Nasdaq the dow also closing at a record high it looks like well open sharply lower. The dow losing 124 points right now, the s p down 13 nasdaq down about 44 what was weighing on the markets yesterday and probably today, the yield on the tenyear note 2. 584 right now thats the highest since march 15th a big move in the tenyear treasury yield thats challenging the equity rally today. The yen continuing its strength after the boj said it would continue its bond strengthening services the hang seng up by 0. 20 . Over in europe, right now at hope the dax down by 0. cac down by 0. 6 looking at the price of crude oil, highest level since 2014. Wti, 63. 43 breaking news this morning. Lets get to becky quick live in omaha. Good morning good morning. Theres breaking news from Berkshire Hathaway the company out with a statement saying that its going to be increasing its board of directors by two members to include two key members of its Operations Team who people have been looking at for a while, speculating on whether they would be stepping in as potential sulk seccessors for w buffett some day greg abel and ajit jain will be joining. Theres a lot of issues that have people speculating about who would be replacing Warren Buffett as ceo one day this sets up much of that situation. Under this, it looks like greg abel will be vice chairman in charge of nonBusiness Operations ajit jain will be in charge of insurance operations probably not huge news for people watching this for a while. But mr. Rough fete ha buffett sg time the board would know who would take over for him if he was hit bay by a bus tomorrow people have speculated these two names, and this kind of seals that in other parts, the utilities, the railroads, the manufacturing make up a bigger chunk utilities, 11 , manufacturing about 24 . This release just out, we should tell you that Warren Buffett will be joining us live in the 00 a. M. Eastern hour of squawk box to talk about what this means, why theyre doing this and i would now ahha so thats coming up at 8 00. Good to know i looked over at melissa, noticed that brian was not you im groggy i know i know just happened to be in the neighborhood, figured we could stop by. Who doesnt go to omaha in january when they get the chance i raise my hand a destination spot that will be great well have warren for the entire hour, between 8 00 and 9 00. Yeah. Hell talk about this and whatever else we can throw at him. Also we will be hearing from vice chairman Charlie Munger, so he can talk about what this means. Theres never been another vice chairman 52 years Warren Buffett has been the ceo for 52 years Charlie Munger has been his lieutenant and vice chairman well talk to them about why this came about, how it came about. Theres a lot of questions about what will happen next. Charlie is 93. Warren is 87 this has been a question circulating for a long time. Hopefully well get more answers from them. Does this put abel in the lead to be the heir apparent its unclear. Thats one question well ask. Theyve always talked so much about how important ajit jain is to the operation in a letter warren wrote if we were all in a boat, swim to ajit because hes able to take over ajit jain is 66 years old. He runs the reinsurance operations there both of them are key members of the team but its a good question is this a horse race is one in position to be a ceo in would this be a structure like weve seen with the investment side of operations. He has two people running major parts of portfolio for him, each of whom have about 12 billion theyre each managing now out of a portfolio north of 1 120 billion. The release does say neither charlie nor Warren Buffett are going anywhere they will continue in their position and will continue to manage money but this does solidify what people thought the potential situation is im not sure what the answer is. Well have to ask mr. Buffet interesting yeah putting so much authority in the hands of very young men. Theyre youthful, both of them what did you say, 55 and 66 . Both of them, you know, very youthful at the peak of their career yes you know, you might warn ole warren we have a close relationship he wasnt really sure that corporations needed lower taxes. We do that, the markets go crazy, and buffett is there going Kaching Kaching kaching so you might just say are you sure you didnt like this tax cut for corporations there, old warren there are questions about what this means not only for the market and his investments but also directly for Berkshire Hathaway an analyst put out something saying it could mean a change of 37 billion in how berkshire is valued immediately well talk to him about what it means not only the valuations, what it will mean for their tax bill you know Berkshire Hathaway pays among the highest tax rates in the country. I dont know if thats an old picture we had of him. That looks like one we put in right after we passed that thing. Lets look at that hes like this there he is. Oh thank you trump. Thank you, trump thank you, tax bill yeah. All right. Good warn him to be ready he doesnt need that he doesnt need warning he can pay the old rate if he wants to. Thats true thats right. Nothing is stopping him becky, great. Great. Okay you have a good excuse not to be here im here. You are here, but not with me thank you. Well see you. Stocks to watch, toyota and mazda plan to build a 1 1. 6 billion Assembly Plant in huntsville, alabama. The announcement is expected this afternoon the plant will employ about 4,000 workers and build about 300,000 vehicles per year. Toyota up 2 in japanese trade nordstrom says samestore sales rose 1. 2 during the holidays the retailer was boosted by strong sales at the rack stores. Nordstrom is adjusting the fullyear earnings outlook slightly higher. Dominos pizza says the ceo Patrick Doyle will step down in june he will be replaced by the head of the companys International Business doyle has been ceo since 2010 and oversaw dominos turnaround including the move into online ordering and promotions. Now to todays top washington stories eamon javers joins us from d. C you werent there, were you, for that bipartisan thing . No, i was out on the lawn when they did that you were watching 55 minutes. Trump somehow kept it together what drug do they give for dementia where for an hour you can seem rational and not seem demented, senile and insane . He seemed like he was in command of that hour yeah. That was clearly an effective strategy by strategy. A strategy a strategy it was clearly an effective strategy by the president who made that decision on his own. The president decided ill let the press in, let them roll their cameras for the entire 55 minutes of this meeting. There was another piece that was offcamera the bulk of the meeting was on camera the president conducted a livefire negotiating session with democrats and republicans on Immigration Reform. That is an effective way of pushing back on these concerns that have been raised by critics of the president that he is not mentally fit for the job we saw the president , this got to him over the weekend. Owe was tweeting out he was a stable genius over the weekend theres an old saying in journalism, show dont tell. This was the president showing he can capable of doing the job, running the meeting, managing it it all raises the question with the big changes in trump land yesterday, whether or not trump is winning the establishment look at a couple of bullet points here. The president has been surrounded by some of the early trump targets. Senator corker, senator mcconnell, congressman ryan. All of whom he spent pieces of 2017 taunting over twitter and elsewhere but theyve been at his side senator corker accepting a pen at a signing ceremony on monday from the president he convened that negotiating session on daca and Immigration Reform he announced yesterday he will go to davos. The president will attend the World Economic forum in davos, switzerland later this month all of those things are things you do when youre winning and coalescing around the establishment. Davos known as being the World Headquarters of the globalist financial elite. This is a president who ran on a populist ticket. Well see what kind of message he brings. At the same time, as he is coalescing that establishment support, the president is also facing some key challenges on some of his key pieces of legislation he wants to pass this year on immigration sorry, on infrastructure and also on welfare reform on infrastructure the president has got a couple problems. One is that house con zefrtiveas are wary of big spending one source says the president wants a manhattan style infrastructure that many will remember, but many are reluctant to prioritize it, and even as the president is consolidating the republican establish mtmente faces significant challenges on his leg laislation what a moment yesterday to see him for an hour in command of the meeting. I saw