Transcripts For CNBC Squawk Box 20160502

Youre looking at the cac, and the dax up as well. Lets take a look at crude before we get to merger monday or unmerger monday. The wti trading at 4 45. 63. Halliburton and baker hughes scrapping a deal, following opposition from european and u. S. Antitrust regulators. It would have combined the second and Third Largest Oil Services Company and it raised concern it would result in higher prices. Last month, the Justice Department filed a law suit to stop the deal. And as a result, halliburtons going to pay baker hughes a 3. 5 billion breakup fee. I guess you could argue both sides of this, andrew. We know events, its already happening, 7 increase in the price of oil back to h45. The industry will come back, and at that time you have a powerful anticompetitive. Potentially. But in the meantime, it obviously made a lot of sense for both companies to try to pool their resources in such a tough period. And i just wonder, you know, its a fine line to draw, depending on whos president and whether they stack the deck to antiemergency antimerger. 36 billion in deals that have been scrapped, you look at pfizer and allergan. Clinton, it was said there was no teeth in antitrust and they let everything happen. Then theres been a lot it started in the 80s. Now its come back. Right. Do you think that this should have gone through . Or it shouldnt . I mean, in the world where you want us to remain competitive globally, im mo am not convinc. Like staples. Xm sirius, how long that took with pandora and all that other stuff . Really, we had to look that close at xm sirius . Regulators, if they didnt do anything, they wouldnt, you know, they couldnt even justify their jobs, right . I mean, theyre there to find things to block, are they not . Hopefully more than that. Hopefully theyre supposed to be doing we say the european regulators also agreed with this. Thats not a high bar for europe to decide. Its a lower bar. They dont even talk about how its going to influence consumers. They talk about whether there will be job losses. The this is still me. Im fine. Marissa meyer stands to make 55 million if she leaves the company. 55 plus . She had some restrictive stock that vested. So shes made some money already. I thought she had already taken whether she sold the restricted stock shed already made 100. Lets talk 155. Shes done very well for herself. Less so for everybody else. But fine for herself. Thats, you know, its a great country. Details coming in from yahoo, meyers entitled to severance benefits if she is terminated without cause or if theres a change in control. Yahoo is down 14 over the last year. Right now, lets get to becky quick in omaha with our news. Im really excited about warren. But when i saw it in the prompter that it was a buffet monday, i was looking around, and then i saw it was two ts. Looking for the food. And andrew came back, no sees candy, that would have melted. No dairy queen. Ill send him some dairy queen coupons. You just got an offer. Ill send some dairy queen coupons to joe. You might even share them with your kids. The last thing we talked about, you gave me that great offer where if i got every final four pick all the way to the very end that youd give me like 100,000, which is absolutely impossible. It would be easier to win, even if you put all the powerball lotteries together. Sore loser, sore loser. It was all in to the sweet 16, joe. And you are a sore loser. I am. I had three teams in the sweet 16 when it was all said and done. Thanks to warren. I had a lot of stuff to ask him, becky, but im going to let you spearhead this whole thing. Thanks so much for being here with us today. I enjoy it. Thank you. Youre coming off a big weekend, a long weekend, and this was the 51st shareholders meeting. Whats your take away from the meeting . What did you think about how things went . Everything went well. You know, we had this speeshment with yahoo, streaming it. Im a guy when the telephone rings, im not sure what to pick up. Im a little bit of a techno phon phobe. It worked like a charm and i thank yahoo for that. There were expectations that as a result, pour the first time people wouldnt have to be here that attendance would be down. You said it was down slightly. My best guess is that we had an alltime record last year, and it was up quite a bit last year, but i think we more or less matched the year before, so i would say we were down close to 10 , probably around 40,000 i think. We were in the mid40s last year. But it worked out well. And a number of our companies, sales records, even though the attendance was down. These are the companies that set up booths on the floor so that shareholders can come around . Or are you talking about that and the furniture mart. Were talking about both. Furniture mart on saturday hit 9. 3 million in one day. And when any kind of a store does 9. 3 million in a day, thats a lot of business. So that tells you a little bit about the people who were here. There were a lot of headlines that came out of the meeting, and id like to talk to you about some of those, but before we do, maybe we can talk about some of the headlines that joe and andrew were mentioning. We saw that the nikkei was down 3. 1 overnight. Thats in large part because the yen has soared. Its around 106 versus 111 when the bank of japan decided not to add to additional negative Interest Rates. And i just wonder what you think when you see moves like this, when you see Central Banks getting involved and currencies jumping around so rapidly. Makes me realize how little i know. But its not, its not a factor for burkshire. There was a period maybe close to ten years ago when we had some major currency revisions. Now we have exposure, we do business so much all over the world that i dont really know whether its good or bad for us. Because we have lost reserves for insurance that are payable, euros, pounds, yen, and we have some foreign currencies investments and we own stock in companies likie isbm and coke tt do business abroad. So ive given up when you talk about currencies to determine whether im richer or poorer. The point was made on twitter that a stronger yen is great news for a lot of u. S. Companies that are looking to export. Thats something that maybe we wouldnt have anticipated at this point, given the stance from the boj and our stance at the fed. Its one of the reasons i thought the fed would have trouble a year ago in terms of raising rates, because a stronger dollar hurts the exporters, and a weaker dollar, which means a stronger yen or whatever it may be, i mean, that helps, that helps exports, no question about it. We, like you said, you realize how much you dont know when you sigh cross currencies, theres just a million of them. You must have spent a lot of time thinking about what Central Banks are doing around the globe because it has a huge impact. Its a fascinating movie to watch. I dont try to make money off the movie, but what we have seen in the last seven years, and i think i have, very, very few people would have dreamt in 2009 that we would have this duration of low rates and have people still expecting low rates after the seven years or so were up. No, its a different world. And its certainly a different world when you have a lot of money in euros, as we do, and youre better off putting it under your mattress than in a bank. Theres nothing you can do about that with some of the Reinsurance Companies with the insurance companies, right . No, there might be two things we could do. I think they were talking about converting a lot of shortterm funds to actual currency. And sticking it in a vault, but we havent gotten there yet. There could be a point where youd really want to start withdrawing currency. That would be an interesting point, if currency in a bank is worth less than currency in your hands or a mattress, that could produce something in the way of behavior that nobodys ever anticipated. Youre talking about a potential run on banks, essentially . Well, if the deposits arent doing anything there, and, and they charge you for having them there. You know, i might contemplate taking them out. I dont know exact id have to hide them somewhere where my wife didnt now where they were. When you talk about that, you think about burkshires big position in some of the financials like a bank of america or wells fargo. Does that change your opinion or the financials . It makes, it squeezes their earnings, but we dont buy them based on what we think theyre going to earn next month or next year. Theyre actually earning pretty good money as it is. And reserve requirements are probably a more important factor almost than low rates, but no, its a factor in burkshires earning power. We have close to 60 billion thats out, invested in a quarter of a percent or less. You know, at one point, on 60 billion, 600 million a year. If we were getting 3 or 4 on that money, thats a couple billion dollars to us. You notice it. Do you still through the fed is doing the right thing by not raising rates. I think generally, theyve done the right thing. I think that our recovery since, since october of 2008, i think that policy in the United States by both the Bush Administration in the first few months and the Obama Administration subsequently, i think its been very good. People can always look back and say you know, if youd done this or that, but a lot of those t s thiss and thats, our country has recovered from what was a, it wasnt a normal recession like wed have post world war ii. So i really give a lot of credit to the people who were there earlier and that are there now to follow a very wise policy. So at the federal rae seserv you think think are right in that they at the are paying a lot more attention to whats happening outside of the United States to whats happening inside the United States. Effectively the rein for staying at lower rates is because of what the bank of japan and the ecb are doing. When you look at unemployment in this country, it is not something that would match up with what we are seeing, why we are seeing incredibly low Interest Rates. If things were different in europe and japan, we would be polling different policies here. How much different . I dont know. But you have to be affected if your account is held by what is happening in europe and japan. You do not, if we had rates that were dramatically higher than the japanese rates or the european rate, wed be in even more uncharted territory than we are now. Is that just a reflection of a new world order, of a more globalized world and were never going back to the way we used to look at things 20 or 30 years ago . I dont know. But weve always had to take into account major other countries or an entire continent in the case of europe. Weve had to take that into account, but its way more top of mind with the regulators and policymakers now than it would have been 15 or 20 years ago. Theyre more worried about they see things happen that they didnt think about happening and theyre more worried about having to do something that looks quite novel. So i would think that the fed, if they were plotting scenarios for having 4 rates here when there are negative rates somewhere or another they wouldnt know the answer, they wouldnt want to find out the answer, either. Lets talk about the economy here and the jobs outlook, because joe just pointed out, this friday is a jobs friday. Were going to get unemployment numbers again. Weve been doing fairly well if you believe the official numbers and see where things are headed. What do you think, just from your perch and what you can see of the economy . Well, you know, our employment goes up a little bit. All the time. Not in every area. Our employment in the railroad is down over 4,000 people. Because of efficiencies or because of the lower rail car loads . Just because of the fact theres not much traffic moving. And those cuts come pretty fast. I mean, when the trains quit moving or they dont have as many cars, youve got to make your adjustments quickly. So every railroad is down on employment and since were the largest in terms of revenue, we were, we probably were up at 48,000, and were probably somewhere around 43,000 now. But, most of our businesses would be expanding in numbers. To a modest degree. But a town like omaha has 3 unemployment. I mean, we are, this town is feeling its prosperous, generally, as it felt during any period in recent years. Beyond omaha, though, when we talked to you last week about the economy, things that you said werent very reassuring, that it does feel like a 0. 