back even more shares because there was a mess skwrp in the regulatory capital. They were off by a big number. Was it 4 billion . As someone who has a big stake in the company, did that worry you . The change theyre making with or preferred ads of regulatory capital. Really . Yeah. They are changing our cumulative the preferred to noncumulative preferred. And that changes that category by 5 billion. You know, weve ive made mistakes. It doesnt involve any loss of money or anything. It is structured debt they acquired when they took over merrill lynch. After i took over solomon, i took over 1991. When i took over, there was a plug item in the balance sheet. They had not been able to find they had not been able to reconcile since 1981. Arthur andersen were our auditors. They explained to me, you will see this 180 million or whatever it is move around different amounts. But dont worry. Some day we will figure it out. Did that concern you . Sure, it concerned me. It had gone one of the companies had been on cash basis and one on trade basis. It never got worked out. We had a situation many, many years ago. We just ran up the bank account and started all over again. So youre not concerned. You think Brian Moynihan is doing a good job . He has done a good job. He has had a lot of problems to deal with. He has simplified the bank, brought down the balance sheet. He brought it back to the fundamentals. It is a wonderful franchise. It will do well over time. I said you have a long period ahead of you when you work through this. We have a lot more to talk about. Coming up, waiting on Quarterly Results from pfizer. Well break out the numbers as soon as theyre released. Berkshire hathaways Charlie Munger and bill gates. Both Board Members at Berkshire Hathaway. Squawk box returns right after this quick break. man speaking man speaking man speaking fame, makes a man take things over fame, lets him loose, hard to swallow fame, puts you there where things are hollow the evolution of luxury continues. The next generation 2015 escalade. Fame Warren Buffett addressing the Berkshire Hathaway this weekend. Now hes talking to squawk box. Our country will do a lot better over time. Hitting the biggest issues facing the markets and the economy. His latest comments on cocacola. We had no desire and never will have a desire to go to worry with cocacola. The second hour of squawk box begins right now. Good morning and welcome to squawk box on cnbc. Im joe kernen along with Andrew Ross Sorkin and becky quick. Futures are indicated lower this morning. On, i dont know, it feels like a hangover from all the partying done in omaha or washington, d. C. The 10year is interesting. Its below 2. 6 this morning. Which means it is rallying. Yields are coming down. 2. 57 is where the yield is, which i dont think a lot of people would have predicted. Once again, we were talking with most exists who say, yeah, yeah, yeah. Thats temporary. Were going 3 down the road. Dont be fooled i think pfizer is reporting right now. Im hitting up first estimates. It looks like 36 cents a share. It is what you need to use compared to estimates. That is 57 cents a share for pfizer on revenue of 11. 4 billion. I think the revenue number might be below expectations. 55 cents was the estimate. 57 is two cents ahead of expectations. But i think that number on revenue might be a little bit light. For the entire year the company sees 220 to 230. The estimate was 225. So exactly brackets where wall street is. But for revenue, 49. 2 to 51. 2 is what the company is forecasting. 49. 8 is where wall street is on this. Im going to look at a quick bid and ask what were showing. What is it, up 2 cents . Thats about right. No real trading yet for pfizer. I havent looked to see any of the details the. Pfizer is probably trading more on its proposed acquisitions. They have to go into this quarter knowing the number was going to be okay given the offer. Even though revenue is down. Or below expectations i should say. Well see what happens with this deal. Lets get back to becky and omaha with special guest Warren Buffett. I know andrew mentioned the i word, in version, was discussed a little bit out there as well. Yeah. Im sure in the broader context what we should do with the whole tax code. Becky, back to you. Lets jump right into it. Warren, i know we have talked about some of the merger and acquisition activity. This is a little different now. Some of the awaring stocks has risen on the news. Pfizer being astrazeneca, said it would move its tax domicile because they would pay a lower tax rate there. What does that tell you about business and the u. S. Corporate tax code . You are getting more mergers that are tax driven. You are actually talking not only about buying the business or breaking down the tax rate. Its been coming along. We saw valeant pull off a couple of things. As they have gone along, the people at pfizer say this is getting out of hand. We have to bring our tax rate down too. It will gather momentum. And my guess is that when you get to companies of this side and with the speed of momentum. Congress one way or the other addresses this. It could go in any direction. And whether they try to work on this little aspect of the code that allows us, which is not as significant, or whether that forces them to rethink sort of all Corporate Taxes, well find out. But i do think its going to get attention. The president has already put it in his budget. Its not been closely focused on except for the companies considering doing this thing. Right now if you have 20 of your shareholders outside the United States, youre allowed to do that. But the president has proposed moving it up to 50 . Some pay look at that and say, wait a second, why not make it more attractive rather than moving it for everybody else. Everybody talks about tax reform. People love to use the word tax reform. It increases their own taxes. They have all kinds of other things or helping other people. They want to get that corrected. But i have yet to hear from anybody pretty much that wants to. It equates taxes. And the whole thing on the foreign situation i think will will cause one hell of a fight in corporate america. Youre talking about a policy ta right now that pushes a company like pfizer who pay 27 and pushes them away. It keeps the people who maybe arent paying rates nearly as high. Isnt that an argument for simplifying the tax code, not handing away as many incentives or advantages to the other people and getting everybody to pay like some suggested, close to 28 . We would like to see that. Thats pause we are paying more than 28 . Somebody who is paying 20 , and i could name a lot of companies, theyre not going to name it if the activity brings them up to 28 . If you go for something negative neutral, they will probably squeal more than the people who are getting some benefit. I think there may be enough action. You will get some new resolution of the situation beyond just the foreign and tax rates. It will take a lot. As soon as company x taxes are going to go up a couple points on some new proposal, they will have lobby its that will stretch to baltimore. Andrew, do you have a question too . We asked the question of you on the panel over the weekend at the meeting whether berkshire would ever pursue a deal like what pfizer is doing, an inversion of some sort and you said no. I ran into a couple investors who say why wouldnt you do it. If you could take that number down to 7 billion. Or 6 billion. You couldnt come up with a rationale as to why that makes sense as a shareholder . For one, we do not come close to having 20 of our shareholders outside the United States. It might require me moving. Im not sure charlie moving would get the job done. Im being half factious with that. We do not feel unduly by federal income taxes. It does get a little annoying when we see people paying far lower tax rates. Berkshire operated under 52 tax rates. Make a lot of money under u. S. Tax rates. Warren, you know joe, was that you . Yeah. When you talk about the 20 . We talked a lot about this too. A lot of companies have been induced to move operations