some Campaign Trump there, too he goes, you know, heat . Give me heat ive had heat my entire life there was some there was some trump stuff happening there. The problem is if you do that in the public, you take some heat this is a president who campaigned as the hardest on hard line and immigration, now signaling hes open to an immigration deal that has some hard core supporters worried thats the danger. You negotiate in public, you might alienate some people we love davos i actually dont you dont like it its cold, eamon. Its like 5 degrees, and were outside. Do they let you ski when you go out there do you get time on the slopes . I dont i come right home. I lock myself in my little closet of a hotel room they dont have room service its bizarre its a small ski town. They try to bring 20,000 people in for the week. I take some drugs that, you know, some tranquilizers to not get stockholm syndrome you want us to feel bad for you for being sent to davos, switzerland . Theres globalests and elitists everywhere . What is the president going to do will he do will he tell off the elitists or join forces . Does he want their approval or does he want to tell them to get lost he dont know bit of both probably. Theres neanderthal man and theres davos man. You know who epitomizes davos man . Andrew andrew has been going there for 15 years he holds court he has like those little panels. Hes everywhere. Hes got lunches, dinners. Theres one person who is davos man, and i dont know where he is this week now its donald trump no. No hes a disruptor is he going there to stir the pot . President xi was there last year right president xi of china made a point last year of going to davos saying china is open for business he pushed back on this idea of isolationism, and said china is willing to do business with the world. This president will go there and deliver an americanfirst agenda we were told yesterday is it America First but were willing to work with you or America First and were hostile to you global elites thats going to be the fascinating nuance of this meeting. I like when realists and the rest of the world comment on trumps America First. When china says we may be china first here sort of or when japan says we think about our interests ahead of other countries. That seems like would you really like a guy who was america fourth or fifth . America sixth. America go sixth lets get in there seventh might be good enough seems i dont understand that criticism either but i dont understand a lot we have to get to the markets. I dont know whether you noticed, they keep hitting new highs because of the global synchronous growth joining us is jeff sout from raymond james, and mark lucheney and with us is brian kelly, fast money trader we will talk a bit about bitcoin. Lets do it i dont think its happening in a vacuum with the stock market that keeps hitting new highs. Maybe theres relationships there. There might be. Listen, i think theres something to be said for just this Global Capital pool out there. Certainly searching for some kind of yield, some kind of return bitcoin has had that return. Digital currency had that return i dont think its acting in a vacuum that being said, its not a one for run. Theres very few bigger funds out there saying im selling off treasuries today, i better buy bitcoin. Thats not happening yet but it will in 2018. The institutional presence of bitcoin is limited at this point, if at all almost nonexistent. High net worth individuals, family offices, you have some institutions starting to come into the market. No traditional Asset Managers that made allocation to the space and its difficult for funds, now with the futures its easier, but give cult for funds to difficult for funds to get that exposure. We mentioned jeff and mark. Jeff, ill start with you. You must be getting some kudos from the minions at your firm. You got bullish about how long ago . You talked about melt up, all that stuff it has happened. Thats right. Our short model says we will continue into the upside theres a pivot point and a timing point that comes into play thats your first point of vulnerability in the equity markets. Until then the path of least resistance is on the upside. Mark, are you do you have one step out the door yet . Do you feel the same way i feel the same way expressing concern within our organization to conditions that are overbought in the tick markets. We see relative strength measures around the s p 500 at 20year highs. In addition to that, if you look at sentiment surveys, whether its the American Association of individual investors or the Investors Intelligence surveys, theyre at decade highs. That is disconcerting and makes the market rife for a pullback of sorts on balance the direction were looking for is another good year to follow last year. We have 3,000 out there as our price target i dont think it will come as calmly as the last 12 months developed, but directionally we wanted to be biased towards equities going to advance at a pace that exceeds that of other asset classes. Frlts what whats the trigger for februarys pullback . Yesterday treasuries shot up and that provided headwinds for equities to go higher. Were practically at 2. 6 Jeff Gundlach said that below 2. 6 will be the end for equities here whats your view on higher rates and higher equities . I dont buy that the rates will go that much higher i think the cause for potential small pullback beginning in february is somewhat disappointing earnings season. You will see a lot of people take writeoffs that may disappoint on the shortterm basis but longer term the s p can earn 160 bucks this year. If thats true, were trading at less than 16 times earnings. I wonder how it happens we have to go, but if its choppy, we have big corrections on the way, or if it goes there immediately and treads water markets like this, they dont go on sale for 10 off usually. I dont know if you get 160 in earnings, you are looking at where the market is now, its like it is in position where it will give you an opportunity to buy it cheaper. So it makes me think i look for reversion of the mean, but we havent had one yet its amazing its like a beach ball you cant get under water, right . You said i think we want to be on if we have to err on one side or the other, we would rather be long stocks than assets it was a meh endorsement of staying in stocks from you again, i think its going to advance at a healthy clip. Were looking for gains for the year, but historically well se a correction its inevitable. Well see jeff, mark, thanks brian is sticking around for the rest of the hour unless something starts happening with bitcoin and you have to go a bitcoin emergency yeah. It seems like more of a bond emergency this morning bitcoin seems to be stable think of what were seeing, close to 2. 6 on the ten. But germany is at 40 basis points i know yin that said this mochina sy dont like treasuries as much. You have to be concerned you could see if there was a catalyst for a pull back in equities, you could see relatively low rate on the like 3. 25 or something. That might get people really worried. On a historical basis, its not high most strategists are saying once you get above 3, theyll cut back their estimates who globally in europe or somewhere else wouldnt jump on 3 when you are getting 40 basis points in germany. Of course but it comes to the bond market not the equity market. Coming up, the future of Berkshire Hathaway, warren buf fe fett will join becky at 8 00 a. M. You cant predict the market, but through good times and bad at t. Rowe price weve helped our investors stay confident for over 80 years. Call us or your advisor. T. Rowe price. Invest with confidence. Breaking news, Berkshire Hathaway is increasing its board of directors to 14 from 12 greg abel was named vice chairman for noninsurance Business Operations and aji ajit jain will take the title of vice chairman for insurance operations buffett and Charlie Munger will continue in their existing positions. This includes being responsible for significant Capital Allocation decisions and investment activities. Be nice to talk to buffett about this and we will he will join becky who is in omaha. Warren got one of his statements for his assets recently. We snapped a picture immediately. Hes very happy. He will join us with becky at 8 00 eastern big smile. Worth billions that smile does he logon to his online account to get a statement thats a good question. And is he surprised i did really well this month. I should think about doing this for a living. Were keeping an eye on a story out of the caribbean a 7. 