5 gdp economy to you. And that doesnt sound all that optimistic, at least for the near term. Were not looking at a world, though, where i think you expect the u. S. Economy to grow at. 5 . And theres one thing that many people dont understand about the gdp figures. Maybe i dont understand it, but my understanding is that theyre sequential figures. So you take the change from one quarter to another and multiply by four. So if youre off a tenet on t ee seasonal adjustment it becomes a. 4 figure. So gdp figures are inherently a little more suspect in terms of being precise than, than yearoveryear figures. But that doesnt, that doesnt negate the fact that the businesses, the business is slow. Its not negative, but its slow. And i just talked to a guy about furniture. He was at the furniture store, and hes affected by whats going on in the oil business. And our we have 130,000 tank cars. They dont all carry crude oil. But we had huge backlogs on those. Now were getting them back. Our re lealeasing rate has dro. Which brings us to the high oil prices. I hate to say that 45 is a high rate. But swings like that, is it damaging to the economy to see a big drop in a very quick succession and then a very quick pickup. Although were back to just 45 again. Is it bad for the economy to see these swings . Would it be better to have a more stable price . The whole economy, were oil importer. Mmhm. If the price of oil is less, its beneficial to us, but it hurts all kinds of industry, lots of people and lots of specific geographies. But if the price of bananas drops, the price of coffee drops, its net good for the United States, although it has plenty of pockets of places where it hurts people who are in those businessesen but anything youre a net importer of, youre better off getting cheap. All right. Were going to take a quick break. I would send it back to the guys. But joe, and andrew, when we come back, well have a lot more to talk about with warren, maybe some of his top holdings like American Express, ibm, cocacola. Well get into those things. Coming up at 8 00 a. M. , charl monger and bill gates. Thank you. Well continue in just a minute. But when we come back, we have the top stories, including the look of a man who is claiming to be creator of bitcoin. Before we head to a break, lets take a look at currency markets. Were not going to know you the price of bitcoin just yet. Skauk box returns in just a moment show me top new artist. Ah, ha ha. Show me top male artist. My whole belieber fan group. Its not a competition, but if it was i won. Xfinity x1 lets you access the greatest library of Billboard Music awards moments, simply by using your voice. The Billboard Music awards, live sunday may 22nd, 8 5 pacific, only on abc. Welcome back to squawk box. Puerto rico will not make a debt payment today. The move comes after island officials were unable to negotiate a settlement that would have avoided the default. Puerto ricos governor says his government couldnt make todays payment without sacrificing basic necessities like keeping schools open and Public Hospitals open. Okay, new this morning, the mystery may be over. An australian entrepreneur named craig wright says he is the creator of bitcoin. He provided technical proof to back up the claim that he is the creator. In an interview with the bbc, he said the medias hunt for the bitcoin creator had hurt people he cared about, and thats why he came forward. I want to work. I want to keep doing what im doing, and thats what im going to do. And i dont work and invent and write papers and code by coming in front of tvs. I dont want money. I dont want fame, i dont want adoration. I just want to be left alone. Wright staid if he waid if h awards he would not accept one cent. He will never do her to intanot interview again he says. There have been articles about him for quite some time that he was potentially the guy, but nobody really knew. There were emails that people found. Remember when news week ran that cover story. Yeah. The reporter. You remember that. Got it wrong. It was somebody in japan. Somebody who says he doesnt want adoration, is he worried hes going to be adored . Theres a community in the Tech Community who think this is brilliant. I dont think either one of us really want adoration, as much as it tries to head our way, we push it off. We do, right . In general, we dont want that. Coming up, leave it there, leave it where you are, viewers. Thats just a weird thing to say. I dont want adoration. I dont want adores. I bet you got some this weekend. You had to put your hand up. Coming up, the white house. But its close. This lady told me about what goes on i always say, you cant walk a minute out there. Becky, too. Goodness gracious. Oh, really . Burkshire, yes. Kendall jenner or was it kylie jenner . Theyre everywhere. My wife was there this year, and she says theres only two places this happens. Welcome back to squawk box. First in business worldwide, u. S. Equity futures at this hour, a bit of a mixed picture. But well call the dow up 17 points. And the s p looking to open up about 2 pointispoints. Lets get back to becky in omaha with our newsmaker. We are with Warren Buffett, the chairman and ceo of Berkshire Hathaway. About who,040,000 people were h for about six hours, you guys were on stage taking questions, a long time i remember because i did have to go to the bathroom. Lets talk about some of the issues that came up at the Shareholder Meeting. There were some issues about the top holdings. People are always curious to hear more. One of the questions was about American Express, whether the company is going to be valuable. There are all kinds of changes happening in this industry. And i just wonder what you think about American Express, if you still have the same level of confidence in it. Well, i do, but theres no question that the whole area of payments is subject to attack by all kinds of people. And theyre very smart people. Theyre hightech people. And theyre, theyre trying to figure out faster, cheaper, better ways of handling payments. And American Express, with that being a, their business, is not only under attack now but will be under attack as far as the eye can see, but they have a very strong franchise, too. And well see how it plays out the losing the costco account was a significant eyeioweyitem, shnault made the decision, and volume continues and figures are extremely good. The companys buying in stock at the rate of 6 per year, which i love. If we have a 15 in the company and started the year by not laying out a dime and by the end of the year we had almost a 16 interest. Weigh think its a wonderful business, but its not a business thats competition free at all nor will it ever be. On the stock buyback aspect, thats another thing you talked about over the weekend in terms of berkshire shares. You have a very clear formula that you lay out for anybody to say that we will buyback shares at this point. And people know that, and they get that, but you also made the point that with the exception of jamie diamond, you dont see a lot of companies and ceos that are looking at things and trying to evaluate their stock and really look at their valuation before they choose to buyback. Just because American Express is buying back 6 of its shares a year, thats great, assuming the stock actually goes up. If it goes down, thats not such a good bargain. Its great as long as its worth more than theyre paying. If it goes down, thats better in terms of buying more shares, but theyve got to be buying it for less than its worth. I believe they are buying it for less than its worth, but thats the key. And its true that hundreds of companies, maybe thousands of Companies Announce buyback plans every year. And if they were going to buy the xyz company, theyd say ill buy it at 40 per share, but i wont pay 50. They have in mind a limit as to what theyll pay for any business but their own. And its become fashionable to repurchase shares. Base they really like the idea that they think wall street will like it. They think it props the price. Ive been in boardrooms where theyve discussed repurchase of shares and youve very seldom heard them talk about it in relation to what they regard the Intrinsic Value of the business s the only reason to buy stock is to buy it for less than its worth and you buy a company for less than you think its worth and you buy stock that is part of a company for less than its worth and you read the next hufrpd releases and i doubt if you see one that has a word about when its attractive and when its unattractive. We think its attractive at a formula that we lay out, and we dont think its attractive at a different price, so we do it when we think its attractive. I want to ask one quick followup on American Express before we move on. The deal with costco. Ken chenault made the decision it was not worth sticking with it. Do you agree with the decision . I wasnt involved in the negotiations at all. I was aware of what the math was. And of course theyd lost it in canada earlier. Because they couldnt keep up appearance. And i concur entirely with them walking away. You have to be able to walk away from an acquisition. You have to be able to walk away from a business deal. It may be very tough sometimes, but if you arent willing to walk away, youre going to get pushed around pretty dramatically. And costco was a very, very, very, very valuable cobrand to have for American Express, but that value wasnt limitless, and well see how the new acquirer does with it and how American Express retains those costco customers. They did pretty well in canada, but that was a different situation than u. S. Charlie is on the board, well ask for his opinion. Lets get to andrew. He has a question, too. Hey, guys, this is a question regardi regarding amex. The shareholder noted that it has underperformed on a one, three, five and tenyear period. And the question asked was under what conditions would you decide to walk away . What is it that you have to see where you decide, you know what, i think this is going in the wrong direction . Well, i certainly wouldnt decide based on how the stock price behaved. I was on this program in march of 2009, and at that time the stock was 11 or 12, and i remember joe asking me why i didnt buy more of it. It was because the Bank Holding Company prohibited us from buying more. Fortunately, the company kept buying in stock, so i think our interest back then was 11 or 1 . N 12 . And now its up to 16 and we have a much more valuable company. It goes up a lot, it could get to where we thought it was selling for a lot more than it was worth and that we can find something else. But if we like the company, we like the stock price to go down. Because if American Express is going to spend, what, say,6 of maybe 3 billion or 4 billion in stock, the more shares they get for it the better. But we look at the business. And in the business you will see that the number of cards is growing at a decent rate. The amount spent per card is far, far, far higher than visa or Master Charge keeps growing. The credit metrics are terrific. You know, the expansion in merchants is terrific. So i feel good about it. Hey, warren, real quick i recognize go ahead. What are your other shareholders mentioned, this investment is clearly still in the black. Its a big moneymaker. Do taxes, dot Tax Implications of a Capital Gains weigh on you at all in terms of whether you would stay with a company, even with a company you thought was potentially challenged for a bit . Well, yeah, sure. Taxes enter into the decision as to whether to sell a and buy b. I mean, if you sell a and youve got no tax basis on it at all, you pay a 35 tax at the corporate level, far higher than at the individual level. So if we were to sell our cocacola for example, its almost all profit, so we would have roughly 65 cent dollars to buy anything else, and that means the case for switching has to be more compelling. We still do it. We sell stocks with very substantial Capital Gains taxes involved. But its obviously a factor. Lets talk about that. Because, look, ive actually had questions come in to me from people this weekend, too, suggesting if you look at American Express. If you look at cocacola, if you look at ibm at this point, are these positions that you have some affinity for and companies that you have this legacy with that you would never sell, is that, is that there are not things that i would never sell, no. We would not sell businesses except fort reasons that we lay out in our economic principles. But we want anybody who buys berkshire to understand how we think, so we have a section in the back which ive run for decades called the economic principles of Berkshire Hathaway. And it says that we will not sell controlled businesses unless they either have major labor problems or they promise to eat up cash. Those are controlled businesses. Were talking about companies where you may be a negative shareholder but not a controlling. In terms of companies where were a shareholder but not a Controlling Shareholder there isnt anything in there that says about whether we will buy or sell. Will it pain you to sell American Express . Would it pain you to sell cocacola . No, i probably, if that circumstance presented itself, itself, id probably enjoy it because there would be something id do better with the money. You stay with these stocks with the position that these are the best places for your money. Bear in mind moving around billions of dollars is not easy for us. Its not something we make if we think theres a 1 differential or a 3 differential, so theres two different factors that push toward staying in the same placement but if you ask me whether i would feel a pain in the heart, you know, like the girl ive been pursuing for years left me or anything like that. No. In terms of your feelings about these huge positions, some of berkshires biggest positions and investments, do you know if todd and ted share your thoughts on these companies . These are the two that youve tapped to really take over investments, theyre each running about 9 billion in berkshire money. You dont advise them on what stocks to buy. But have you talked to them about these big berkshire positions, and do they agree with you on how these stocks are doing . We dont talk we talk some when there are developments. We go to lunch and talk a little bit, but they dont regard those stocks as their responsibility. But if you were to ask me if i wasnt here today, would they feel that they would want these same big chunks of four or five companies, im sure the answer is no. I dont know which ones, theyd look at the situation at the time. But those prices look at their alternative choices, but its very unlikely they would come up with the same proportions. Its unlikely charlie would. Well, fortunately, charlies going to be here a little later. Hed probably sell them all and buy costco. Did you talk to charlie before you bought ibm . Yeah. Yeah. So of got to at least be okay, go ahead. When you, and you get anything short of ha screa scre no, its okay from charlie. Well send it back to you in the studio right now. Thank you for that, becky, and thank you warren. Well have much more from Warren Buffett in just a minute, more stories including a warning from l regulators on deutsch badges. Everhas a number. Olicy but not every Insurance Company understands the life behind it. 