overseas by the tax rate. And the 20 represents the blended rate they are now paying because they have already elect reacted. Sure. Number two, ive been told the president wont go for anything even revenue neutralment he wants to raise revenue in any type of reform that comes from Corporate Taxation. You just mentioned to keep it neutral, taxing will go up on some companies and down on others. So some people will like it, some wont. That sort of implies on this level of revenues now is appropriate. I think it goes against in other words, the total number we take from our corporations, if we need keep it revenue neutral, they are not overtaxed. Who is to say right now. There is another side that would say corporations right now are competitively disadvantaged globally because they are just too high. In fact, if its not revenue neutral. Thats not necessarily a bad thing. That would bring us more in line globally. Most corporations would have lower taxes. Am i wrong . If you want to take Corporate Taxes, just tell me whose taxes you want to keep up. I dont want to keep it. Im saying we dont need to keep it neutral. It should be a lower amount. Were disadvantaged now because its too high. Joe, we do almost 200 billion worth of basis. We are certain deals that are a tax advantage for wind power and solar power. Some are. Thats why they are doing some of these things, right . Theyre doing it to pay even lower taxes. Pfizer is a very profitable company. You look at the return on net tangible assets on pfizer, its terrific. They would like to make even more by not paying taxes. They have a wonderful business playing u. S. Corporate tax rates. I dont know what is fair. If they are moving headquarters and other companies can come in here and buy our assets because they can offer more money than Domestic Companies can, none of these things seem like its the optimal way for us to be competing globally at this point. We have actually been net investing over there. But beyond that, if you look at Corporate Taxes as a percentage of gdp since world war ii to come down from 4 to 2 . In fact, under 2 , profits have been hitting record levels. If you look at the budget of the United States, individuals have paid more taxes. Korpgs have come down from 4 of gdp to 2 . No other group has come down corporations. Corporations are doing fine in the United States. We should acknowledge that and not worry about it. It does live trillions of dollars. We could bring it back and use it for infrastructure. They can bring it back now. If you let them bring it back cheap, they can bring it back. If you look at most the the number one industry with cash over there is the tech industry. There isnt a tech company i know of the Major Companies making lots of money that has the least bit of problem in financing their businesses. They would the rather borrow the money here. As apple is doing. Thats because they have loads of cash. They will borrow it here very cheap. But they do not have a need for cash for their business. They need to repurchase shares pause they are pushing them for it. They are not using that to build appliance and equipment in the United States. They are using it for shares. You said its okay to follow the tax rules. Absolutely. Not get out of taxes entirely. But if you avoid taxings by doing something differently. You have done something recently including the Washington Post shares. Absolutely. We never lobbied for a tax advantage. But in terms of the tax code we do not figure up our tax return and put 15 tip at the end like on a restaurant check. We pay what we owe. Biff paying what we owe, we have earned substantial returns on capital. We have never foregone a Capital Investment because we were here in the United States. And we have bought foreign businesses. The journal today says you know wind farms are not economically feasible. They are for the tax breaks. We have said that for years. Thats different than taking advantage of a little line here and line there. To have a whole wind farm just based on the that does not seem in spirit of the keeping of the law. U. S. Congress decided they wanted to encourage wind farms, solar and low income housing. All those actually, it was president george bush 41 that had me in the oval office to congratulate. Why make a distinction between that and what some of the u. S. Companies are doing when it comes to inversion . They can do it with an inversion. Im not saying theyre doing anything illegal at all in following the rules on inversion i would personally change that part of the law. Others might change the law about wind tax credits. Im not attacking pfizer for following the u. S. Tax law. Im sure it wasnt put in because of pfizer. But american machines, i will tell you whrrbgs its Berkshire Hathaway, pfizer or apple, are doing wonderful under this tax code. They arent having any trouble competing. You can make other arguments for changing the tax code but not those. We have a lot more with Warren Buffett. Ill send it back to you. 8 00 a. M. Eastern time, we should point out vice chair Charleston Munger and bill gates will be joining us live on the set with Warren Buffett. In addition to all of that, coming up next, we have more on the markets as the futures are trading lower. An update on pfizer. Tdd 18003452550 trading inspires your life. Tdd 18003452550 life inspires your trading. Tdd 18003452550 where others see fads. Tdd 18003452550. You see opportunities. Tdd 18003452550 at schwab, were here to help tdd 18003452550 turn inspiration into action. Tdd 18003452550 we have intuitive platforms tdd 18003452550 to help you discover whats trending. Tdd 18003452550 and seasoned market experts to help sharpen your instincts. Tdd 18003452550 so you can take charge tdd 18003452550 of your trading. Aflac, aflac, aflac [ both sigh ] ugh you told me he was good, dude. Yeah he stinks at golf. But he was great at getting my claim paid fast. How fast . Mine got paid in 4 days. Wow. Thats awesome. Is that legal . Big fat no. [ male announcer ] find out how fast aflac can pay you at aflac. Com. Check the futures right now. A quick look. Pfizer results hasnt changed anything. Down 60 points on the dow. Meanwhile, shares of pfizer at this point not doing much. Dow component reporting profits of 57 cents a share. Revenue short of estimates. 11. 4 billion versus 12 billion. And the forecast for the rest of the year pretty much in line for pfizer. Is this you . Could be. Could also be you. Were going to talk about gas. You know me and all my car collection. Your gas collection. My gas collection. Prices at the pump we should tell you are moving higher. The average price rose 3 cents the past two weeks. Its up to 3. 72. Gasoline prices have increased 12 weeks in a row, gaining 43 cents. Its about 13 since february 7th. This is total gobbly goo. Coming up, violence in ukraine is giving gold a boost. Joe had a busy weekend in washington rubbing elbows with big stars and one of the worlds most interesting men. May not be who you think. Squawk box coming back after this. Peace of mind is important when youre running a successful business. So we provide it services you can rely on. With centurylink as your trusted it partner, youll experience reliable uptime for the network and services you depend on. Multilayered Security Solutions keep your Information Safe, and secure. And responsive dedicated support meets your needs, and eases your mind. Centurylink. Your link to whats next. Chess match. Think a lot of moves. Price of gold hitting a threeweek high on increasing tension in ukraine. Clashes between police and prorussian separatists. Dozens have died in the latest round of violence and, i dont know, its always quiet right before the storm. Jets flying around over there. Fighter jets. Im anxious. But im always anxious. And thats not a good way to be. Predisposed. If you are anxious all the time, that becomes a resting its not bad then. You dont even notice. Yeah. Some people who would be apbgz and it would stop them. Paralyze them. Im not paralyzed. If you find yourself not anxious, would that make you anxious . Yes. Warren buffetts longtime