6 earthquake struck in the Caribbean Sea last night between honduras puerto rico and the Virgin Islands were under a tsunami advisory but thats been removed. Officials say there were no early reports of damage on land. Another developing story this morning, a powerful rain storm in Southern California triggering deadly mud slides kirk hawkins is live in month see t montecito with the latest good morning. Were live on the 101 freeway, as crews are scrambling behind me in the darkness to remove this debris and all of the mud, a major stretch of this highway is now shut down the neighborhoods just beyond us here, an allout search for survivors is under way and access is a critical concern for First Responders reporter rescue crews racing against time, searching through a home buried under mud to find a 14yearold trapped inside a miracle discovery. Firefighters used the jaws of life to pull Lauren Canton to safety it was so hard to hear her. You know, we could have very easily taken two more steps and wouldnt have been able to hear her. Wading through mud with dogs a desperate search for survivors. A little baby, dont know where it came from got it out. Got the mud out of its mouth hoping its okay reporter the coast guard called in to help with evacuation it was pretty bad up there. Certain neighborhoods got hit bad. Some houses were wiped out. Reporter pulled to safety in the hills that burned weeks ago. The largest wildfire in state history. I heard the rumble of the rocks. I looked over at the river, trees are coming down. We had four feet of mud raging through, counterhigh through my house it was like in the middle of a river, water was gushing down the hills where where there was once flames, now theres flooding and mud and now this morning mandatory evacuation orders are still in place effecting thousands of people here this 101 freeway is expected to remain shut down until thursday at the earliest. Live in montecito, im kirk hawkins, back to you thank you coming up, much more on Berkshire Hathaway adding two directors to its board what does it mean who some day, way in the future for both of these youngsters, who finally takes over becky will join us next. Then at 8 00, our newsmaker of the morning besides brian kelly. Dont miss a liveinterview wit Warren Buffett himself squawk box will be right back. Welcome back youre watching squawk box live from the Nasdaq Market site in times square. Good morning u. S. Equity futures at this hour indicated to actually be lower by a significant amount, which we have not seen recently. The market has been up on a stilt. But yields are moving higher suddenly thats right. Were down ten handles on the s p 500. Not an extraordinary move in the long history of the market, but for what we had, this is a big move it is maybe it has something to do with this. Here is the yield on the tenyear right now 2. 586. If we talk to santelli later, you go back to march, it looks like this is the highest of the year im not a technician, but that could be a resistance level. What do bitcoin people say, is it a reversion of the mean or a regression to the mean do you want to be defined by bitcoin . Probably not youre a father, husband yeah. And certainly bitcoin people are my peeps dont get me wrong we say reversion to the mean you use a regression to get the mean good i will use reversion from now on now back to becky in omaha where Berkshire Hathaway is making news this morning. Hello. The news this morning is that Berkshire Hathaway is naming both ajit jain and greg abel as vice chairman of Berkshire Hathaway both of them will be joining the board, increasing membership from 12 people to 14 people. Each will have their own portfolio under berkshire. Ajit jain will be running the Insurance Businesses at Berkshire Hathaway greg abel will be running the nonInsurance Businesses. Now, these are two much younger men then the men right now in charge Warren Buffett is 87 years old chairman and ceo at berkshire. Charlie munger is 93, hes the vice chairman. Neither of them are stepping down, they will be continuing to put money to work for Berkshire Hathaway but this gives insight into who the people are, the names are in the envelope for who would eventually take over to run the company. No hint as to which one of these two or if both would be running that we will get more from Warren Buffett himself. For years he has refused to say who his successor would be this puts these two gentlemen in position to know whats going on and to be solidifying their positions in the company as well well get all of those answers coming up from Warren Buffett who will join us at 8 00 a. M. Eastern time in omaha. Also Charlie Munger will be calling into the show at 5 45 a. M. Eastern time or 5 45 his time, california time, which is 8 45 eastern time, 7 45 where i am now confusing with all the times but well hear from both gentlemen about what they see happening. Greg abel is 55, ajit jain is 62 years old. Both key members of the Team Insurance is a huge part of the operations of Berkshire Hathaway back in 2016 it made up about 24 of overall operations. Thats down from where it was ten years earlier when it was 50 of the companys earnings. This happened as Berkshire Hathaway made more and more purchases in manufacturing and beyond buying Burlington Northern as the big railroad that makes up a quarter of profits. Buying imc, the tool Parts Company based in israel. All of these additions in the last decade or so it changed the makeup of Berkshire Hathaway we will talk to them about those issues and about some things you guys were talking about. You were talking about the futures this morning, where markets have been and looking at yields wilfred frost brought up an interesting chart earlier this morning. He was talking about the yields on the tenyear in japan skyrocketing a bit skyrocketing to 0. 086 even as you see those moves, he was tying it to our tenyear yield where you see things almost getting to the point of being within shooting distance of 2. 6 . Well see what Warren Buffett and Charlie Munger think about those issues yesterday on cnbc, it was talked about if yields get to 3 , you could see a melt up of 30 gains in the stock market. Bill miller pointed it back to 2013 and said as people lost money in bonds, they took it out and put it into equity funds well talk about some of those things, too. Great counter intuitive, but im willing to believe anything at this point yeah. Sometimes those are the best trades right thats true when people think bk is crazy, those are the best ones to get into. Bk stands for bankruptcy, doesnt it no. Oh, brian kelly stands for brooklyn, too though i dont live there. Bk, the company went bk thats what i think of doesnt mean it went brian kelly. Burger king. Burger king. Thats what i think of. Creepy king. That smoke i were taste they spray on those things. Ugh. Dont like that. Thanks, becky im going to get sued im just kidding speaking of bitcoin, if youre looking for a masfastmon disruptive currency, blockchain may be with you. Seema mody has more on crypto careers. As the cryptocurrency universe grows, employers are looking for more with experience upwork which connects freelancers with businesses says blockchain is the Fastest Growing category right now it really ranges from launching your own currency to understanding and building prototypes on how your company can take advantage of Blockchain Technology the job listings vary from developers with experienceing c some looking for a consultant to come in on r. Aand explain how blockchain can help things be more efficient its not cheap given how fast the space is growing, linkedin says more members are including cryptocurrencies and bitcoin in their provides and that the u. S. Is the home to the majority of blockchain professionals the next highest countries are the uk, france, india, germany the Largest Private Company in the space is coinbase. They have a total number of 200 employees. Thats expected to grow more this year. How do they prove they are certified or they know its such an emerging technology. A lot of people i guess go out and market themselves as block tan chain experts. Theres a check that they have to make sure theres experience in blockchain, but some use it to get more people kodakcoin kodak, right. Theres a difference between being a consultant and a cryptographer. And what do they do a cryptograper writes the code theres a shortage for those Developers Consultants on the other hand, theres a bigger career path for them i would imagine the professionals you had up varies widely bededepending on what sk you are looking for. I imagine a lot of the cryptographers are in asia and you will see more hubs open up. As demand rises, more individuals are saying where i do get that experience in blockchain or cryptocurrency that is coming next. Im sure University Also have they already are. We did that story about how top Business Schools are launching classes because more grads want that experience. Seema mody, thank you. Coming up, a bold market call from bill miller. Later, do not miss our newsmaker of the morning Warren Buffett live from omaha at 8 00 a. M. Eastern with becky. At fidelity, trades are now just 4. 95. We cut the price of trades to give investors even more value. And at 4. 