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You know its may, you know what that means . The bulk of the quarter ends in march. Right. Most companies do april. Its may and were supposed to go away. Overall, but in terms of, the earnings thing is not in the rear view mirror yet. I dont know if youd characterize it as totally awesome. It kind of matches the gdp number. Then weve got the employment number which is much better than all the others, and well talk more with warren about that. I thought he said some interesting things about the flaws in the gdp and using that as the ultimate and then he points that business is slow. Its always going to be like this globally, though. Its really different this time, never coming back. I want to ask him that question. But recapping todays top corporate story, halliburton and baker hughes are strapping their 28 billion merger. Following opposition from regulators in the eu and the u. S. It raised concerns that it would have resulted in higher prices in that sector. Last month, the Justice Department filed a lawsuit to stop the deal, and halliburton will pay baker hughes a 3. 5 billion breakup fee. Is that the number . I think thats number. Thats a weird notion. You do that to get the prey to concede to agree to it. But then its out of your control, and you can get yeah. You can get smacked for that. Thats the cost of doing it. And by the way, if youre the board, you needed that. That was your protection. But it would hurt if you were halliburton. On the other side, yes. 3. 5 billion. We dont have a breakup fee. We dont . Not the two of us. I was told there was a breakup fee. I want to get paid if theres ever some kind of rift or something. I thought we already had. 3. 5 billion. A prenup . What about aa postnup . Financial conduct authority has ordered a separate independent review into deutsche bank. Were going to get back to becky quick and Warren Buffett. Youre watching squawk box. Were back in a moment. Ay, so yr banks app. Now what . 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But investing isnt about achieving average. Its about achieving goals. And invesco believes doing that today requires the art and expertise of highconviction investing. Translation . Its time to bench the benchmarks. From icy ocean waters. To your wildckitchen counter. Mon. When you cook with incredible ingredients. You make incredible meals. Get your first two meals free at blueapron. Com cook. It will be unless we get fiscal stimulus. Its not falling apart in any way, shape, or form, either. You absolutely need to stimulate this economy. I dont think our companies are doing well at all. That can only be evaluated in relation to future income producing capabilities. And the countrys income producing capabilities have never been larger. Welcome back to squawk b box, everybody, were live in omaha, nebraska with warren buffet fresh off his annual Shareholder Meeting. About 40,000 people came to town. Thank you for being here. Im enjoying it. Youve made a lot of headlines. Today in the wall street journal on c 1, the lead story about how you down played the impact of the election. There are so many wondering your thoughts on the election. Youve seen a lot of elections. What do you think about what weve seen to date in this current cycle . Well, basically the election is enormously important, you know, its important in terms of the world, but if you ask me whether electing the wrong president can permanently damage the u. S. Economy, the answer is no. I mean, weve had 44 president s so far. This country will move forward regardless. Theres no need to make America Great again. Its greater than its ever been at this point. Its going to become ever greater. It works in a way that blows the mind. The 20th century. The dow went from 16 to 11,400 and we had two world wars and a Great Depression. Were just starting. Think about what your life was like 20 or 25 years ago compared to now. Thats going to keep going. No one person as president it makes a big difference who is president , but it doesnt its not going to change whether america moves forward. Your children will live better than you if we elect three bad president s in a row. I care about who is president. The cycle itself, i think its been interesting to watch. Both the republican and Democratic Party had trouble with people looking for outsiders. They dont seem to trust the establishment or like the establishment, at this point. Lets point out vise bli in this primary season. Yeah. Ive never seen it like this in both parties. You have Bernie Sanders come from 3 to close to 50 . Seen donald trump come from nowhere with no political background, and people are now its a primary voting. You bring out a certain portion of the electorate or primary voting. Youre seeing people say very loudly that they dont like what is happening in congress, they dont like what is happening in med media, they dont like what is happening in their job. Whatever it may be. Why do you think thats happening. Why do so many people feel so disaffected . Bad things certainly happened to them in 2008 and 2009. Nothing is more sacred to most people than their home. And millions and millions of people had trouble with their home. They had their visions shattered about their home. So their most precious asset, in many cases, was taken from them or they twooped worries about it they didnt have earlier. And then they saw a stock market tank, and then they saw no one go to jail and they saw wall street continue and rich people continue to get much richer. The forbes 400 has alltime record. All of those factors and probably many others play into people feeling that even though america is doing well, they arent doing as well as they should. And as a result they believe the system is rigged against them. Are they right . Theyve heard that term the system being rigged against them. They feel something is against them. Theyre decent citizens. They work hard every day, in many cases the husband and wife work hard every day. Theyre raising their kid. They see other people getting ahead much faster than they are. They look at the prosperity around them and say why cant i as a decent citizens doing my part for my community and kids why cant i rise a bit, too . We have to take a quick break. When we come back, well have more from our special guest Warren Buffett. Later this morning well be joined join ed charlie hmong munger. Hour with the oracle of omaha. Our country has recovered quite substantially, i mean, it was not like a normal recession that we had. Warren buffet fresh off his annual Shareholder Meeting. His thoughts on yahoo amazon, and walmart. Plus, his call on earnings season. Thats straight ahead. Breaking this morning ha halliburton and baker cruise. More on the deal breaker minutes away. A retail name that warren said could be double over the next three years. Their bullish call is straight ahead. The second hour of squawk box begins right now. Live from the beating heart of business. New york city. This is squawk box. Welcome back to squawk box on cnbc. Im joe along with andrew. Becky is in omaha with warren buffet. As you can see, hopefully theyre watching at 6 00 a. M. I would be. Fresh off the annual Shareholder Meeting over the weekend. Here is a look at the futures which have turned positive. After not a great week. The dow up about 27 points. Up 3. A 5 on the s p and the nasdaq up. Just shy of 1300. It hasnt been there in a long time. We talked to our friend warren. We can. Not a fan. Lets get you caught on the quick headlines before we get to omaha. Hall beureauton and baker hughe calling off the merger. Hall burrton will pay a break up fee. The first economic reports of may coming out at 10 00 a. M. Well get a carnival cruz ship departed on the first kroouds from the u. S. To miami will arrive later. The first cruise from u. S. To miami. I think its that wrong. First cruise of miami to cuba. Thats what were talking about. I think so, too. I got a little confused. Yeah. Yeah. I wanted to point that out. So anybody listening would say thats what it said but i dont think thats what you meant. You know when youre reading that you have to think about the spirit versus never relax. Never relax. Okay. In the meantime, were going to relax a little bit and head back to omaha, nebraska. Thats where we find becky quick this morning along with warren buffet fresh off Berkshire Hathaway annual meeting. Thank you, again. Warren, lets Start Talking more about the things that happened other the weekend. One of the big topics that came up, questions from shareholders was the issue of valient. Charlie munger questioned their business model. You had a few thoughts about it. In the b section of the wall street journal on the front page theres a story about how the ceo was a key horse on the pricing. One of the huge issues was valeant jacked up prices by a few hundred percent. That was coming from the top michael pearson. What do you think about the company . I would be amazed if it didnt come straight from the top. Pearson, you know, ive never met him, but he certainly seemed like the sort of person who forged all important policies of the company, and it was an important policy to jack up prices dramatically. Unbelievably, almost, for certain drugs that people really had no substantiative for. And we had with berkshire over the Previous Year to valeant was a subject of founderzation, we had at least two large holders urging us to buy and part of the pitch was essentially what they could do with the pricing of products they bought from other places. Two holders of valeant, not two holders of berkshire. Two holders of valeant. If you listen, which i did, you had senator collins and senator mccaskill, and senator warren zero in on the policy. There wasnt any defense. For awhile there was a little defense about how they contributed a billion dollars or more to patient subsidizes for the copay, but clearly that was done for reasons that were dramatically in valeant so they can jack up the prices and the copay didnt stop the prescription of a more or the people buying them and they ended up netting far, far, far more money after waiving the patient fees. The whole system needed a looking at. Charlie called it a sewer. Is that a step too far . He uses different words than i do. But i would say this, i dont think you would want your son to grow up and run a company in the manner that valeant was run. In terms of the valeant shareholders who were pushing you to take an active stake, but there were letters released in the wall street journal earlier from bill akman suggesting that georgiepollo. Yeah. I think that may have been a mistake. I mean, it was a mistake to say he had bought it. You know, for all i know somebody was saying we bought it. It was a desire on the part of certain holders to bring in other validating holders, and i think maybe thats where they came from. I dont know. I saw bill akman this weekend. Hes been coming for a long time. A long, long time. Yeah. Have you talked with him at all about this . Not recently. Not recently. But hes talked to me about valeant. Hes also compared hes been compared to an next Berkshire Hathaway. There was a magazine cover not too long ago that laid him out as potentially the next warren buffet. What do you think about comparisons like that . Thats what the media does. Were good at that, arent we. Pretty good, yeah. Again, charlie is here a little later. We can ask him what he thinks about the issues. I dont think youll have any trouble getting a reply. Charlie, it should be noted that charlie runs a hospital and has for decades. Hes had more contact with this, and far more knowledge about it than i do. Lets talk about hedge funds in general. You spent a big chunk of the meeting arguing against investments and hedge funds in general. You werent laying out anybody in particular but saying active investing versus passive investing does not always lead to better results. If there are high fees it leads to worst results. Active investment is certain to lead to worse than average results. If you divide to make it simple and half of them never make a change in the holdings. Nay hold half of all america and sit there forever. What is the result going to be . Average. Right. It cant be anybody else if they own half of everything. If that half is average and do nothing and you have another half that is active, their gross results have to be average since the other half is average, and then what they get is way less because they pay the huge fee. I have a bet, for example, against hedge fund. Part of the reason im winning is because a significant