partner Charlie Munger. And bill gates. Familiar name. Is that the microsoft guy . Ive heard of him. Squawks box will be right back. What is this place . Where are we . This is where we bring together reliably fast internet and the best in entertainment. We call it the x1 entertainment operating system. It looks like the future we must have encountered a temporal vortex. Further analytics are necessary. Beam us up. Thats my phone. Hey. [ female announcer ] the x1 entertainment operating system. Only from xfinity. Tv and internet together like never before. Welcome back to squawk box right here on cnbc. Andrew ross sorkin. Joe is here. Becky is in omaha. Apple has been awarded 120 million by a jury after it found samsung violated several of apps patents. General motors recalling 52,000 2014 model suv its not straight up suvs . Because of a faulty fuel gauge problem. The gauge could be inaccurate. The models affected buick enclave, Chevy Traverse and gmc acadia. Spiderman 2 tops weekend box office. Sur passing 200 million that it spent to produce that money. I think that was jamie foxx. A couple of villains. A new goblin. Right. So that will be the third goblin. The first will em defoe was a great goblin. This is the first time spidey and the girl they are married in real life. Are they date something theyve been together for a long time. I do know a lot of viewers, including mandy, wrote in happy sorkin de mayo. I dont think theyre married yet. They are rumored to be linked. Ive seen them together actually at a fedex store. They were kissing in line. In public . Yeah. Saying about a year ago. I was waiting on a package. They were waiting on a package too. At a fedex store. Sorry, becky. Sor sorry to digress. We are spending the morning cancer Berkshire Hathaway ceo Warren Buffett. I was digging around an article in the economist suggested maybe you should break up Berkshire Hathaway. It would be easier to run if it were smaller and broken into pieces. What do you think about that . There are real advantages to having it come together. One big advantage is the ability to allocate capital from businesses where it cant be used effectively. The present capital can be used. We can move it over to other areas, which have Capital Needs beyond the amount they are generating themselves. Capitalism is about capital allegation. The whole idea is putting resources in the right places. And we have the ability to look at 70 plus companies and allocate capital wherever it makes the most sense. Most are in the x, y, z business. They look at the opportunities in x, y, z. If they cant find any good ones, they may have to go to Capital Markets and incur the expense of that. We have a seamless, very efficient way of rearranging capital among businesses. They will spend 12 billion on capital this year. You and Charlie Munger are incredible capital allocators. Who are you doing to prepare your potential successors to make they are they are equally good allocating capital. We will not put a person into the job of ceo they dont think is capable. The candidates i have no worries about. Srer people good at Something Else and might not need al of tests but would not meet the Capital Allocation test and could would not meet the job. Should the successor spent time at more than within unit . Just to make sure you get a broader view of the business. You want somebody in the top position that doesnt have favorites. Doesnt have anybody to black list. That doesnt feel way more comfortable in area a than area b. But really looking at it from the berkshire shareholders and saying where can this be used best. I was just going to bring that up. You want somebody allocating capital to businesses you know. But you would go out and buy other stock. Now you will have more than one person making that decision. How does the that work . Its a big job. Theyre not the bosses. We will have a lot of money. They will not be the chief executive officer, but they will be there to help the chief executive officer in that arena. But the chief executive should think exactly like an owner. I mean, thats the whole and an owner is trying to figure out where to put the to advantage. The two individuals you have been talking about, there were several questions raised by shareholders this weekend wondering when they were going to get to hear a little bit more from todd and ted. Could they take questions down the road too . Thats not impossible. They are not publicity hounds. They like managing money. The record will be available for the shareholders to the see. But theyre not interested at all, for example, in talking about their investment ideas. Why should they be . They worked hard for them and they are not about to pass them out. Joe, Charlie Munger is here. He showed up early. Were going to put him on the set when we come right back. Excellent. Thats going to be fun. Can i tell you, hes amaze something it was inspirational. Hes sharper than anybody at this table. Still ahead, microsoft founder bill gates will join us. A member of the top 25 leaders over the past 25 years in business. Tech, the legacy of microsoft examine of course his plans to change the world. Squawk box coming right back. His personality is so magnetic he is unable to carry credit cards. Even his enemies list them as their Emergency Contact number. He never says something tastes like chicken, not even chicken. He is the most interesting man in the world. I dont always watch cmbc, but when i do the i prefer stocks to what watch and the animal orchestra. Keep watching, my friends. Having the cloud allows us to rapid prototype a lot of ideas. Being able to pay as we go is crucial for a start up. Having to fork out a lot of money up front was risky. We can launch a feature really quick, and if the feature doesnt work, we havent lost anything, and we can have something up and running in days. And this would not be possible without the cloud. We are now supporting over 25 million users each month. Does it end after youve expanded your business . . After your companys gone public . And the capitals been invested . Or when your companys bought another . Is it over after youve given back . You never stop achieving. Thats why, at barclays, our ambition is to always realize yours. We got a fair price. Ruecar. Com,. My feeling is that. Ing. And youre like. Iyou know, the salesman icomes over. , theres no buyers remorse, you know. Im happy with my purchase. Its the truth. When youre ready to buy a car, save time, save money, and never overpay. Visit truecar. Com his reputation is expanding faster than the universe. He once had an awkward moment just to see how it feels. He lives vicariously through himself. He is the most interesting man in the world. I dont always watch cnbc, but when i do i prefer stocks to watch and the animal orchestra. Keep watching, my friends. We will see. Ill show you in a couple moments. Lets look at stocks to watch. Limits investments by activist investors at 10 . And petroleum, 5 cents above estimates led by the oil and gas operations. I just want to just share. Theres a lot of people Walking Around there. This guy just happened to walk by. Like i saw him and it was i ran after him. I tripped over de niro. You didnt the even know who he was, right . I elbowed wolf blitzer to get him out of the way. There he was. That was the number one guy, i think, to actually find the guy. Do you know his name . No. How incredible that you get cast for a commercial. People were mobbing that guy. Cramer. There were some other people jonathan goldsmith, an actor. California guy. We bought modern family, as you know, on nbc. Yeah. Theres sofia. I said i never ask for a picture. People wrote in saying, oh, why sitting down. Youre saying i actually asked her how did that work . Of course i asked her. She didnt throw herself at you and said she watches squawk every morning. That was a joke. But twitter people realized she was in a chair and maybe she hadnt asked me. I have eric stone and jessie. I got both of those guys who are amazing. My daughter. We got 36 modern families on dvr right now. Then i was going to tweet this out that some guy with the greatest Business News anchor in the world. Richard sherman. You dont know that guy, do you . Hes a seattlehawk. Yes. And the joke that the president made. He said he got some advice . I dont know. I didnt hear that one. Wasnt it Richard Sherman . He grew up in compton. Went to stanford. Hes great. He is a great cornerback or defense theive youre no longer giving me a hard time for star youknowwhatting. We went out with brian steel, Corporate Communications phi. Oh. I have one more to show you. I can tell you this dress, that is what jessica was wearing right there. This is a big deal for the daily news to see her. There. Andrew, look. Same dress. She took a little flack because she had gained a little weight. Did you ask her about nick lachey . They are caput now. They are . Caput. I think tony romo might have been around too. The guy that sort of botched the entire he was pretty bad. He made stupid joke about poor jessica simpson. Like a dumb blonde joke. He was not great. 