95, you can trade with a clear advantage. Fidelity, where smarter investors will always be. Time for the executive edge. Bill miller making a bold call on the market telling cnbc viewers in the to worry about higher rates putting a dent in the stock markets rip roaring rally. I think thats going to come, if we get it and it will be driven, you mentioned earlier about the tenyear yields. Those go through 2. 60 and head towards 3. 0, we could have the melt up we had in 2013, where the market was up 30 . Thats quite a melt up. Miller believes the stock market could get another boost from lower Corporate Tax rates. You can see the market wants to go up weve got the tax cut bill, i think that was great from a corporate standpoint, most of the rest of it was typical political Christmas Tree ornament dogs. T dogs. But i think that the economy looks great. Usually even if we get the economy accelerating, i think that inflation is probably a year or so away from becoming anybodys concern. I do think the curve is probably going to continue to shift up. Miller still likes financials, which had a great day yesterday. But that melt up of 30 . Thats an interesting call. Hes a legend. So, any type of counter intuitive talk like that, you have to take very seriously. I think to me, if you have rates rising for the right reasons, in other words, were getting an accelerating economy, the tenyear yield is at 3 , but were getting 4 plus growth in gdp, you can get that melt up. If rates as of this morning are rising for technical reasons, in other words, yourbiggest buyer doesnt want to buy them anymore, ie china, then you may not get the melt up. A melt up of 30 . Thats not a melt up, thats a rally in and of itself thats our year then im covered for 2018. And we have to find 30 in 2019. I want three of them three three years in a row. Like 94, 95 whenever it was. If we deserve it, we deserve it. Absolutely. So much winning. Well get so sick of winning. Coming up what dr. Oz, roger goodell, bobby brown and a former Prime Minister of greece have in common sounds like they all walked into a bar. Sounds like a joke heres a hint, it has to do with investing. Good and our next guest dont miss our newsmakers of the morning, Berkshire Hathaway chairman and ceo Warren Buffett will be on live at 8 00 eastern. And the companys vice chair, Charlie Munger at 8 45 eastern stay with me, mr. Parker. When a critical patient is far from the hospital, the hospital must come to the patient. Stay with me, mr. Parker. The at t network is helping First Responders connect with medical teams in near real time. Stay with me, mr. Parker. Saving time when it matters most. Stay with me, mrs. Parker. Thats the power of and. Thats it. Im calling kohler about their walkin bath. Nah. Not gonna happen. My name is ken. How may i help you . Hi, im calling about kohlers walkin bath. Excellent happy to help. Huh . Hold one moment please. [ finger snaps ] hmm. The kohler walkin bath features an extrawide opening and a low stepin at three inches, which is 25 to 60 lower than some leading competitors. 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Silicon valley is showcasing its most exciting innovations at the Consumer Electronics show in las vegas this week, but a new vc fund and its starstudded board are betting on different disruptors in tech for the new year joining us now founder and chairman of the kyros society, which its not secret, is it i mean, guys dont meet at midnight we dont wake up at 6 00 a. M. And come to nasdaq robes on and stuff. Weird eyes wide shut music were not that cool yet you have some criticisms that i think are interesting about ces in terms of that theyve almost become establishment in terms of looking at tech and that a lot of what they talk about are things that are nice to haves and what youre excited about and hope to be a big part of are things that are actually real problemsolving innovation for stuff that were facing not just look, you guys are no strangers to this topic. I think Silicon Valley right now is in a precarious time. Were seeing a fairly significant backlash in uprising not that dissimilar to what we saw in the last election, where people are seeing that Silicon Valley is no longer in touch with the needs of everyday people it doesnt take more than five minutes at cesto see another ale alexaenabled toilet or frig is that what i need seriously, isnt that what they sell lots of alexa. If my biggest challenge in life at any point becomes telling my toaster to go back and retoast for another degree, fine right now when you look at society and our communities here in the United States, people are dealing with some pretty tough challenges, right . Were graduating with 1. 5 trillion in student loans. The cost of rent in cities like new york is over 60ers approximate of peoples income the question is, like, is there really any hope and can technology solve some of these problems for us . Some of the ones that we think are already solved, which if you look at it, maybe theyre not. Yeah. As a result, youve got some things you would like to address and some predictions the first one i heard a horrible prediction a couple of weeks ago that the yankees are going to win the world series because they got this guy, you know, along with the other guy and okay. Youll want to tell that to a red sox fan. Thats a horrible prediction. This is even worse im going to become a millennial baby boomers ill never i got to go backwards in thinking and wisdom and everything i got to snap selfies all day long your tie will get skinnier and skinnier we have a millennial on this show he is not here today heres whats interesting one of the big changes we are going to see in 2018 is baby boomers will be the new millenials heres what i mean by that we have 10,000 people from the boomer generation retiring every day this year, and this is the first generation in history thats actually techsavvy maybe not joe, but thank you when you look at these boomers who are retiring who 70ers approximate actively use facebook on a daily basis, you start to think what does that change in the markets and what does that mean for industries, and i think one of the biggest changes well see this year is the transition of health care out of the hospital into the home now folks like my parents, like you guys, were able to go and use our technology to monitor our health, diagnose issues, take care of ours in new ways that wasnt otherwise possible, and when we start to take care of our parents, the boomers parents as we put them in elderly care, were able to use technology to bring that care again into the comfort of their own home you had four of these unfortunately, we have to get out. At 56. 65. You can see the clock. You talk about being a better parent and fertility is expensive. This will be easier. Paying rent will be cheaper and College Degrees wont leave you drowning in debt these are the things that could help real people that arent, like, toast ares or toilets. Ill just kind of close out in saying you got 15 seconds. There are some really interesting exciting innovations that will happen in 2018 i think its up to People Like Us here and everywhere else to refocus the attention not on the alexaenabled toasters, but the on technology that is will make an impact in our everyday community. Thank you appreciate it. Their money into equities. Theyre not investing in commodities or fixed income. What people are really putting their money into is what they hope to get out of life. But helping them get there requires a real refusal to settle for average. Because when you approach investing with a tireless desire to beat the status quo, Something Wonderful can happen. Those people might just get what they wanted out of life. Or maybe even more. Its Life Insurance and wharetirement solutions toic . Help you reach your goals. Its having the confidence to create the future thats most meaningful to you. Its protection for generations of families, and 150 years of strength and stability. And when youre able to harness all of that, thats the power of pacific. Ask a Financial Advisor about pacific life. A record run the s p turning in its best start to a year since 1987 the next test earnings season. Were going to talk markets and preview some of the earnings that will be key oil prices are on the rise touching levels not seen in three years. Not a coincidence that maybe yields are rising too. Well touch on what crude and the yield curve means for the geopolitical landscape, and breaking news from brookshire hat away Warren Buffett announcing major additions to the Board Details straight ahead, including an hourlong with the oracle as the second hour in the 8 00 hour. Meanwhile, the 7 00 hour starts right now. Live from the beating heart of business, new york city, this is squawk box. Good morning welcome back to squawk box here on cnbc were live at the Nasdaq Market site in times square im melissa lee along with joe kernan becky quick is in omaha. Well check in later on with this mornings newsmaker interview with Warren Buffett. Take a look at the futures right now. We are looking to lose up by triple digits on the dow down by 104 points at the open s p looking to be off about 10. 