part of the original capital of what the hedge funds ended up in the managers pockets even though they underperformed an index fund. And its a very interesting thing. Investment manager as a group produce a negative result compared to a passive. An on stregs does a better job of delivering my wifes baby than i can do. A dentist does a better job of taking out teeth, a plumber does a better job with the toilet than i can do. In every field the professional brings something to a party. The professionals as a group bring a negative result to the clientele. Thats an interesting phenomena to live with. If you do something where your expectancy is to hurt your customer. Because there are so many bad people in the industry . Not the least. People would say they would do even worse on their own. They would if they did a lot of trading. They dont need to do a lot of trading. I have a farm and somebody told me to buy farms and turn them over, i would have a way worse result than sitting with the one farm i have. You can say if im going to trade farms every year im better off to have an advisor. Thats not my option. Anything that adds to cost without improving as a results means a worse result for the client. It is interesting to me that you have tens of thousands, hundreds of thousands of people in the business and you have all kinds of media devoted to the subject, everything else, and net they are addressing a group who anning a great because of the expenses involved are going to do worse than if they bought the average and sat for the next 50 years. I know joe an andrew have questions. Joe, you wanted to talk about cocacola. Maybe we need a longer conversation about coke. I think andrew has a quick one. We have to go to break again. You want to stay on the subject. Related to this, warren, you read all the filings that have come out and you talk about professional investors. With the 13 x come out, is there any particular investor or anybody you actually rush to look at those and say i want to know what theyre holding and not holding and why . Yeah, when i was 20 years old. You had to there was no internet to get the material from or anything. The first thing i did, only reported twice a year, i wrote and got these copies and they did copies in a crumby way then. They waited a week or two. I got the Graham Newman portfolio immediately because i was interested to know what they were buying and selling. There were a couple of others, as well. Anybody today that you rush out to try to print out the filin filings . I want to see what bill ackerman is holding . Not really. Maybe for curiosity reasons. It would never lead me to make an Investment Decision of any kind. Sometimes, you know, ill have a friend and ill look and see what theyre doing. It does not lead to an Investment Decision. Thats very telling. Thats great. Who do you admire that manages money . Ben graham was somebody that but after him its me. And i look at what im buying. I still like to know what ben is thinking. Exactly. Hes been dead about 40 years but is that a does dairy queen have a book where you can go through and see the different are you going to send me like three coupons. Is there a coupon book or anything on the menu i can get or things that arent selling well. What are you selling me . No, you will get a card, which has a certain amount of purchasing power built into it. Then you can order blizzards or dilly bars or whatever you would like. All right. And then at some point, they will tell you that youve used up everything on the card. All right. Dont be cheap. I dont want a half of a sundae or something. All right. I want to be able to all right . Put some money on there for me what is the maximum amount i can send you out in any way affecting your judgment . About whether im nice or not. A thousand dollars probably. Anyway. Anyway more we have thousand dollars you do . I was kidding, but, hey just a thought, just a thought of me sending you a thousand dollar card will cause you to go easier on me in the rest of the interview. Ill share it with andrew and becky. More from warren buffet. Marissa meyers stands to makes 55 million as she leaves the company. The details coming yahoo entitled to severance benefits if shes terminated without cause or change in control including sale of the company. Check out the futures now indicated higher and actually up in the 30s now. Up 35 on the dow. Squawk box and warren buffet will be right back. A fair price, quality service, and that in a new house, you probably dont share the same tastes as the previous owner. [ dolphin chatters ] so when you need a little house painting or a complete remodel, well help you get the job done right, guaranteed. Get started today at angies list, because your home is where our heart is. charge music you wouldnt hire an organist without hearing them first. Charge so why would you invest without checking brokercheck . Check your broker with brokercheck. Welcome back. Lets get back out to becky and warren. Becky, i should say warren, first. Im not going to do that first. Im going to send it out to becky and warren. I have been wanting to talk about cocacola because even though i was not out there they call that the wood stock wood stock and they call the white house Correspondents Dinner the nerd or the washington, d. C. Oscars, is what they call it. I was torn, warren. While there i was watching what was happening where you are and i got a big kick out of your conversation about cocacola and i want to give you kudos. I love reading things like that. Just to make a point, warren, i googled sugar and heroin. Sugar the new heroin is what i googled. Is sugar as addictive as heroin. Research shows cocaine and heroin are less addictive. They have one that says sugar is the new fat, which i love. Thats basically saying fat is no longer bad. Like we were absolutely sure 10 or 15 years ago. Now sugar is really, you know, they dont know theyre making fun of themselves. But i saw someone ask you whether youre the statistical aberration because youve been drinking your cherry coke and youre not fat, obese, and dead. How could that happen . You said maybe if you do it in moderation those things wont happen well, i drink probably five 12 ounce cokes a day. Thats about 700 calories, and ive been doing it more or less all my life. I cant imagine anybody that feels better than i do. Im happy. I enjoy life. You know, and ive always wondered, if i had a twin and he had to eat broccoli ands as asparagus and brussels sprouts and ive been eating cookies and drinking my coke, you know, which of us i think the other guy would be gone. I think he probably would have committed suicide, actually. And he certainly wouldnt feel good about life. I feel good every day. Its an example of what is called a cascade where consensus becomes fact. Weve had in the past that red meat causes heart disease, which we know is probably not that simple. And ive even talked to andrew about this. Looking at sugars link to diabetes or obesity, even the best study that ive seen theres all these caveats that its impossible to do a controlled experiment where you get rid of all the other external factors to actually pinpoint what is going on there. Because theres genetics, theres all these different things. But it becomes, you know, consensus suddenly becomes fact. And, you know, its hurting cocacola now. As a shareholder, you know, theres also microaggression and safe zones. I mean, the world a little bit crazy right now, warren, in terms of political correctness. Yeah. Ill make two points. A. , i think you live long for youre happy. Im balanced. I would bet on the person who is extremely happy living longer than somebody who is sour every day of the year. Beyond that, i mean, if you eat 3500 calories and burn up 2700, i dont care what it is, youre going to get fat. And its just a question of, you know, how much you put in and what your metabolism is. At the annual meeting, we talked about coke in the early part. When i went to lunch i bought three candy bars. They had over 200 calories. A 12 ounce can of coke has a little under 150. One of the candy bars your getting more calories and a lot of sugar. I just think its a little crazy. Theyve been selling coke since 1886, you know, they sell 1. 9 billion 8 ounce servings a day thats 693 billion cocacola products. If you want to eat way more than you burn up, you know, youre going to have some health problems. You throw gmo and preservatives and kale, even in my book co 2. All these points the cascade of where consensus becomes unquestionable dogma and science. Were living in a weird age. One of the things i got a couple of emails after the question was asked and answered at the meeting, but asked maybe in a different way related to coke, which is from an investment perspective and your investment thesis on coke. How do you feel about the fact there are countries like mexico that are adding a soda tax. Youre seeing the conversation come up in u. K. And europe and other parts of the world. Again, despite your own soda consumption, there have been questions, at least raised whether right or wrong and how that impacts the way you think about it as an investment well, it has an effect. The interesting thing is, if you want to tax sugar, i would think you would tax sugar. Whether you get the sugar through coke or cereal in the morning or pouring on cereal. It seems illogical to tax sugar in some forms and overwhelmingly in soft drinks and have all kinds of sugar elsewhere. The three candy bars were loaded with sugar. A lot of things you eat are loaded with sugar. Its a negative. Theres no question. If youve got political bodies that are going to tax any product, its going to affect a man. And thats a negative for soft drink companies, generally, and coke can will being the largest in particular. Great. Well be back. Were going to take another quick break. Well have more from omaha straight ahead. Up next portieuerto rico facing fall after a failure to restructure and final a political solution. They had 370 million payment. Charlie munger and bill gates will join becky. All that at 8 00 a. M. Eastern time. This mornings squawk box will be right back. Something well s. Through small things, big things, and spur of the moment things. Big things, hey, jesse. Who are you . Im vern, the orange money retirement rabbit from voya. Orange money represents the money you put away for retirement. Over time, your money could multiply. Hello, all of you. Get organized at voya. Com. Welcome back to squawk box. Puerto rico wont be making the payment today. They issued a executive order suspending payments on debt. The move coming after island officials were unable to negotiate a settlement that would avoided the default. Puerto ricos governor said they couldnt make the payment without sacrificing without keeping necessities like Public Schools and hospitals open. When we return well head back to omaha and talk to warren buffet. Well talk Marissa Meyers. Take a look at u. S. Equity futures. They turned around. Theyre in the between. For decades, investors have used a 60 40 stock and bond model, with little in alternatives. Yet alternatives can tap opportunities that traditional assets cant. And even though theyre called alternatives, theyre actually designed to help meet very traditional goals. Thats why invesco believes people should look past conventional models and make alternatives a core part of their portfolios. Translation . Goodbye 60 40, hello 50 30 20. Prge a manufacturer. Well thats why i dug this out for you. Its your grandpappys hammer and he would have wanted you to have it. It meant a lot to him. Yes, ge makes powerful machines. But ill be writing the code that will allow those machines to share information with each other. Ill be changing the way the world works. interrupting you cant pick it up, can you . Go ahead. He cant lift the hammer. Its okay though youre going to change the world. Among the stories front and center at this hour. Hulu developing a Subscription Service that would compete with cable and satellite providers. Facebook is the target of a lawsuit over the plan to issue new nonvoting class c shares. They proposed a class action suit claiming the move is unfair designed to benefit ceo mark zuckerberg. And the jungle book topping the Weekend Box Office for the Third Straight weekend with 42. 