50 years ago, Charlie Munger told Warren Buffett, far better to buy a wonderful business at a wonderful price than a fair business at a wonderful price. He never minutes words. Back in a minute. Security solution to keep your Information Safe secure. Century link. Your link with whats next. Time to take care of business with century links Global Broadband network and Cloud Infrastructure. We constantly evolve to meet your needs every day of the week. We are spending the morning with berkshire or hathaway ceo Warren Buffett. Now Charlie Munger. Thank you so much for joining us. Im delighted to be here. People come every year because they want to hear the two of you on stage together. I talked to so many shareholders this weekend about it. You have been together how long being on stage . Mostly 50 years, more or less, hasnt it been, warren . Yeah. About that. Other than being a year older for all of on us, what did you learn this weekend . I think you learn something. Its starting to put a finger on it. I very seldom have an ecstatic moment. I always learn something when i listen to charlie one of the things i have a lot of fun with at the annual meeting is just getting up and hearing what charlie has to say. Do you ever talk about it in advance . Never. You two have preparation would be cheating. You have perfect comedic timing. Has it gotten better over the years . We are natural wise asses. Thats what attracted us to each other. Im serious about that too. You two met when you were 29 and charlie you were 35 . Yes. Can you tell us a little bit about that meeting. It was a dinner. Our wives were there. After about five minutes charlie was rolling on the floor laughing at his own jokes. Ive been known to do that myself. I decided not many guys like this in the world. I better hook up with him. What is it that you two share in common . What similarities do you think you have, charlie . Well, the omaha background. I think were both very intellectually curious. We both like competing in games. I asked warren wants to be remembered as and he says a teach senator who else says he wants to be remembered as a teacher. I love it. Charlie, what do you want to be remembered as . I would like to be remembered as a teacher, but i wont be. Ill be remembered as a wise ass. With the chairman and the vice chairman, how often do you talk . Way less than we used to because we know what the other thinks. Were not wasting a lot of time checking what we already know. Were like an old married couple co. We grunt at each other and know what the grunts mean. A phone conversation was fairly expensive and we were not rich. We would talk for hours a lot of days. But now we may talk once every two weeks or Something Like that. What did you do think as you were talking . It took about 10 seconds. Really . I do not find that a difficult decision. I thought he did it just right. He complained a little but not too much. I think it was just the right tone. And comments were deserved. I thought he handled it perfectly. There was a 3 billion merger haft week. Do you talk about everything that comes through . That wasnt even talked about by me. What do you mean . Warren and greg did that one. My guess is warren didnt talk about it for more than a minute or two. Thats true. I got the facts on it. I liked the deal. And i knew charlie would like it. Why waste a phone call . So thats a 3 billion acquisition. That kind of rates, as the level that you think i really need to talk this through with charlie. Usually if i talk to charlie its because im down beat and think i might be doing something dumb and he will tell me. Warren, you said over the weekend youre probably more inclined towards action than charlie. Charlie, you had a response to that. Were both action prone when it comes to the obvious. You said over the weekend hes called you something before. The abominable know man. We talked about Burlington Northern santa fe. Charlie was on board immediately. He sees the facts so fast and thinks so fast. He doesnt waste any time making arguments just for the hell out of it. I would say the quality we share were rationale. Whats something you thought would be a great idea until you talked to charlie . If you go back far enough, i called him on the pittsburgh and West Virginia railroad. This was 4 years ago. I said we have to put everything in. And he said to me, if you studied it carefully, you know all the facts, youre going to Pay Attention to it, youre foggy to put a lot of your own money in it. I said ill just shut my eyes and say no. And was he right . He was right. Thats the irritating point. If you take the batting average, hes been right a High Percentage of the time. You in california right now but you make it out every year for this thing. Whats important about coming and seeing the people at berkshire. Its a very remarkable experience to go back to your hometown every year. And as part of something as big as berkshire which keeps getting bigger and more admired as the decades go by. Its very pleasant. You two have been excellent about knowing your circles competency. Charlie, do you have any advice to anybody who is trying to figure it out themselves . Knowing my incompetency and avoiding that. I like to think of that question in reverse. He likes to invert. I want to know where i will die so i will never go there. Casting out a whole bunch of things. Charlie, honestly, for somebody who was trying to figure it out, how do you know when youre getting out over your skis . All i can say is we have a good batting average. It probably is very useful. Theres a lot of reason why the partnership works. But you have someone you respect enormously say youre really out in an area where you dont belong. He will say it. You two work so well together. When you look at a potential successor for ceo at berkshire, how do you help them along the way to make sure they find someone they can work equally well. How can they know anybody who has done very well in life that doesnt have somebody trusted to talk to . Einstein would not have been able to do what he did without people to talk to. Didnt need many but he needed some. You organize your own thoughts as you try to convince other people. Its very necessary part of operations. If you had some hermit on a mountain he wouldnt be very good. By the way, we have some of those and they arent very good. Charlie will emphasize we need the state the other guys case better than he can if possible. Thats where you think you can think for your case better. And that may be Legal Training to some extent. He ended up stating the opposite case. We will continue this in a moment. Andrew ross sorkin, back to you. A lot more to come to vice chairman Charlie Munger. Bill gates is coming up right after the break. We know were not the center of your life, but well do our best to help you connect to what is. Welcome back to a special edition of squawk box. Becky is live in omaha with special guest Warren Buffett. American business i will tell you, whether its Berkshire Hathaway, pfizer, apple, are doing wonderfully under this tax code. Joining the party this hour, Berkshire Hathaway