5 nasdaq looking to be down by about 40 if we hold these losses through the close, this will snap the sixth straight closing record highs for the s p as well as the nasdaq heres whats making headlines at this hour legendary investor bill miller telling cnbc that the market could be headed for a meltup. I think thats still to come if were going to get it, and it will be driven if we get it by you mentioned i think earlier about ten year yields. Those tenyear yields go through 260 and head towards three i think we could have the kind of meltup we had in 2013 when the market was up 30 . Miller thinks the market could see another boost from lower Corporate Taxes. He likes Airline Stocks like delta given their low value wags and says he still likes bank stocks well have reaction to his comments throughout the morning. Theres a pair of economic reports on todays wall street agenda import prices out at 8 30 a. M. Eastern time, followed by november wholesale trade numbers at 10 00 becky quick is in omaha, and she has the details on Brookshire Hathaway good to see you guys again. The news, folks, if you were just waking up this morning, is that Brookshire Hathaway says its going to be increasing its board from 12 members to 14 because it is naming two people to be additional vice chairs of the company. Those two people are greg able, who right now runs brookshire hat ware energy and ajit jain. The roles will ek bra down each of them taking a major portfolio in the company ajit jain will be responsible for all the insurance operations at Brookshire Hathaway that includes the reinsurance, jenre, geico and other insurance operations, indemnity and Home Insurance companies. A major part of the company that in 2016 was responsible for about 24 of the companys profits. The second part of that portfolio is going to be greg abel he right now runs Brookshire Hathaway energy. He is going to be responsible for all the noninsurance assets of the company that includes companies far and wide for things like Brookshire Hathaway energy that he runs right now. Also, burl ton northern, precision cass parts, margin, imc group, all of those manufacturing sides, and then a lot of the other companies that dont really fit in to either of those two neat buckets that includes things like net jets benjamin moore, johns manville, nebraska furniture mart. On and on. Joe, of course, your favorite acme brick would be one of those companies as well. This really kind of solidifies where you might expect to see succession planning for both dharl Charlie Munger and Warren Buffett. For a lot of time he said he did not want to name who his potential successors would be. He said the board knew those two people the names were in an envelope, but he didnt want to actually name who those two people were i guess this answers a lot of those questions that you might be expecting it comes as questions have been continued to come year after year about who the succession plans would be because Warren Buffett is 87, and joe, lisp to this i told you Charlie Munger was 93 i was wrong. He is 94 because he turned 94 on january 1st. You are talking about two gentlemen who are not stepping down who will continue in their roles as chairman, ceo, and then vice chairman, and will continue allocating money, but these two new dags to the board and the two vice chairman is something thats never happened in the 52 or 53 years in Brookshire Hathaways existence where. Its fine i mean, i guess people think that because he has had some health issues. The natural reaction is why now after decades of not doing this, why now . He is going to be here himself to tell us in person about that. Tell us he is feeling okay he is young natural expectation charlie relatively speaking charlie is seven years older. Warren, you know, his health is fine, and, you know, im going to i plan on the same type of thing. You know what i mean and the same tomb stone as warren god this guy was old you know what i mean exactly long, long life. Wow yeah okay good and a long time in our chairs too, right yeah. Well, you know, im going to stay and talk about andrew earlier. Im going to stay for andrew, i think. You know what i mean as long as i possibly he needs you. For him why just to be here for him to never leave him yeah to be the thorn in his side no. Just thats what it sounds like. People can interpret it different ways we will see you if not before, well see you at 8 00. We look forward to it. Sounds good i had a birthday in january too. I dont need another acme brick. He has to have something else. An cme brick. I dont need more ketchup cees candy that would work or net jets or a card not a blank card not just a card that doesnt have any money in it yes a card with waiting all right keep waiting a few stocks thanks, beck. A few stocks on the move this morning. Lennar that was short of analyst expectations revenues rose 12 to 3. 79 billion dollars. The homebuilder says tax reform will reduce its effective tax rate in 2018 from 34 no American Company has paid that rate anyway, it will reduce it from 34 to 25 i know. No one pays that well, actually, a lot of the retailers pay that rate and a lot of the banks pay that rate some of the ones that dont have been induced to move operations elsewhere to lower their blended rate, so its selffulfilling. Anyway, leave some money in the private sector it seems to be, you know it just seems to be a nobrainer. Nordstrom says samestore sales rose 1. 2 . Better than expected the retailer is boosted by strong sales, and its off price rack stores. Nordstrom is adjusting its full year earnings outlook slightly hire as well Dominos Pizza says ceo Patrick Doyle will step down in june i hope they got a good replacement because this guy do you watch this stuff . What a bangup job he did. Do you remember the commercials that he used to do when he first took over saying we know, the pizza doesnt taste very good. They retooled the pizza. The flavoring. All like the guy at mcdonalds the turnaround. Huge you would think how do you revitalize dominos or mcdonalds you know, i hate to say it, but schultz did it at starbucks too. I wish he would stick with that. Anyway, he will be replaced by the head of the companys International Business doyle has been ceo since 2010, says and oversaw dominos turnaround, including the move into online ordering and promotions and there is some chatter that he might be a candidate to be the next ceo of chipolte, which also needs a turnaround yes in a different way that will be interesting. Yeah. Just so you know, you dont need to make it better tasting you just need to people not get sick from their you just need to survive. No lets get more market perspective now, shall we . For that we are joined by president and ceo of fl Putnam Investment management company, and jim paul sen, chief investment strategist. Gentlemen, good to see you jim, ill start off with you with the concern in the market right at this moment, and that is the riesz that were seeing in the tenyear yield, were seeing banks around the world, like the boj move towards more normalized policy. The anchor holding rates down seems to be dissipating at this point. Are you concerned that perhaps its a rise in rates that could pose chal ekz to where we are in stocks right now the markets, not just the bond marks, theyre also starting to respond to over heater Inflation Fears if you look at the stock market leadership, this year and really throughout much of december its led by all the inflation sectors for the most part. Industrials, materials, Energy Stocks are leading the way then you got the dollar is breaking down. Thats inflationary force in the currency markets you got most Commodity Markets Rising Crude Oil broke to awe threeyear high. Overall the Commodity Prices are right on the kufrp of doing that then you got the bond market, and you are going you are very close to breaking that 262 threeyear high yield on the tenyear, and its being led by a rise in Inflation Expectations that are embedded in the tenyear tip, which broke above 2 there last week, and theyre within an eye lash of rising to about a 3, 3. 