2 million in north american ticket sales. Now we head back to omaha where we find becky quick along with Warren Buffett. Thank you, andrew. They mentioned a few technology headlines, at least one, talking about facebook. I thought it was interesting even though berkshire is not a technology company, there were Technology Names that came up over the weekend. Some people were thinking about the newest things what you can do with Driverless Cars. You talked about amazon in some of your comments. A shareholder asked a question, i cant remember what prompted it, you basically said, look, amazon has done great things. Were not going to out bazos jeff bazos. There are certainly people you dont want to beat at their own game. Jeff bazos is one of those. Its like chest with bobby jeff has shown amazing talent in figuring out how to please customers, and in a very short time. And what is interesting, the same thing is interesting about fred smith of federal express. It isnt they had a breakthrough on some molecule or this or that or come up with some, you know, incredible invention, theyve taken fairly ordinary things, i mean, fred smith took the airport, the delivery truck, and the Postal Service and put it together in a imaginative way as a central hub and all that and came up with a new industry out of components that were known to everybody. And in a sense bezos has done the same thing. Hes building big Distribution Centers and employing the latest technology, but the kindle came out of there and there are some products. Overwhelmingly hes taken things that you and i were buying before and hes figured out a way to make us happier by buying the products. Thats remarkable, when you think about it. A lot comes down to focussing on what the customer wants. Thats all he think abouts. He wants the customer to have a smile on their face. Thats not something that marshall or bernard gymble or all these people. He knew how to do it in 1997 in a way that nobody else had come up with. Im sure his idea even evolved as he was doing it. He laid out his objectives in his first annual report. You can read them. The competitors can read them. He has changed the fwhorld a big way. When you talk about his game, its harder and harder to really identify what it is. Its retailing, online retailing, but so much of amazons huge profits from the last go around came from aws, from the cloud. Thats incredible. He developed that over a six or seven year period, and everybody else sat and watched. Here a guy that was a business genius and hes coming on with something big, and the world, his competitors, to a large extent ignored him. They gave him the lead time, which was very dramatic. I actually sat next to him a Birthday Party for someone who told me how surprised he was that he didnt get more reaction quicker. And, you know here have some water. Yeah. You dont want to give a guy like bezos a lead. Its bad enough if youre starting at the same starting point. You dont want to give him the lead. Hes a we havent seen many Business People like him. Right. Lets talk about another big retailer. Another one that came up over the weekend and thats walmart. Youre in an interesting position with walmart because youre a shareholder and big supply to walmart through your companies. You made the point over the weekend that as far as the suppliers, walmart is cracking down. How does that change your opinion of walmart and your relationship with the company well, i understand why they are doing it, i mean, and a significant part, im sure, is reaction to amazon. I believe walmarts online business, and this may be worldwide, but, you know, youre talking 12 or 14 billion and youre talking about amazon having annual gains of numbers like that. Just as walmart was totally under estimated by the sears of the time and everything. The idea that some guy in bentonville with a pickup truck was going to take them to the cleaners, you know, it was beyond their thinking. Im sure it was the situation at first with traditional retailers of amazon. You want to be under estimated as a new guy in the game. Both of those guys came in under the radar screen. But walmart actually with their own history and then seeing what is going on at amazon knows they have to play big. And e commerce, and they have certain advantages of having stores all over the country which can act as pick up spots and that sort of thing. Theyre under a lot of pressure. Theyre a huge, powerful company but if youre running a walmart and look out five or ten years and saw what amazon was doing, you would feel the time to go after them is not ten years from now but now. So i think partly in response to that, a year or so ago, maybe a little less, they went to, i think, probably all their suppliers, pretty much, and in a number of different arenas said we want to tighten up the terms in terms of pricing or allowances for more housing or in terms of dates of payment and that sort of thing. I mean, theyre feeling pressure pressure from another retailer. I think i would do the same thing in their position. They have a tough competitor. Does it make it worth doing business with your suppliers. Did they say yes to the terms . We said yes. You see value there . Oh, yeah. Walmart is a terrific customer. Incidentally, historically theyve had a reputation for being very tough on suppliers. They have. But they havent is the reputation is not observed . Based on the practices . They have not in our you know, we sell them a thousand different ways. They have not been unreasonable over the years. Certain retailers i think can put more pressure on in the past. If theres going to be pressure if youre a supplier of any big retailer, youre going to face pressure. Youre going to face it if you supply amazon. Right. Warren, thank you. Were going to continue the conversation. Well send it back to joe. Becky, thank you. Coming warrens thoughts on puerto rico and whether the territory defaults on some of the debt. Situation there spiraling out of control. Dont forget Charlie Munger and bill gates join warren at the top of the hour. Squawk box will be right back. Welcome back to squawk box. Another full week of economic data. The april ism Manufacturing Index at 10 00 a. M. On wednesday look for the april adp employment report, First Quarter connectivity, and productivity. Its ahead of friday. The april jobs report. This is the last of the heavy weeks of earning seasons, as well. Among the highlights aig, pfizer, cbs, time warner, and burke. In the meantime, back to becky in omaha with Warren Buffett. Becky. Andrew, thank you very much. Again, Warren Buffett is here this morning. Were spending the entire show with him. We get a lot of time to talk through the things that have been happening in the news. I thought we would start with a few headlines. There was a new poll released that showed that slightly more britains would prefer to leave the e. U. Than stay in it. It comes after president obama went and sort of made a plea for why he hopes that britain will stay in the e. U. , and this is something that a lot of people are kind of concerned about. What do you think about the entire situation . I hope they stay in. I dont think berkshire or actually the future going to be dramatically changed by what the brits do, but i think certainly if i were to vote i would vote they stay in. In the past when weve talked to you about the e. U. As a concept, you offered some criticisms and some surprise that its lasted as long as it has. Originally the set up wasnt i will be surprised if it lasts and something very close to the present form for a long, long time. Im not necessarily surprised its lasted this long. They put something together that required all the political will and all the different countries. Theres going to be a great attempt to make it work, but i think it has flaws in it. And just like we have flaws in the constitution. Thats why we amended it. It doesnt mean theyre fatal flaws, but theyll have to be, i think, addressed in some way or another in future years. Im all for the concept, but you took in the monetary or whatever it was 17 or so countries with vastly different economies and cultures, and i would say if you try to take 17 countries in north, central, and south america and come up with a common currency when they had different fiscal policies and cultures there would be a lot of strains. I dont think it would take. It would take a major modification and the behavior of certain countries to make a north america or a western hemisphere monetary unit. And a similar problem exists in europe. Weve seen a lot of manifest weve seen strains and cracks. I dont think theyve been corrected. If the u. K. Votes to leave within thats kind of a huge deal. It would be the first of things falling apart. It would be one of the major strengths of that union outside of france and germany who are the two biggest. Yeah. That would be earth shattering, to some extent, to the e. U. I wonder if it would have implications on the financial system. It would be a big deal. It the virginia pulled out of the 13 colonies or something, and there were certain colonies on the edge about what happened in philadelphia was something they could accept. A major player saying we tried this for awhile, and we would rather go at it alone. Its a major factor. The world doesnt come down or anything, but it would be a big step back ward, even though they arent in the monetary union. It would be a big step back ward. Another big headline is that baker hughes and hall burrton theyre pulling the deal deciding to walk away because of regulatory hurdles theyre facing in multiple countries. Is it harder to get a deal passed these day or a oneoff case because the size of the two companies in the industry . I havent looked at all the areas in which they compete, but it sounded initially, you know, they were putting togeth inting companies that were actual or competitors in many ways. Thats the job of the Justice Department. I mean, you know, we have a sherman act they are to look for when things are competitive, and my guess is certain competitors of the Certain Companies obje objected. It was not a surprise to me that deal fell through. A tough thing to make a decision. Certain Airline Mergers go through that reduce competition somewhat, what the industry was doing so poorly that the government probably decided that it would be a more efficient industry if it was reduced in numbers. If you try to do it one more time or something you know, its not getting too cozy. Look at the oil field. Thats another area decimated by the price of oil. Yeah. Obviously prices come back up. Were back at 45 now, but its been hairy for over a year with oil prices. I guess they look at that a little differently . Im sure that has some effect on what the Justice Department is looking at. Conditions change while its under review, but if the directors of two Companies Really like the deal too much, you may have an antitrust problem. Joe has a question. Yeah. Not about specifically kind of relates to the e. U. And everything else. I was thinking about if i had one question for you what it would be. And thats just the notion that Global Growth seems to be more difficult to come by than we remember and, i mean, you had a long life. Ive had a long life and, you know, weve heard its different this time again and again and again. Im starting to hear things like that that its the demography and people are, you know, theres not enough people being born and too many old people around the world that are going to with not enough young people ready to take care of their retirement. Im wondering whether its a hang over from 2008, or whether theres Something Different about the entire world that to get above 1. 5 or 2 seems so difficult for us now. What do you tie it to . A hang over from the financial crisis or more . Well, it may be more. It could easily be more, but certainly, i think still ties to what happened in 2008 or 2009. That was a financial earthquake felt around the world, and i would say the banks and europe were in worse shape than the american banks. You know, it was not it was a financial shock, which we havent experienced or the world hasnt experienced since the 1930s. The 1930s took a long time to come out of it. I think thats partly of the fact. But i would mention, again, that a world of 2 real per capita growth is fantastic world in our own country in one generation you would add 19,000 of gdp per person, that means a family of four is 76,000 in one generation 25 years from 2 fiscal growth. So, you know, it might not be what we had for awhile, maybe a 3 , but 2 would do wonders for the world. You would have so much more prosperous world 25 years from now if we can have 2 growth in the world in real terms. But i think if you ask me what the biggest factor is, i think its the hang over from 2008 and 2009. The world deleveraged in a very major way and leveraging up does wonderful things. And lemveraging down is not as much fun. Warren, a couple of other questions. One we department get to over the weekend to touch a little bit more on ibm and how youre thinking about that company these days. Trading about 146 right now. What is your basis in ibm . What the basis on it . Yep, for you. The cost basis. Yeah. The cost basis probably a little less than 170. A little less than 170. A lot of shareholders wrote in trying to understand, you know, how you feel about ibm these days positively or perhaps negatively. Yeah. We feel fine or we wouldnt own them. Weve never sold a share of ibm. Periodically we buy a little more fairly close to 10 . We havent been an aggressive buyer but we have been a buyer. We have never sold a share. Its a company with lots of tough competitors. One of them it will have competitors. We see them doing some interesting things but the competitors are doing things, too. Overall we like it. And, you know, i think we would i think i can safely say we would be more likely to buy more in the next 12 or 24 months than we would be to sell shares. Well make that call as time goes along. Warren, lets talk about shares of yahoo or the company. We have sue becker join us on friday and talk about how she sees things at yahoo . Theres just news out over the weekend about Marissa Meyer having a 55 million severance package. That package will kick in if change in control in the company. Youve been following it remotely. I wouldnt ask you about what you think about the digital strategies. What have you thought watching things play out . Well, obviously they deteriorated significantly. They did a terrific job. Ive been hearing nothing but positive blow back. And they couldnt have done a better job. I feel good about that, but their business has