Charlie Munger. Plus, the father of microsoft philanthropist bill gates. The third hour of squawk box starts right now. Welcome back to a special edition of squawk box. Folks, we have breaking news that is just hitting from target. Target is saying that its ceo greg sihnhafel is stepping down. He said target faced unprecedented challenges in recent months, most noticeably the massive data breach where millions of americans information was breached. And this all happened over the holiday season. Started thanksgiving, and went through early december. He says hes been focused on ensuring they emerge as a Better Company and now is the right time for new leadership. Target cfo John Mulligan will fill in until a permanent successor is found. Roxanne austin, a current member of target board of directors is the interim nonexecutive chair of the board. Both will be serving in the roles under their permanent replacements are named. The company says they have asked steinhafel to serve in an advisory position during that transition, and he has agreed. They are grateful to him for his significant contributions and notable career. Gentlemen, the news comes not only on the data breach but the stapbgz into canada thement it is something that has been a target for analysts who have said that was the wrong move. You two have an awful lot of experience when it comes to retail. A lot of happy experience. You have the longest than Department Stores and other stores. You are still on the board of directors atcostco. Yes. But i am not running it. They have had a rough 00 the last six months or so. I think the data breaches are so likely we will see more of them. I dont think the ceo is some terrible fault. I wonder if this has to do with the canadian expansion. I think we can match anybodys failures in retail. We have a real bad record. 1966 we bought a second Rate Department store at a third rate price. We found out quickly it was a fourth Rate Department store. We failed at it. Quickly. Thats true. And we failed other times. Retailing is a tough, tough business. Partly because your competitors are always attempting and very frequently successfully attempting to copy anything you do thats working. The world keeps moving. Its hard to establish a permanent mold. You have seen the giants of retailers. Over the years a lot of giants have been toppled. Most of the giants of yesteryear are gone. Target went into canada. It took a lot of money to go in there. It could be tough. Everybody is already doing business with somebody there. Your competitor is never standing still. Its always a moving target. It is a tough business. Yet here we are at the Nebraska Furniture Mart that berkshire has done well with. Nobody will be able to compete with Nebraska Furniture Mart. This store does more Home Furnishings business than store in the country. It does 3450 million annually. To achieve that kind of dominance you cant do it when competing with walmart and a whole bunch of other people. I wonder, charlie, warren, if either of you buys anything on amazon . My children buy it for me occasionally. I have never done it personally. What do you think about the amazon business model, though . Well, i think its very disruptive to everybody else. I think its a formidable model that will change america. I agree. One of the most powerful models that i have seen in a lifetime. Its being run by a fellow that has a clear view of what he wants to do and does it every day and is not hampered by what people say he should be doing. Hes focused. He has a powerful business. And satisfied customers. Thats hugely important. We had a chance to talk with warren about some of the u. S. Corporate tax codes and the new acquisitions we have seen. Pfizer reported early this morning. We talked a little bit about his plan to buy astrazeneca and use an inversion where they would move the tax domicile to the uk. It is 27 here in the United States compared to 22 . I think the Pharmacy Companies rye traoeu to get to that rate. Theyre on the way to zero. Thats the only one that will make them happy. What do you think about that whole practice, though . Berkshire has taken advantage of tax code in the past to make sure it does things in the most tax effective way . We would never take ours to zero. Getting to 22 is still more than the a lot of u. S. Companies would be paying if swraoeuzer does that inversion and goes ahead and moves the tax domicile. You talked about this before, right . Buffett clashes with munger over u. S. Corporate taxes at a meeting. Ill quote what you said. The Corporate Tax rate should be much lower when the rest of the world keeps bringing the rates down. There is some disadvantage to us if were much higher. Did you change your opinion on that recently, charlie, or do you still feel that way . There is something to say to make it lower. But going from 35 to 3 3 is not like taking it to zero by moving your pharmaceutical manufacturing to some tiny little place. I think a lot of places go ahead. I think the economy might work a little better if the Corporate Tax rate was lower. I think it would be a mistake for american corporations to get really low taxes. Youre not talking about aggregate Corporate Taxes being lower, just evening out the rate. Yes. I would like a consistent rate that everybody paid. Simpson boles talked about maybe getting Something Like latvia. Latvia . Yeah. Charlie, what is the rate in latvia, do you know . One of those single tax rate places. Its like 15 . I think its 10 but 15 flat tax on everyone else. But i think the corporate rate is 10 in lithuania. Generally speaking, i would tax consumption high and earning power of business a little lower. It just works so well in hong kong and various places. I dont think we deserve it you, but i think the would work better if we have it. I want to follow up on. An unconventional thought. We had a question about compensation. And the disclosure of combination. You made the point that many may find surprising about how the disclosure may not be a if thing. Do you want to elaborate . Well, i think envy is one of the problems. Moses said you couldnt even covet your neighbors donkey. I never have. Yeah. But other people did. And i think this race to have high compensation, because other people do, has been fermented by this. There is a natural reaction with all this disclosure as everybody wants to match the highest. I think thats a crazy race to get into. I never got on the board where somebody said r said here this guy is making less. I probably should be making less too. It doesnt happen. Theres a ratcheting effect of the salaries. Every committee is not hearing it by the third or fourth quartile. It is always the second. It is very natural to think if youre a director of the abc corp. And the ceo of xyz, our guy is just as good as his. And it goes on and on. 3r06 indication of top salaries has cost the shareholder money. Disclosure is the great disinfectant. Sunshine has crossed american is shareholders money. Youre right. Thats apec attitude of ours. But were right, just as moses was. And perhaps people in between. Were going to continue this conversation with charlie and warren. In fact, when we come back, we are adding yet another amazing Business Leader to this conversation. Microsoft founder bill gates will join us live right after this break. Our conversation will continue in just a moment. As we head to break, check out the squawk market indicator. Futures are still in the red. [ indistinct shouting ] [ indistinct shouting ] [ male announcer ] time and sales data. Splitsecond stats. [ indistinct shouting ] its so close to the options floor. [ indistinct shouting, bell dinging ]. Youll bust your brain box. All on thinkorswim from td ameritrade. Im spending too much time hiring and not enough time in my kitchen. [ female announcer ] need to hire fast . Go to ziprecruiter. Com and post your job to over 30 of the webs leading job boards with a single click; then simply select the best candidates from one easy to review list. You put up one post and the next day you have all these candidates. Makes my job a lot easier. [ female