25 year high. The markets are starting to react to overheat pressures. If they do, and if they break north, i think foreign yields will also rise with the United States if our tenyear goes to 3 , i think german bunde yields will come up like a mound i dont know if theyll be as big an anchor as we think if the data is there to support overheat conditions. Were seeing rise in yields for the tenyear bunde and jgp all the inflationary sectors reviving over the past month or two. That and then you throw on top of that the impact of Corporate Tax and the feds path to rising rates. Three hikes at least this year is what has been telegraphed are the markets under estimating inflation at this point, tom i dont know if theyre underestimating it i think everybody has been looking for it yields are low they are rising. They should be higher. Theyre nowhere near where they ought to be given the economic environment, given the Global Central Bank pressure on keeping rates low. I agree with jim that u. S. Rates really arent going to be able to rise very far unless foreign rates rise as well if you do have along with synchronized global growth, synchronized rise in yields, there will at some point there will be a point at a certain juncture where the stock market starts to get spooked i dont think were at that point yet, and im not sure breaking through the tenyear yield of 262, 263 does that. Is it concerning that even with this modest rise in rates to just march highs, that the market seems to be stuttering. Yes, were that the peak in yields and the market is at a brand new high im not sure were there yet jim, you say that you want to debond your stock portfolio. It sounds like you think rates are headed much higher well, i dont know about much higher i think were going to see a tenyear, you know, 3 to 3. 5 this year. I do think were going to last year over the last 12, to 15 months the Federal Reserve has renormalized shortterm Interest Rates, and, you know, you look at the moves weve had from five years, two years, and cash, its been big moves in the last 12 to 18 months weve had really no move in the tenyear over that period. I think this year the bond vigilante is going to catch up with the fed and start to normalize longer term yields a little bit you know, to toms point, you know, im not sure where that will break the overall momentum in the stock market, but i do think its already broken leadership, and i dont think you want to be sitting in Consumer Staples and utilities and telecom if we have a rate resale on the tenyear yield yeah i think theyre going to take a hit absolute and relative. I would rather be sitting in the capital goods sectors that tend to do better with rising yields and rising inflation you know, tom, a big part of what we have seen fuel the rallies, the kpngs that earnings season will be good. That companies are going to be racheting up expectations. What we have seen on the part of analysts is analysts have been racheting up their expectations for earnings for companies by the fastest rate in about ten years according to despoke, that could create a high expectation. You deliver on that, and thats a disappointment how do you think earnings season will play out this time around should be an interesting one i agree with that as every you look at guidance Going Forward, people are still trying to get their arm around the new tax bill and how its going to affect the individual companies. The expectations that analysts have, theyre likely to be wrong in many cases about the future and have to adjust throughout the course of the year we concur with jim and his assessment of where you want to be positioned. We had been rotating out of Interest Rates sensitive areas into those that are a little bit more cyclically oriented and commodity Sensitive Industries as well. I think as you position yourself for this year, plan for volatility around earnings analysts are going to spend a fair amount of time trying to get their arms around this its going to take some time for them to go that. I think so that for your time, jim and tom. Thank you thank you all right. Coming up, oil surging to a threeyear high, but is it a good thing for the world stage whats it mean look at how oil prices could affect geopolitical risks in 2018 then later, Bank Earnings are just around the corner whats today wednesday . Friday, i think. Yeah, friday. Its just so convoluted so many things to compare to expectations you really need someone that follows it on a daily basis. Well have someone like that a preview of what you can expect just straight ahead. Squawk box will be rig bk. Htac nobodys putting their money into equities. Theyre not investing in commodities or fixed income. What people areally putting their money into is what they hope to get out of life. But helping them get there requires a real refusal to settle for average. Because when you approach investing with a tireless desire to beat the status quo, Something Wonderful can happen. Those people might just get what they wanted out of life. Or maybe even more. On squawk box yesterday we heard columnist tom friedman suggest that may not be agood thing in certain places. Im a big believer that the price of oil and the pace of freedom move in opposite directions the more the price of oil goes down, the more the pace of freedom goes up because these dictators who like in the middle east and in russia basically when the price of oil is high, all they have to do is drill the ground they never have to drill their people to unlock their energy, creativity, entrepreneurship joining us now for a look at oil around the globe is kevin book, managing director at Clearview Energy partners. How much risk premium is in the Energy Market right now . Risk premiums are a discussion because you have to know what the real price of oil is real price is what they pay at the refinery gate and the contract market. There is a froth to be sure. Some is it expectation that theres a sanctions risk coming. Friday marks the deadline when the u. S. Has to waive sanctions again to comply with the 2015 iran deal. We think those sanctions waivers are very likely at this point, and so that is probably over bought if that is the catalyst for it you know, weve seen this rise in crude, and normally, you know, you separate the trade in oil versus the trade in other commodities, but this is a time where we have seen all the commodities across the board reflr reflate. Does that give you more confidence that these higher levels are sustainable yes and no. On a fundamental bays the first half of the year is about 1. 5 million barrel az day weaker from a demand perspective than the second half of the year. You have just cyclical downturn probably waiting for the oil market that could pull it out of sync with that sort of global reflags you are talking about. More fumting for oil itself, you have the rebalancing that was undertook. You have the reduction in oecb inventories. That brought you an increase in brent crude in 2017. If things stay balanced, were probably closer to the 60 mark for 2018 average, but well have to see how that balance goes 60 an on average it wasnt that long ago where we thought that would be really high at what point do you think it tips the balance in terms of bringing shale producers here in the u. S. Back online, back pumping, and pressuring prices once again well, they already are. I mean, theres a certain mythology that the shale production undercuts its own survival by essentially bringing the price of oil down, but its a big market, and in the end shale added a significant amount to the world last year u. S. Production grew as a whole. About a Million Barrels per day. Thats an Enormous Growth in a 100 million barrel per day market oeshd, doing that every year requires also a lot of capital and theres still a lot of capital discipline in u. S. Producers. Theyre going to absolutely drill where they can, but they have to bring into market. Theres dislocations that are keeping the u. S. Price rather separate right now from the brent price. Those also could be determined to production. Citi had a note on oil recently i think it was even yesterday. They said 7 on 70 to 80 for the price of oil for brent, and a lot of what at least by my read, a lot of what was behind that was geopolitical risk, et cetera, and focussing on the u. S. And the risk of donald trump in office, im wondering what your take is in terms of the biggest geopolitical risk out there. For oil. The top headlines are probably iran and venezuela. If iran were to be pushed off the market, the theory and one we dont necessarily subscribe to, is that a Million Barrels per day of oil that was that is currently being exported could be essentially be stopped. We think whats likely to happen is that oil would mostly move from the low risk tolerance consumers to the high risk tolerance consumers and refine products would come back on the market there would be a frictional increase, but not a catastrophic one. For venezuela the idea that the collapse of venezuela would take of very Significant Impact that too seems unlikely. Collapse is not in the sbr have anyone who runs venezuela. Certainly not in the duro. Sanctio sanctions, however, do seem to be in the offing good to talk to you thanks for having me. Did you go back to school or something . Did you you have a ph. D did you get a graduate degree . Its that beard kit i got for christmas. It made