continuously slipped and they made a lot of aqua situati acquisitions in t couple of years and it has not turned around the company. I think they said they expect revenue to be down in 2016 again, and its something has to change there, obviously. I think these severance numbers just generally thought american industry are a little crazy. I mean, when a laid off employee gets, you know, two weeks for every year of service or Something Like that. Somebody gets eight figures. I think things get a little mixed up. Ive seen it. You know, it just continues to go. Almost anything in executive compensation, whatever was done last year for people general becomes the face for increase the following year. American ceos and generally executives and Board Members theres just a ratcheting effect that goes on. And somebody said ive seen a severance package as x and someone says i want one and a half times x. When theyre signing up people they wouldnt pay attention. If i were the american shareholder, i think i would get a little irritated with this. Joe, you have another question . Yeah. On a different subject. Back to thinking about, you know, the current environment, warren, and when oyoure one of the Richest Companies around, you have to expect the Trading Balance. Your consumers are able to afford so much more youre never going to have a trade surplus, really. But then again, you know, on both sides of the aisle it makes political hay to talk about were getting the raw end of the deal that, you know, were not the money is moving out, and, you know, its not fair that were not getting more business, you know, domestically. You know, i am wondering what you think about that. By definition were never going to have trade surpluses most places. Is there a way to do trade deals that are mored a venn teenage use to American Workers . Theres a reason everybody is so disillusioned. Yeah. Weve had trade surpluses if you go back a long way while we were the most prosperous country. Its interesting, our total exports were 5 of gdp, i believe, in 1970, and now about 12 . Weve gotten pretty good at selling things to the rest of the world. And so the huge dollars amount and increasing percentage amount from many years ago, but weve also swung more imports, and, of course, for a long while a good bit was oil. You know, in theory its very nice when you can be a net importer because you have people little pieces of paper underwear, socks, and shoes and all those sorts of things. Unfortunately the balance of monetary assets held abroad then rose. Right now the world has about 7 trillion more of our securities than we have of theirs. I dont think that itself is a dangerous number. I dont like that number to go up or certainly a percentage of gdp. American industries actually been pretty good on exporting 12 of gdp. Its not a bad figure when you look at the record historically. Of course, right now the Trading Balance is, you know, 500 billion a year, which is a 3 factor thereabouts on gdp. Thats come down by oil. Of course, if oil comes up, we have another problem. I would rather see something closer to a balance. Okay. Coming up at the top of the hour were going to Charlie Munger and board member and bill gates will be with us. Back in a moment. N here . Im val, the orange money retirement squirrel from voya. Were putting away acorns. You know, to show the importance of saving for the future. So youre sort of like a Spokes Person . More of a spokes metaphor. Get organized at voya. Com. Something well show you. Through small things, big things, and spur of the moment things. A squawk box special event. Three of the worlds most powerful leaders. Waurn buffett, Charlie Munger, and bill gates. The special hour of squawk box begins right now. Live from the most powerful city in the world. New york. This is squawk box. Welcome back to squawk box here on cnbc. And, of course, becky quick is reporting live from omaha. A big hour ahead of us. First, lets see where the futures are now up 40. Weve gone 25, 35, 45. So slowly moving higher as the morning goes on here. Oil prices were down a little bit earlier. At this point theyre down about a penny. Unchanged at 54. 92. Hall baker hugs plans to buy back 1. 5 billion of shares and a billion dollars of debt using the 3. 5 billion break up fee it will receive from that now failed transaction. Puerto rico wont be making a big debt payment today. They issued an executive order suspending payments on debt owed by the island governments development bank. A Carnival Cruise ship arriving in cuba this morning. We have more on the ship later this morning on squawk on the street. Meantime, back to becky in omaha with some very special guests with us. Becky. Andrew, thank you very much. Our special guests for the hour warren buffet, Charlie Munger, and bill gates. Thank you for being here today. We appreciate it. Weve been talking a lot over the last two hours, but in looking back at what happened this weekend with being a berkshire annual meeting. My a little bit of a tougher time trying to pick out the top headline. There wasnt a major controversy, there wasnt something that seem eed to capte singularly shareholder attention. I was going to ask you what message stood frout your perspective. Something you picked up this year. Bill, mind if i start with you . The beauty of berkshire is the consistency of its approach commitment to its managers. I think some of the discussion about the Interest Rate environment and how does it affect things. That came up in a number of questions, and of course, there were no forecasts made. Its a fascinating thing affecting lots of businesses including insurance businesses. Well talk about what youve been thinking. Im sure its an issue you considered. Charlie, what about you . What was your headline this weekend . Something you thought a little more about . Well, i dont think i think its become such a favorable experiment of practically everybody. The managers and shareholders like it, local merchants like it. So its become a fundamental part of the culture, and its a huge morale builder for everybody. Our new german executives were here and they were practically dancing and tap dancing. Of course, my secretary is german and spoke german. So its the experience that you take away. A lot of people have favorable experience. Both the companies we acquired and the people that invested with it. The highlight was the reelection of the chairman. Yes, of course, the entire board of direct ors up for reelection and overwhelmingly passed. Lets talk about Interest Rates. It comes up every time. How much time do you spend think abouting this . And what is your take away on Central Banks around the world seeming to almost be in a battle to race to the bottom with japan going negative on Interest Rates and europe following well, its an unusual situation. It means for a saver that you return to a way more than would have been expected. Im not a Macro Economic expert, but it is surprising to me there arent more investments that would the cost of money so low whether its on the private side or the public side youd expect that to spur out of investment. Its like the whole world is becoming like japan, and we never could explain what was going on in japan or how japan could get out of that. I find it fascinating, and it does affect some of the choices you make in the investment world and everything about money is deeply effected by the Interest Rates. Has it affected your own personal investments . No, our foundation is paying out Something Like 6. 5 , and so there may be periods that we dont earn as much as were paid out, but we have lots of money still to go into the foundation. For us its less of a concern than it might be for others. For some, you know, whether its a university or a foundation, theyre probably going to be paying out more than theyre taking in for a period of years. Or pension fund. What is the outcome . Bill brings up an interesting point that were starting to look like japan, and well we we are. Its interesting. They havent figured out japan either. It surprised all the economists in the world. I dont think much about Macro Economics because i dont feel i have any special competencompet. I feel lucky. I strongly suspect it was stupid for our government to rely so heavily on threading money and so lightly on fiscal stimulus for infrastructure. I think that happened by accident because our politicians couldnt agree. I think we would have better of if we used more fiscal stimulus. You get to the limit of this, what can you do . This approach runs out of fire power. The other approach wont run out of fire power. There was a point when you started to think that . I mean, back in 2008 and 2009. Ive always thought it. Im a child of the depression. I watched the world war ii fix the economy. I watched the whole dam thing. I saw it work. I saw the Great Depression and i saw the work. Im not a nontotal nonbeliever. That brings you to what youre hearing on the political front. If youre thinking that fiscal spending is the way to get back to this, both hillary and donald trump, the leading candidates in their potential parties now, have talked a lot about infrastructure and spending. Potentially changing the tax code. If so, im all for it. Is that something that, warren, you agree with charlie saying . Yeah. Its interesting. In neither talking to charlie or bill. We dont spend lots of time on Macro Economics, but i would say in the last year or two, weve talked a lot about negative or Interest Rates. Thats a subject that comes up. We dont come up with any answers. It is really interesting to observe and speculate, perhaps, what act two is. I cant really recall talking much in the way of Macro Economics with these two in any other respect in the last couple of years. About zero Interest Rate phenomena. You dont have answer but what is your best guess what act two is . Thats what we talk about all the time. We dont know. But we have seen it go out in japan for an extensive period. By the way, they have used all the stimulus. Right. That doesnt mean we shouldnt try it. Does it believe you its the box we can never get out of . We dont know. I wouldnt be that pessimistic. But it does suggest warren gave a great speech at a conference a few years ago about how america has had this great run, the stock market had periods where it hasnt appreciated much and periods where it appreciated a lot. It does suggest its possible in the years ahead it will be in one of those periods you wouldnt see huge appreciation. I mean, it also gets back to the idea you were surprised we havent seen more areas of investment and things that bubbled up as a result. Maybe we have. Do you think that places have gotten a little out of control that bubbles have potentially built up in areas . Every one of you last year said that the stock markets evaluation depended on where Interest Rates were headed. And Interest Rates have gone nowhere. If we did see the fed suddenly start to raise rates, would that change your perspective on how you would value stocks and look at your investments . Absolutely. If they can raise rates without taking the economy, that is the path back to normal. And everybody sort of expects that to happen, but a year ago i would have thought we would be further down that path than we are now. And even next year we can discuss it again. And still be on this road. And it was believable. It was a total hypothetical. The government absolutely said Interest Rates are going to be zero for 50 years, you know, that the dow would be at 100,000 well assuming it was believed. Bill, you bring up a good point. If they could do it without taking the economy. Thats what the fed is thinking about. Do you think were Strong Enough a economy to have withhold a higher Interest Rate . What is your call . I think the fed is doing a good job. Im not as smart as they are about it, but for everything i know backing off made sense. Its complicated because the dollar affects the entire world economy, which in turn affects the United States. Right. And so as they, for awhile they were signaling a couple more and that did cause the strengthening of the dollar and weakening of a lot of things. I think it was wise they backed off. B but, you know, someday i think theyll increase Interest Rates. Europes troubles are affecting our monetary policy. We dont like to say that and the fed isnt going to say that. But if europe if an drojy wasnt doing what he was doing the best solution is to have the euro devalued against the dollar, right . They might not feel that way. Yeah but were being effected by their problems. Were going to continue this discussion in a moment. Right now a quick break. You take a look and the yen is trading at an 18month low today after t. Now a quick break. When we come back well have more from warren buffet, bill gates, and Charlie Munger. By the way, a day of news makers today on cnbc. At noon eastern dont miss bill ackman. Stay tuned. Cnbc first in business worldwide. T to record that show. woman now we have to wait forever to see it. jon bon jovi with directv, you dont. You see, weve got the power to turn back time. That show you missed, lets just go back and find. And lets go back and choose spicy instead of mild. And maybe reconsider having that second child. See, thats the power to turn back time. vo watch shows you forgot to record. Call 1800directv. Futures indicated higher this morning. Up now 50. 