announcer ] over 100,000 businesses have already used zip recruiter and now you can use zip recruiter for free at a special site for tv viewers; go to ziprecruiter. Com offer2. At a special site for tv viewers; so ally bank really has no hthats right, no hidden fees. S . Its just that im worried about, you know, hidden things. Ok, whys that . Well uhhh. Surprise um. Well, its true. At ally there are no hidden fees. Not one. Thats nice. No hidden fees, no worries. Ally bank. Your money needs an ally. Welcome back to squawk box. A full economic agenda on top for this week starting with isn nonmanufacturing index. Thats coming this morning at 10 00 a. M. Eastern. Later in the week, the latest on the trade deficit, productivity and jobless claims. Also this week, watch out for this, fed chair janet yellen will be testifying before congress on wednesday and also on thursday. Then in the headlines, bill gates will be our guest in just a moment. Hes no longer the biggest shareholder at microsoft. Gates is now the second biggest shareholder behind former ceo steve ballmer. We will hear more from bill in just a moment. Mr. Ballmer is the top dog . Gasoline prices increased 12 weeks in a row, gaining 43 cents or 13 since february. The lowest price can be found in albuquerque. Los angeles ranked the highest. That will cost you 4. 27 a gallon. Pfizer reporting. Beating expectationings by 2 cents. 11. 4 billion. Britains Opposition Labor Party wants an assessment of the takeover of astrazeneca. They want to go what the longterm impact would have on the science and Industrial Base of that company. Astrazeneca rejected that 106 billion bid as too low. That happened on friday. Becky . Joe, thank you so much. Warren buffett, chair and ceo better shire hathaway. Bill gates is the founder of microsoft and cochair of bill and Melinda Gates foundation. He is on the board of directors here at berkshire. Thats why we have you three here today. Thank you for joining us this morning. Good to be here. When we sat down, you were talking about mongolia. What do you know about mongolia . Business stories are fascinate to go us. All the demand for minerals means mongolia is opening big new mines. They are deciding what to do with the revenues they have for that. Our friend owns 10 of the retail operations. So he was telling us how thats all working. You cant talk about specifics but how do things go . How are things led . Love fest. Are we supposed to say that . I dont care. Warren, did you make the comment over the weekend, when it comes to boards, too often they dont look for debermans. They look for cocker spaniels. At berkshire we look for shareholder oriented, business satisfy where and interested in berkshire. People have a whole bunch of different checklists. We have a group of directors that get paid virtually nothing. Their interest has to come about because they find the place interesting and in many case because they had investments. Nobody gave them shares. Its a very unusual board but a terrific board. We heard the story how you and charlie first met. How about how you and bill first met . He was forced to meet me. Its actually true. My mom was having warren over. I was maniacal about not doing anything but working at microsoft. So i agreed to come by. I actually made this mistake think that warrens view of the world was just about charts and stock volumes and not about the fundamentals of business. When we met and he asked how do you compete with ibm, how do you price your stock . Where is it going, it was fantastic. It was the most fun conversation i had ever had. It started an amazing friendship. Bills dad was he was a wonderful man. We were in the bedroom. He said, wont you boys come out and talk. So you stayed a little longer . Both sides wondered what these two groups would talk about. Had an amazing day. It was only two weeks later that i went up and warren had a group of friends talking about business and stocks. You made a comment that youre looking for frugal people. One thing i noticed is you tend to collect friends and colleagues who have all the characteristics that bill was just talking about. People who look at business and think through it. How did that happen . We, we like people who are intellectually curious. I dont see how you can wise up if you dont work on it every day. Do you read everyday . Of course. Whats something you are reading now or recently that you would recommend other people read . Emmanuel wrote a book about medical costs in america and how we go to the complex situation we have. And he makes some predictions about the future. I disagree with some of it. Its very well written. We should have more dialogue about such a critical topic. I read fair day maxwell on the electromagnetic field. What is that . A combination of scientific biography and explanation of the law of physics, particularly relating to electricity. Its just the best book of its kind i have ever read. I hugely enjoyed it. I couldnt put it down. A fabulous human achievement. And neither of the writers is a physicist. Warren . Why the light goes on when you hit the switch i couldnt understand. I had to move on. I read Tim Geithners book which will be out in a week or so. Any politician or financial supervision should read that book. Tim correctly said you will run into more panics in the future. Heres what to do. Its a very good book. He thinks we will run into more financial panics. He has no idea. In other words, next time will not be difficulty. There will be a next time. Maybe led by the same people. By the same people meaning the bank. All right. Gentlemen, if you will stay with us for just a moment. Were going to take a quick commercial bank. When we come back, much more from omaha. Warren buffett, Charlie Munger, bill gates. Squawk box will be right back. Weekdays are for rising to the challenge. Theyre the days to take care of business. When possibilities become reality. With centurylink as your trusted partner, our visionary Cloud Infrastructure and Global Broadband network free you to focus on what matters. With Custom Communications solutions and responsive, dedicated support, we constantly evolve to meet your needs. Every day of the week. Centurylink® your link to whats next. Just take a closer look. It works how you want to work. With a Fidelity Investment professional. Or managing your investments on your own. Helping you find new ways to plan for retirement. And save on taxes where you can. So you can invest in the life that you want today. Tap into the full power of your fidelity greenline. Call or come in today for a free oneonone review. Coming up, a quick rundown of this mornings top stories, including the ceo of target leaving the company. Then we have a lot more from bill gates, Charlie Munger and Warren Buffett. And tomorrow on squawk box, morgan stanley, vice chair of wealth management. The cfo of ubs, ceo of tenet health and Sir Richard Branson tomorrow 6 00 a. M. Eastern time. As we head to a quick break, u. S. Equity tpaoups. Dow up 61 points. Back in a moment. At your ford dealer think . They think about tires. And what theyve been through lately. Polar vortexes, road construction, and gaping potholes. So with all that behind you, you might want to make sure youre safe and in control. Ford technicians are ready to find the right tires for your vehicle. Get up to 120 in mailin rebates on four select tires when you use the Ford Service Credit card at the big tire event. See what the ford experts think about your tires. At your ford dealer. Welcome back to squawk box. Sysco earned 38 cents per spare. Revenue falling short. They mentioned the effects of, you bet, severe winter weather. Everyone has got an excuse. Tyson food Second Quarter profit of 60 cents. Revenue above consensus. It is satisfied with its results despite many challenges including the weather. Everybody is talking about the weather. We have news on target, becky. That news from tart that just hit in the last half hour. Greg steinhafel is stepping down. His departure comes in the wake of the massive data breach that happened late last year that exposed credit card information