me smarter its the beard. Oh, santa claus was so good to me. This is like a symphony in my ears its so cogent its amazing that was the reinforcement i needed thank you. Youre welcome. Keep it. Looks good got the gray glasses really good beautiful. Tie its all working its not about the follically challenged coming up, a steady number of banks what if i said yes . Steady number of banks are willing to open accounts for their marijuana businesses and actually know thats what theyre for instead of just not asking a shift by the federal government could hurt those arrangements that story straight ahead. Dont forget, Warren Buffett will join us at 8 00 a. M. Eastern time becky is in omaha and will bring us that interview, and news of the changes to the board of Brookshire Hathaway. Squawk box will be right back. Time now for todays aflac trivia question. Which states were the first to e swlize Recreational Marijuana . Thaner when cnbc squawk box continues and a gentle wavelike motion. Liberate your spine. Aflac and reach, toes blossoming. Not that great at yoga ya but when i slipped a disc, he paid my claim in just one day. So he had your back . Yup in just one day, we process, approve and pay. One day pay. Only from aflac which states were the first to legalize Recreational Marijuana . The answer, colorado and Washington State coming up after the legalization of pot smoking. At least until the federal crackdown on the industry. A look at what it could mean for the banking industry, which was just opening up to the idea of organize every offering accounts to those businesses. As we head to break, take a look at u. S. Equity futures with the tenyear yield up close to 2. 6 this morning s p looking about nine at the open dow jones looking to lose about 90 u wchg quk x. Yoreatinsawbo weve been preparing for this day. Over the years, paul and i have met regularly with our ameriprise advisor. We plan for everything from retirement to college savings. Giving us the ability to add on for an important member of our family. Welcome home mom. With the right Financial Advisor, life can be brilliant. Breaking news this morning lets get to becky quick live in omaha. Hi, beck hey, joe. Good to see you guys again the news this morning is about the closest thing that weve ever seen to a succession announcement from Brookshire Hathaway Brookshire Hathaway saying that its announcing two new vice chairman of the company. The first is greg abel who currently is the head of Brookshire Hathaway energy he will be the vice chairman at Brookshire Hathaway in charge of all of the noninsurance operations greg abel is 55 years old, has been with Brookshire Hathaway energy, has been running the company for some time now. Also, the second part of that piece of that announcement Ajit Jain Ajit will be in charge of all the insurance operations at Brookshire Hathaway. He has been running Brookshire Hathaway reinsurance and has been a key member of what et cetera been happening with the insurance pieces of the company for some time. Both of these gentlemen have been mentioned as potential heirs to Warren Buffett, who is the chairman and ceo of the company. With this news with both of them becoming vice chairman, brookshire says that its board will go from 12 members to 14 members. Both of them assuming positions on the board as well as i mentioned, this is the closest weve ever gotten to a succession announcement from Warren Buffett, who is 87 years old. Mr. Buffett will be joining us in just about a half hours time to explain the reasons why for years and years people have asked who his successor would be he has always said that he wouldnt name publicly who these people were, but that the board knew in the event of something happening to him overnight, something being hit by a bus, him getting sick, anything along those lines, they knew who the two people would be in those positions. This is kind of a public revelation revelation of who the names are in that envelope he will be joining us to talk about that and many other issues out there, including whats been happening with the markets and what to make of the tax bill what it might mean for Brookshire Hathaway. He will be joining us to talk about all of those things starting at k a. M. Eastern time. Then at 8 45 eastern time well be joined by Charlie Munger, the vice chairman at Brookshire Hathaway he will be calling in from california back to you. I love charlie. I still say he is a youthful man, but he does have a tendency to not worry about how his comments are construed at this point. Thats why we love him. Thats why we love him if you ask him something, he will answer. He doesnt look you you know, its kind of cool because not many people can sort of talk to warren like he is a young whipper snapper, but charlie is still able to, right charlie is the 4 and he speaks his mind. You are kind of modelling yourself after him, right . In terms of speaking my yeah, maybe so maybe so anyway, look forward to tsh both of those interviews. What time is it . 7 33 we will see you in 27 minutes, which is great becky, in the wake of attorney general sessions action on marijuana last week, analysts say the big area where growth may slow is in banking its interesting kate rogers joins us now with more on this big hurdle for the Cannabis Companies while reactions to attorney general sessions actually last week on marijuana have been mixed, some fearful, some carrying on with business as usual, one thing analysts can agree on is that this does stand to impact banking. Thats something analysts say is really the top issue right now facing marijuana businesses. A recent report from industry analyst green wave advisors estimates 5 of all Financial Institutions in the u. S. Are on record with fin cen as having a relationship with cannabis businesses, but only 1 are actually servicing them. Before banks were reluctant to do business based upon the loosely defined fincen guidance. Now it just raises more uncertainty. But more banking hurdles need ancillary businesses that dont actually touchdown the plant and offer security may benefit tony gallos Sapphire Risk Advisory Group offers vaulting, armored cars and Security Consulting he has received calls from clients old and new in the past week seeking advice and even new business a lot of our clients were concerned about whether their security is adequate at this time in their locations, whether its a grow facility or dispensary then new clients that are looking to come on board wanted to know what kind of security are they going to be required to have Going Forward one thing that sessions action didnt alter . Projections for the industry green wave is estimating 30 billion by 2021. Thats assuming that there is at least a medicinal market in every state in the u. S thats the great pair docrad there. Theres parallel guidance, and thats still in place, and that says that the banks can work with marijuana businesses so long as they follow those aid gui guidelines theres conflicting advice the big players in the financial world are now farther away than ever before than getting about thinking about getting in the business with these chemist companies. Well see what happens i mean, definitely at this point the jury is there are medical uses ptsd and cancer. I mean, theres just no doubt. You have to take that into account regardless of your social sort of impression of marijuana. And, again, not sure every grade schooler ought to have the ability to i guess if they wanted, they could get it now, right . I mean, thats the fear, right . That this will push people more into the black market than err before too and thats right too. At least you can control it and regulate it. And get the revenue from it yeah, all right coming up, the turnover for banking executives is nearly twice as high as other companies in the s p 500 a look at what keeps guys like blank fine and jaime diment at the top. Heres a look at futures this hour as we head to a break down to about 88 now on the w. Quk xilbeight back. No matter how the markets change. At t. Rowe price. Our disciplined approach remains. Global markets may be uncertain. But you can feel confident in our investment experience around the world. Call us or your advisor. T. Rowe price. Invest with confidence. Wow record time. S. At cognizant, were helping todays leading Life Sciences companies go beyond developing prescriptions to offering subscriptions with personalized, realtime advice for lifelong, healthy living. Honey . You almost done . Nope. Get ready, because were helping leading companies see it and see it throughwith digital. Big six bank ceos is eight years for s p 50000 companies. Its four years given the simple comparison is now the time for change at the top of americas biggest banks. Wolf frost joins us now. You have taken the first few words right out of my mouth. The median age of ceo in the s p 500, 57. The median tenyear at the helm of their companies is four years. By that simple measure, as you said, the nations biggest banks could be due to refresh at the top. Their median age 54. 