25, 35, 45, now 50. Almost 11 on the nasdaq and 7 open the s p. Our special hour with Charlie Munger, bill gates, and warren buffet will be right back. announcer need to hire fast . Go to ziprecruiter. Com and post your job to over 100 of the webs leading job boards with a single click, then simply select the best candidates from one easytoreview list. And now you can use ziprecruiter for free. Go to ziprecruiter. Com offer2 welcome back to squawk box, everyone. Our special guest for the hour Warren Buffett, Berkshire Hathaway and ceo. Charlie munger, and bill gates, the founder of microsoft and berkshire board member. Gentlem gentlemen, weve spoke earlier about specific holdings of Berkshire Hathaway. I thought maybe we could get some of your reactions. Charlie, earlier we talked about American Express and costco. Warren defended not to go ahead with costco. Youre a costco board member. Do you agree . If i was on American Express i would have made the opposite decision. Why . I think costco is so powerful that being the only credit card provider at costco is so valuable. Thats just my opinion. We talked a bit about ibm. There were shareholder questions that came in over the weekend about shares of ibm, particularly since theyre trading at about 145 versus a cost basis just under 175. You made some comments youre not sure what to think about the ibm investment. Im not sure its going to come out. I like the fact theyre doing it. And any kind of Artificial Intelligence is very much in. It may well work. I have no way of predicting. Do you think warren does . No. You can take that to the bank. When you talk about Artificial Intelligence you talk about watson in particular. I dont think were paying much for the opportunity. The opportunity to be in shares of ibm . I think that theres not much optimism in the current price of the shares. What is it you like about the Artificial Intelligence there . I like the idea of using art official intelligence because were so short of the real thing. [ laughter ] bill, youve spent some time working on Artificial Intelligence and taking look. What do you think is interesting in the arena. You think it could be a real issue for humanity if things get out of control well, in the even 10 or 20 year time frame Artificial Intelligence is going to be extremely helpful. And the risk that it gets super smart thats way out in the future athan probably were tal about. For the first time were seeing that computers can see as well as humans. Thats incredible. If you combine that with the ability of armlike manipulation they can make us far more productive but then the job market has to adjust to that. Kbo google, facebook, apple, microsoft are moving ahead at a great speed. Thats very exciting. The speed is faster than it was five years ago. Where would be the one area you think stands to have the most promise for this . I mean, are you thinking the productivity in the labor force, like you thought, or Driverless Cars, are you thinking advances in health and technology or health and science . Where would you think the real promise was . One area is what we call agents where if youre seeking knowledge you can talk in natural language to an expert agent and it would do as well as a human to give you information. A specific example is have the Software Help you figure out what is important. Today were kind of slaves to our computer where we have to decide to go to email, twitter, or text, and were the one in which might be more important. Software is going to soft that. Were going to look at the information. Consent to you knowing about your interest what would be most valuable. Making us more efficient what i call the alter ego software would be a huge help. It changes the perspective of people. People raised the question with geico, Driverless Cars is that an issue for the Auto Insurance companies . The answer is yes. I think its a long way off but theres no question. Anything that makes cars safer is very pro social and its bad for the Auto Insurance industry. Nevertheless, the Auto Insurance industry lead the way on seat belts and all that. If there are no accidents, there are is no need for insurance. And i think there will be a big reduction in accidents over a longer period of time. Of course, it has. Cars make it way safer. You make the driver safer, that would be a big, big jump. Thatll happen someday, and when it happens, there will be a lotless Auto Insurance. In the meantime, auto accidents have gone up. As you pointed out, because drivers that arent paying attention. Generally speaking the trend has been fabulous over the years. We literally have gone from 15 deaths per hundred million vehicle miles down to something close to one. I mean, that was huge. Last year there was an uptick there were more miles driven but im expressing in miles driven. I think there was a variable and it has to be distracted driving. Warren has said repeatedly he thinks Driverless Cars is a way in the distance. Do you agree with that assessment . At least ten years down the road . Even though the technology is very good today, because of trying to understand the liability issues, its itll be youll see experiments in a few leading cities around the world in the next decade if those go well, it will start to spread. Its certainly more than 15 years off before the meaningful percentage of cars driven. Charlie . Its a very difficult thing to do. People want to drive faster than the speed limit and so forth. I think there will be lots of problems. I think so but berkshires experienced technological before. One of the earliest examples came from bill gates. We had a Wonderful Company that made a wonderful encyclopedia. Bill gave away a free ensi encycloped encyclopedia. Away went a large part of our products from the encyclopedia forever. Hes a traitor. Thats right. And it helped him. It helped him make the fortune and now he destroyed it. Thats the way he is. Bill, lets talk about microsoft. They came in and a lot of people scratched their head. Didnt know too much didnt expect him. Hes done a pretty phenomenal and the stock has come up sharply. Why do you think microsoft is really resonating so much on wall street these days . Well, i think the Software Industry as a whole has so much opportunity to improve things, and there are key aspects of like that, like the Office Software where microsoft is the leader. And theres so many more things that can be done. In the cloud we have number of Companies Including amazon doing a great job. Microsoft having some special Enterprise Support there, just, is really quite unique. So, you know, im very happy with the job hes doing. I get to send him a little advice. But theres great frontiers where microsoft is one of the leaders to great immense software value. Okay. Were going to slip in another quick break now. When we come back, well have more from Warren Buffett, bill ga gates, and Charlie Munger. Plus well bring you up to speed on the top stories. Youre watching squawk box. Hey, jesse. Who are you . Im vern, the orange money retirement rabbit from voya. Orange money represents the money you put away for retirement. Over time, your money could multiply. Hello, all of you. Get organized at voya. Com. Something well show you. Through small things, big things, and spur of the moment things. Welcome back to squawk box now. Here is what is making headlines. Hall burrton and baker hughes are crscrapping the merger. Aig has raised 1. 3 billion by selling off parts of stake of chinese picc. The Company Reportedly sold about 740 shares. Puerto rico wont be making a debt payment due today. The u. S. Territory issued an executive order suspending payments on debt owed by the government. We want to get back over to becky who has got a huge cast of characters over there. Hey, becks. Hey, andrew. Once again joined by Warren Buffett, Charlie Munger, and bill gates. Andrew mentioned one of the headlines today. Puerto ricos governor said theyre not paying back the debts at the end of business today. It raises questions about what you think in terms of bondholders, what you think about the health and municipalities around the world. Warren, want to comment about what you think about puerto rico and generally . The problem with municipal finance generally is that, you know, not in our time, you know, in terms of peace. Basically many politicians think not in my time when they deal with fiscal matters. The pension situation per states and cities and so on, you know, is absolutely terrible because the politicians really dont want to they can give out promises now, which translate into votes and they dont for the pensions they dont have to deliver on those until theyre long gone. And puerto rico, you know, theyve been kicking the can down the road. They raised new money not much more than a year ago. The answer to financial problems is not more powering. But theyll do it as long as they can and finally they have incomes and it would have been so much easier to tackle the problem earlier. And now, you know, got all different classes of bondholders and claimants. Theyre going to play like crazy and its as charlie says. An ounce of prevention is worth an ounce of prevention is worth a ton of cure. Now here in the cure stage in puerto rico. This is a messy situation, and i think it affects s s a lo people because plenty of people own puerto rican bond. It was seen as completely safe. What is the fix at this point . What is the fix at this point . Should the u. S. Get involved . I havent the faintest idea of the fix. All i know its going to be ferociously difficult and involve nasty comprise. Is it a situation you see playing out through ore states and municipalities . Im no expert. Im an expert in avoiding this kind of thing. Condemning myself so it doesnt happen and people in puerto rico like the people in greece and, of course, they got in trouble. Im not an expert in getting out of that. Charlie is a huge believer of facing up problems early. He gives me the lecture all the time. He was right. They never should have been here, but you cant expect politicians to be like buffetts. To be behavior like buffetts. Buffett had a fiscal discipline that politicians dont have. They buy votes with promises that are going to cause terrible problems later. Bill, how about you . They made like a drunken error. Who wants to go through it. Bill, how about you . What do you think about the pension situation in this country . About municipalities . About states . We worry about the headlines but warren is right. You cant forget about things that arent immediately facing a dangerous situation. For a long time city and state debt in the United States got paid back and between that and the accounting that doesnt really properly show pension and medical liability. People were lulled into a sense of now theyre realizing that certainly in special indications like puerto rico is inappropriate fortunately theyre looking at other cities and states where these promises are pretty dramatic. It is a real problem, and its exacerbated by the low returns environment with the assumption has been very high. And both warren and i talked about that a bit. Its something we need to get in front of and look at the numbers. Particularly for states where they decided some of the liabilities are not dischargeable. I think its manageable, but there should be more attention and better accounting in this area. Its way worse in the Public Sector van in the private sector. Theres a reason for that. Whe even when the ceo is getting ready to retire, theres even more incentive to think about future retirement than at a city council or state organization thinking beyond the next governor or something. I mean, its such a tendency to get in the day. If government imposed more discipline than force of law than imposed on itself. Thats not surprising either. Why dont we talk about politic and the tax code and beyond. Politics came up a couple of times this weekend, but it was not something, charlie, you weighed into too much. You have sign a lot of political cycles play out, and with this one in particular how would you match up against what youve seen in the past . I like it a lot better tone running against ike eisenhower. I like this better than the politics of this era. I dont like the gerrymandering. I dont like the way politics is developing. I remember a better form of politics. Put me down as slightly disappointed. Theres been a lot of discontent on both sides of the political spectrum, if you look at either one of the Political Parties now. Theyre having issues. Whether it be the Democratic National convention looking out at Bernie Sanders still running, and running pretty hard. Whether you look at trump who is complete outsider who looks like hes in the full position to take over the republican nomination. Youve been a lifelong republican, what do you think about the situation youre facing in your own party . Well, in my own party, i think the future looks a look like brigade against the cannons of happily gone. I like that politician who said his party was trying to buy a ticket on the titanic after seeing the movie. That was kasich no lindsey graham. As wanted to run as Donald Trumps second on the ticket . Either of the two main candidates are likely to lead the charge for the brigade against the cannons. Andrew has a question you would like to get into. Andrew . Yeah, you know, guys, the question i wanted to ask. I was thinking about writing a column on this. The idea so many young people today. I dont know if you saw the poll from harvard. So many young people claiming they dont want to identify themselves as capitalists. Some of