for millions of customers. This is coming after target expansion into can tkra fougada with ups and downs, more downs than ups. I spoke with him a few weeks after the data breach. Heres what he had to say. We are going to get to the bottom of this. We will not rest until we figure out what happened and how it happened. Clearly were accountable and were responsible. But were going to come out at the end of this a Better Company. And were going the make significant changes. Target says steinhafel is eligible for payment but will be recovered if he goes to work for certain companies. Our special guest this morning will be at the berkshire Board Meeting later today. Warren buffett, Charlie Munger, bill gates. People would die for the opportunity to sit and talk to you about business. What i would like to do is throw topics out to you. Maybe you can respond on some things. Activist investing. Bill ackman was here this weekend. I wonder what you think. Is it a good thing for america or not . Charlie . Sometimes its good. Sometimes its awful. Im afraid thats just the way it is. Bill, what about you . What do you think about it . Theres a level of discipline that shareholders in the hierarchy they should be viewing the actions of the board and management. Sometimes it seems to get focused on very shortterm things like the dividend policies as opposed to the strength of the Management Team and the longterm strategy. But shareholders having powers that are a very important part of the system. Can shares get hijacked by a shareholder who is very loud but with a small position in stock . Only if the press allows it to happen. Thousands on of corporations, some of them will be poorly run. Some of them will be run in a very selfinterested manner by the managers. Whats the direction for that . I think very often the activism, and theyre a tacting money on this basis. The money is pouring into activistrelated type of investment vehicles. The measure really is whether you get the stock in a short period of time. The best managed company i knew in the United States, capital citys was selling in the third of what it was worth. An activist might say why dont you sell off the property. An immediate bump in the stock price should not be the measure whether somebody has accomplished something successful in a corporation. But there are times when change is need indeed corporations and theyre not going to do it themselves. Andrew has a question too. We talked over the weekend. Bill ackman approach in this recent transaction between aller began and valeant. He bought shares of allergan knowing the bid was coming. I wanted to give your thoughts on the tactic from a policy perspective and what you think it means to the markets. Yeah. Well, im sure you have it well lawyered. If i bought that stock because i learned that somebody might be doing something and i learned it in certain ways, i would be in trouble. But if they joined forces, certainly a company that has in my making a bit is entitled to buy some stock. And how big a group. Maybe you could form a group of the whole Hedge Fund Community and have them all by stock for a couple of weeks. If theyre part of the group, maybe it doesnt count. I would say if that should be the case, it probably should be changed. Joe . Thanks, beck. All three of these great gentlemen i would like to just hear them opine quickly on this. Tomas pickity. Hes a french elitist academic with the hottest book on economics right now. Basically, im sure you gentlemen have read about it. It talks about capitalism and the down side in terms of income and equality. He says by definition in genders. That we have been lucky in recent years. So were revisiting what system is the most appropriate. I think about you, bill gates, and what youre able to do with everything that you a mass in your lifetime through capitalism in some respect. And certainly youre doing a lot of good with it now. In capitalism a good or a bad thing . Of course its a fantastic thing verses any other system weve tried. He is mostly talking about retained wealth. If you have high returns on capital for generations you get a disthe proportionate part of the money. If you think about the three fortunes represented here, these are first generation fortunes that show there is dynamism in the system. He makes assumptions about returns im not sure are true long term. But the direct realm any for what he is talking about is some type of estate tax. He actually comes out for a well tax which i think is hard to do. But an estate tax, which i happen to believe in is something that would reduce the phenomena that he talks about. And ive talked to warren about this time. You guys can answer too. To give all your money away beforehand, i think warren has admitted to me he thinks in the private sector it will be better used by charitable organizations. It does avoid, when you give it all away, does avoid it going to uncle sam in the end anyway. That solves the pickity problem too. Its still a generational issue. I dont mean to answer for bill. You set up a case in the sense that if i dont give it all to philanthropy i could arrange it so it was greater than this. But i could certainly create 60 that would i dynastic wealth. And if i was really concerned about dynastic wealth, as many people are, i could set it up far more than 60 . You could bequeath it all to the federal government if you thought it would be a good use of funds. Youre not going to do that . Thats a choice. But im just saying the choice is not between fiphilanthropy thats not what im saying. Government is not the best place to have capital be utilized. I agree with you on that. Okay. All right. Thats pretty good. Gentlemen, i think were going to take a very quick break here. We have more coming up after this. Yes, we do. More from omaha. Check out the futures right now which are indicated lower, down 62 points. Look at the 10year. Kind of luled into a false sense of security. Everything is fine. Yields keep coming down. announcer scottrade knows our clients trade and invest their own way. With scottrades smart text, i can quickly understand my charts, and spend more time trading. Their quick trade bar lets my account follow me online so i can react in realtime. Plus, my local scottrade office is there to help. Because they know i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Voted best Investment Services company. Welcome back to the a special edition with squawk pwofpblgts our guest this morning Warren Buffett, Charlie Munger, bill gates. Another topic i would like to hear from you on, High Frequency trading. I would love to get your opinion on High Frequency traders. Is the book right 245 lays out for michel louis that they are skimming off the top and its a fixed market . Well, of course they have an advantage cleverly obtained. It does the rest of the civilization no good at all. Functional equivalent of letting rats into a grainery. No, i dont like it. Oh. I wondered what his point was. Do you agree or disagree . Warren, bill, do you agree or disagree with charlie . It doesnt seem like its much value added because its not when you get you really need the liquidity. Its not guaranteed to be there. Im not an expert on it. But it seems like strange source of profit. Bill is right. Its not a liquidity provider. It may create more volume. But thats not the same. To the extent that it is front running, i think societe generally has been against front running. There were rules against it. That adds nothing to gdp or any real output of goods and services. On the other hand, the market isnt ready to enter the small investor they never had it so good. And High Frequency trading i dont think costs them a penny. I see bill nodding with that. Charlie, do you agree too . Somebody is paying it. Its not creating extra money. Yea. If you dont trade very often, all these fictional costs can be quite modest. If youre a frequent day trader running in and out the pweugz comminutio i th curse and the author of the book was basically right. Andrew has a question too. Related to this, one of the berkshire companies is business wire. They