them identifying themselves as socialists. What do you think has changed or anything has changed in this country given the political mood. Well, i think in college theres some tendency to want to join in the movement of some sort. Its a time in life when youre sort of breaking from your parents believes, perhaps, youre looking for a greater cause. Youve had a lot of opportunity to do that particularly on the democratic side with Bernie Sanders. And his appeal has been incredible with younger people. They see an enormously rich country and a lot of inequities. And here comes somebody alone and in many ways very authentic and very concerned about something they have a concern about so he becomes their vessel and gets a lot of votes. I think bernie santd sanders is a true believer and comes through totally. He is a true believer in the sense that eric used the word. Never believed the evidence after reached a conclusion. Thats not the system. Bill, how about you . Well, you know, there are things like free trade that is not doing too well on either side of the political spectrum. I wish the case is better articulated. So, you know, will young people, as they grow up, embrace capitalism . I think so. Its a great system. We certainly need to tune it and look at the excesses, and, you know, im actually pleased theres more debate about how taxes should work. I think thats what you want in a democracy. All right. Well have more discussion about that coming up in a little bit. In the meantime, were going to head to a commercial break now. When we come back, well have more with Warren Buffett, bill gates, and Charlie Munger. Its a day of news makers here. Dont miss bill ackman. Stay tuned. Youre watching cnbc. Todd spaletto, president of the north face, we are working on the prototype to match customers to gear. Watson, lets give it a try. Say its midjune and im backpacking in yosemite. Of our 353 jackets, i can recommend nine. Watson, what if it rains . There is just a 3 chance of rain, so i recommend the breathable stretch fleece fuse form dolomiti jacket. A Perfect Choice watson. No wonder our Customer Loyalty numbers keep climbing. I believe we can do even better. 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Yet many people still build portfolios with strategies that just track the benchmarks. But investing isnt about achieving average. Its about achieving goals. And invesco believes doing that today requires the art and expertise of highconviction investing. Translation . Its time to bench the benchmarks. Shoshow me more like this. E. Show me previously watched. Whats recommended for me. X1 makes it easy to find what you love. Call or go online and switch to x1. Only with xfinity. Welcome back to squawk box on cnbc. We have some special guests with us this hour. Warren buffett, Charlie Munger, and bill gates. One of the things that warren and i talked about a little earlier were some of the issues that came up at the annual meeting. One being valeant. Charlie, you had some strong opinions on valeant, and there was a piece following up in the wall street journal today talking about how valeants pricing was a strategy that started at the top. They say it was the ceo, pearson, who did a lot of that. You said over the weekend that valeant was a sewer. It was. It was. What happened. We also point out, you worked at a hospital they were robbing our hospital. What happened . They raised a heart drug that old people real people really. It was outrageous. He said im correcting under pricing. You raise the price on absolutely necessary drug by 500 and say youre correcting a underpricing. Hes like the joan of arc. I would call that demented. It started at the top but it was out touted as a reason for buying the stock and why he could make the aqqucquisitions made. It wouldnt be the most attract of thing to say, but to large investors, it was conveyed when they want something that was one thing for sure the price was going to go up on the product. Is that a trend that you think, i mean, its become a political issue this time around. Drug pricing. Weve seen it with martin that idiodiot. It was certain because a response that was going to be cataclysmic for valeant. In any sense didnt know it was going to happen. The ceo said it was a mistake. Not an evil conduct a a mistak. But it was evil too. Do you think that this is a widespread practice in the industry . Or are these just a few bad apples . There was some other guy Martin Skreli was the other guy. Martin was leading the fact. Do you think thats been taken care of with these hearings and with the publicity thats come out . No, i think that theres been other abuse in the pharmaceutical industry. Valeant was so extreme inappropriate to them all. Valeant they know what the prices were of the products when they bought those products. If every month they want to put out what the price was when they bought them and what price theyre charging now, i think that you could then exactly figure out how much reform has taken place. In terms of transparency. We publish the prices for our Auto Insurance, all kinds of goods, we publish the price for hauling coal. And if they just took the price one day and bought it, the day before they bought it what the other guy was charging and monthly reported what they were charging for the 15 most highest volume products you have, i think you then would have some basis bill, can i ask you quickly about zika . An issue we focused on recently, the first death in the United States in puerto rico happened just last week. Youve done a lot of research on this, youre Funding Research on this. How big of an issue is this particularly with a lot of people being prepared to go down to rio for the olympics . Well, first, just talking the last topic and say the Pharma Companies as a group are doing unbelievable research. And our foundation is partnered with the Large Companies who are, you know, the good things theyre bringing to the world, the risks they take overall, you know, its an industry that i think is the pride of american does good things. Make about 60 of the best drugs. Yeah, absolutely. So were the light of the world here, but that doesnt mean they should behave badly. Yeah. At the foundation we see a lot of Good Behavior on their part. In terms of zika, its a surprise. Its a virus that was in africa for a long time. And even looking back it doesnt appear to have caused these same problems. The numbers arent gigantic, but its a horrific thing. And so both getting rid of this particular mosquito, theres a lot of new ideas about that, our foundations involved in some of those, and then coming up with a vaccine, everybodys moving as quickly as they can. Okay. A topic of conversation that has gotten a lot of attention from the business world, from government has been this pushpull situation between government cooperation with technology and Technology Companies feeling like there is too much coming from the government in terms of requests. This played out very publicly with the appledoj situation. And, bill, you meat kmaents charlie rose where you said, look, in a situation like this you compare Technology Companies to banks where youre going to have to hand over some information from time to time. How do you see this on a broader scale . Well, the governments been able to do wiretapping when it gets appropriate judicial revie, its been able to see bank accounts, and there should be a debate about is that is that still an important tool for the government to do its job and exactly how do you make sure thats not abused. And then how is it done technically . Were at a stage where all of those things could go completely dark if thats the choice that people make. In terms of microsoft though, it just last week i believe filed suit with the government saying that it shouldnt have to hand over anything all the time with a blank check, so to speak, of any request that comes in from the government. How do you find a balance . Well, yeah, theres actually two issues where microsoft is saying to the government the policies today arent quite right. One has to do with information thats outside the United States and how they go about getting that. The second one is that when they do come and ask for information except in exceptional cases that shouldnt be invisible to say the company that its being asked about that that should be a slightly higher threshold to keep it quiet. And right now these issues are playing out in thef this will move to the congress. Warren, how do you see this . Weve talked about it in the past. Yeah. I dont think either the claim of privacy or claim of security should be absolute. I think we live in a far more dangerous world than existed 100 years ago or 50 years ago just in terms of the amount of damage that can be inflicted. And we certainly have plenty of people that have a strong or countries such as north korea maybe want to inflict incredible damage. So i see no i would not want privacy to be an absolute you want the government to i want the government, but i think it should be we also dont want somebody can walk into any courthouse and, get all kinds of information when theyre just phishing on something minor. So i think but i do think its important when there could be some Important Information that it not go through five Appellate Courts or anything like that either. I think you should get it very fast. And therefore i think you need somebody at a very high level who if say request information and it goes to a judge it gets done very promptly. So whether its the attorney general or president of the United States or whomever, i think there are occasions when we want that information fast. And we dont want any question about having it wandered through the courts. Charlie, your thoughts . I totally agree with warren. Im even more extreme. How so . I just think that we want the government to have huge amount of power to get information, particularly in dealing with possible terrorism. And procedures be simple, effective and quick. Bill, you mentioned at the end of the last block that youre glad people are really talking about tax policy at this point. That this has been something more of a national discussion. If you were in charge, and i realize youre not running for office or doing anything along those sorts, in one minute how could you fix the tax code . What are some easy, Quick Solutions that might improve the situation that were in today . Well, warrens written about the earned income tax credit. And i hardly agree with everything hes written about that, particularly with automation moving at this speed. The idea that we can pay more for those jobs than the normal market price, i think thats how you keep employment levels as high as possible. You know, theres always been the question of whether taxes on capital should be a lot lower than on taxes on labor. I tend to think they should be pretty much the same and that thats an opportunity to be a bit more progressive. So you would raise the Capital Gains tax, or you would bring down the taxes on labor . Well, youd have to fund government, and particularly given the promises that the governments made about medical costs and retirement costs, unfortunately the way the one that makes the numbers add up is to move the lower tax up higher although people dont like that. Eventually the math really matters, otherwise you get into a puerto rico type situation. Right. Charlie, what do you think about it just in terms of taxes what you would do if you were given the power . Well, i sometimes think about what i would do if i had absolutely power. And of course its very different from what is actually being done. But i dont think i need to tell your audience my dreams. You know, even platos inquiries i just dont want to enter the fray. Do you agree with the earned income tax of course i agree. I once made a speech that irritated a bunch of College Professors because i said i thought mcdonalds in many ways was a more effective Educational Institution than harvard because so many marginal young people went to work at mcdonalds and learned how to show up on time and learned how to become responsible citizens. When these people start raising the minimum wage so that people who really need to succeed in their first job cant be employed at all, i think its a totally asinine thing. Thats why i like warrens idea about the earned income credit. Let the people that are really working get some extra money in proportion so their work. But you do not want to prevent young people from being employable. Gentlemen, were almost out of time. Very quickly, i have a lot of people write in and ask if you could tell them what youre reading right now. Quickly, could we go down the line, bill . What are you reading lately . I just finished the rise and decline of American Growth by robert gordon. Charlie, anything on your bed stand these days . I read the same book. And i really liked it particularly until i got to the end. Theyre wonderful at describing the problems, which i really like. When they get into the solutions always swla disappointing. Warren. Well, i like to say i read some 2,000 page philosophical, but i just finished reading ben bo shas he died, but its a recap of his life but mainly what happened at aig. Gentlemen, i want to thank you all three for your time today. We truly appreciate it. That does it for squawk box today. Make sure you join us tomorrow. Right now its time for squawk on the street. Good monday morning, welcome to squawk on the street. Im Carl Quintanilla with jim cramer at