reached a settlement along with p. R. Newswire and a couple others with the attorney general about this idea of front i go ahead. I would like to correct that. They reached no settlement. I decided when an article appeared in the journal we always provided simultaneous distribution and we continue to provide simultaneous distribution. But we did get rid of the five High Frequency traders with no edge at the time they received things. But we got rid of them in any event. But that was not pursuant to any settlement. That was a decision made at business wire. Im glad you cleared that up. What was the settlement part then . There was no settlement. I think there was an article late in the week and cathy talked to me early in the week. After assuring total simultaneous distribution i said we dont need them. I love it. Let me ask you very quickly about the situation in ukraine. How much u time do any of you spend thinking of that . How much concern from a geopolitical risk standpoint . What the hell do i know about ukraine . Im glad im not making those decisions. Do you worry it will spill over . Of course you worry a little. A pattern that reminds you of hitler. I render myself totally in competent to judge what should be done. Either one of i want to follow up on that . We have a global economy. So when you have disputes between countries like europes dependence on russian gas you sometimes will make to make political points you will sometimes take economic pain. Its a great debate what penalty should there be to discourage more takeover behavior. And you have the Business Count with one view in talking with the politicians. I dont think it is going to get terrible. It will be high on the list of concerns right now. You get a shift in pound list. It can set other forces in motion. Nobody knows what they may be. They may be political popular conversations. You can never be sure on International Matters what will be item 2, item 3, item 4. They have their own dynamic. So its not a plus. Nobody knows how its going to turn out. Somebody put in motion it would be nice to see a rest. We will continue this conversation in a moment. Andrew . Thank you for correcting me. Similar reportings have been done on this. It wasnt part of a settlement or any type of accord. Coming up, a lot more coming up from omaha. It doesnt get better than that kind of conversation we are telling you we are watching shares of target. Chief executive Greg Steinhafel is stepping down. Cfo John Mulligan serving as interim ceo. Al for a start up. Having to fork out a lot of amoney up front was risky. We can launch a feature really quick, and if the feature doesnt work, we havent lost anything, and we can have something up and running in days. And this would not be possible without the cloud. We are now supporting over 25 million users each month. With all the opinions about stocks out there, how do you know which ones to follow . The equity summary score consolidates the ratings of up to 10 independent Research Providers into a single score thats weighted based on how accurate theyve been in the past. Im Howard Spielberg of Fidelity Investments. The equity summary score is one more innovative reason serious investors are choosing fidelity. Call or click to open your fidelity account today. At your ford dealer think . They think about tires. And what theyve been through lately. Polar vortexes, road construction, and gaping potholes. So with all that behind you, you might want to make sure youre safe and in control. Ford technicians are ready to find the right tires for your vehicle. Get up to 120 in mailin rebates on four select tires when you use the Ford Service Credit card at the big tire event. See what the ford experts think about your tires. At your ford dealer. You stand behind what you say. Theres a saying around here, around here you dont make excuses. You make commitments. And when you cant live up to them, you own up, and make it right. Some people think the kind of accountability that thrives on so many streets in this country has gone missing in the places where its needed most. But i know youll still find it when you know where to look. Today is monday today, we greet you. Treat you. Care for you. Today, you can come to Cleveland Clinic for anything, everything or just to get that thing checked out. Big, small, and yes, the best heart care in the nation. Its here everyday, for everyone. Thats the power the power, thats the power of today. Cleveland clinic. Call today, for an appointment today. Welcome back everybody some final thoughts. During the commercial break you were talking about apple and samsung. Apple winning the Court Victory i wonder what you feel about the patent laws. Now they are hugely important. I think pa tents are too easily granted now. I dont think we need as much protection as we have. The office has had a hard time keeping up with technology but should people get paid for their creations and inventions snd. There are Industries Like the drug industry that only exist because if you invent something you are allowed protection. You could talk about various improvements but the idea that innovation should be protected that should be a successful idea. I want to ask you, we have talked this morning about how you are no longer the largest shareholder of microsoft. Why is that . I have sold for over a decade the same number of shares every quarter. That plan lasts through the end of this year. I am going to retain a lot of microsoft stock, but the u. S. Treasury has done well. Many billions of dollars and you know im excited about the stuff im doing at microsoft right now. Looking at the strategies and a lot of great work going on. Yes, an amazing start and he is drawing on a broad set of people in the company to get them to rethink how microsoft can move faster and string distinguishes ourselves with office 65. You said two or three years ago that kind of changed my thinking about it. Whether we should be exporting natural gas your idea was that we should save it all. Im against exporting natural gas i dont think oil to be exported either. Im over using up our oil and im by myself on this i feel very lonely. Why do you think we shouldnt export it . I feel it is precious and like the topsoil of iowa. We dont want it to go away too fast. I have Old Fashioned ideas that intelligent responsible people are suffering now to make later better. I dont like making today great by making later worse. If i were in charge of making the next 500 years, and i want the ability to produce energy in a way that would take care of national defense. I would not want to be dependant in the rest of the world in that respect. But if otherwise i could use up as an important item to the planet as energy and use the other guys and have the responsibility for hundreds of years i would use the other guys and trade them little pieces of paper for them. But i would want to have enough to take care of national defense. Let me ask all three of you. You are investors who spend a lot of times doing all three. Does that concern the three of you or are things looking expensive at these levels . You know so you have to have an opinion about Interest Rates to be an interest vestinves inv historical measures yes, but Interest Rates were different in most of those time periods. Have you been surprised that rates have stayed so low . The Central Banks are making sure that is the case. They are trying to stimulate these economies. The fact that it requires the gas ped al to the floor is amazing and a scary thing. What do you think . I think under what bill gross calls the new normal common stocks may not cost in the future as they did in the last few years. So. Warren how about you . The option is i thinking it is clear to own equities. I dont think they are in crazy territory. But most of the time, stocks have been in the zone or reasonable over my life time. I think they are in the zone now and you said to me they are going to have to be long the 30 year bond and short for advice v vice versa. Thank you for joining us. Right now it is time for squawk on the street. Good monday morning. Welcome