5. Their median tenyear is eight years. Clearly jp morgan jaime diment and lloyd blank fine stand out both thoef been ceo for well over a decade welds Fargo Tim Sloan appears the best 33 . While blank fine surprisingly stands out as the lowest 5. 7 annualized return however, crucial to acknowledge that he endured the financial crisis whereas most of the others did not his Bank Share Price performance beats all of these investment banks since he took over other than jp morgan not to mention the standalone nature of some of his rivals legal lehman brothers. On the flip side, sloans annualized performance looks super impressive as we said, 33 . It is in absolute terms, but not in relative terms. If we take performance since trumps election victory as an indicator of recent performance, wells fargo clearly one of the under performers since he took over, relative performance versus the kpw bank is down 14 . Money hoon and bank of america, the clear outperformers. 72 since that election. Now, back to the overall snap shot of the group. Long tenyears on average, but that not a that alone not enough to cause a concern for any of the gentlemen here on the far right. Bye, guys. All right for more on some of the key issues facing Bank Management this year as well as a look at earnings season were joined by chris, managing director at oppenheimer and company. Theres a lot of Different Things tax reform theres a 2. 6 tenyear now, which might be good. What else is are banks facing, and should we Pay Attention to, credits . Well, i think, first of all, lets Pay Attention to the fundamental back drop. The fundamental back drop for the banks i think is basically farable because in a rising rate environment, you can turn the low single digit loan growth that were experiencing currently can turn into double digit eps growth the basic formula for that is that you have got 2 or 3 loan growth that doesnt sound that great, but with rising shortterm rates, that will turn into 5 or 6 Net Interest Income growth, which is 60 of the revenues if you can keep your Expense Growth to down to 1 or 2 , that will still drive upper Single Digits pretax net income growth. Even with rapidly rising low provision as they normalize, and then you add 3 or 4 for buybacks thats kind of the basic underlying dynamic on a steady state basis. You are generating double digit Earnings Growth even with low to single digit loan growth thats pretty good, right . Then on top of that, you add the impact of tax cuts which, you know, its going to distort all the comparisons. You are going to get, you know, chashlgz in the Fourth Quarter this year, but then youre going to pop earnings estimates up next year. You know, i for one believe that over time that windfall from the tax cuts is going to get competed away. Youre not going to see that in 2018 and 2019 because all the loans that are on the books today were put there in the higher tax rate environment. Yeah, i dont hear anything is it sounds bad, and it doesnt hurt if the economy grows at 3 , does it . Dont people do more things and borrow more money and decide to, you know, start businesses and all kinds of stuff, dont they yeah. I mean, in my view, you know, the tax cuts are stimulative that helps further then roog forwarlooking forward big techtonic change to look for and how it kbaks Financial Markets and Financial Institutions, is going to be rising rates and the normalizing rates. I think at least the initial phases of that are nothing but positive for banks the shortterm rates rising is all you need for the commercial banking business basic business between making loans and making taking composites that benefits from rising shortterm rates the tenyear is really irrelevant there yeah. When the tenyear starts moving, thats going to help the fixed income trading business as well the bond market is twice the size of the equity plarkts, and, you know, we are so low in absolute terms on all those rates that, you know, if the tenyear or the 30year treasury were to normalize, you would have a 20 or 30 decline in the value of those bonds you know, i think thats going to be the next big drama it will take two or three years to play out. Well see how the banks handle it, and, you know, i think people always say, like, the mistakes in the bad times are made in the good times, right . So some of the writeoffs are from loss carryforwards citigroup, man, they worked hard to get, you know, billions of dollars of losses in the financial i mean, theyre not going to be able to use those. Theyre not worth as much, i guess, at 21 as they are at 35 , are they . Its a funny kind of thing. Right . Its not like the tax reform is costing citi a single penny of after tax earnings, right . In the old world if they had 100 of pretax earnings their nol would have shielded them from 36 of taxes and they would have paid zero in the new world if they had 100 of pretax net income, their shields nem from it 1 of taxes and they still pay zero. Its not like citibank is out any money. Its kind of a weird thing its a 20 billion charge for citi expected. Goldman, its expected tosh a 5 billion. Theres some thinking, chris, that banks will take these writedowns to give them pat for future quarters. Is that your take on it too . Were going to get all these Bank Earnings on friday and get the Conference Calls what are you expecting i think for the most part they dont have a need to kitchen sink the one that i think might do and some kitchen sinking would be wells fargo theyve had kind of a choppy result all yoer long you know, you could and its the end of tim sloans first year thats that would in my mind be the best candidate for it one way or the other, i dont think its a big ethfor the stock. For the other banks, im not sure that theres a need to do much, and im not sure that if there was something really significantly off that you would get much credit for the fact analysts are going to look at this on a pretax basis stay near your phone well call you friday or something probably we need were going to need some help figuring all this out. Thank you. All right thank you. All right coming up, stocks to watch ahead of the open on wall street at the top of the hour brookshires Warren Buffett joins becky quick from omaha to discuss the news this morning regarding new appointments to brookshires board its a squawk box exclusive, and it happens at the top of the hour dont go anywhere. Check out european markets right now. We are seeing red arrows for germany, which is down almost a , and the cac is down. 4 . Its time for sleep numbers lowest prices of the season on the only bed that adjusts on both sides to your ideal comfort, your sleep number setting. And snoring . Does your bed do that . Its the lowest prices of the season on the queen c4 mattress with adjustable comfort on both sides. Now only 1199, save 400. Ends soon. Visit sleepnumber. Com for a store near you. Jierjs toyota and mazda will build a final Assembly Plant in hunts krlville, alabama. They will built the Toyota Corolla and its a huge win for the trump stlaigs, and it would add manufacturing jobs especially in the auto industry. Wow lets take a look at some stocks to watch we mentioned lennar earlier. The company 1. 29 that was short of analyst expectatio expectations homebuilder says that tax reform will reduce its effective tax rate 34 down dominos ceo is going to stem down in ahead of International Business doyle has been ceo since 2010, and he oversaw dominos very successful turnaround, including the move to online ordering and promotions sno do you need a menu they have everything. They have pizza theyve got chicken sandwiches. Salads. They have wings chicken all kinds of nuggets, sandwiches all kinds of i havent ordered dominos since college. Cinnamon twisty bread theres a lot. You physically go in. I do. I was in yesterday yesterday i was in yesterday. On the way home from picking up my son a man of your physique, i didnt think for my son. Im on the diet. Im on the scarsdale thing starving myself. Yummy salad. Not. Patrick doyle is going to join jim cramer on mad money. You know what ymy fruit salad refers to . The wiggles. That was p their famous song revealing plans to mint its own crypto currency called what else, kodak coin, as part of a joint effort with wynn media group. This is part of a block chain to help photographers control their own image rights, and it plans to install rows of Bitcoin Mining rigs at its headquarters in rochester new york. Kodaks stock up over 60 in the premarket on the news, and this is on top of the huge increase in yesterdays session on this news the use case of block chain to protect intellectual property is extremely valid. I mean, that is seen as a big use case the rise in the stock for this former dow component that used to have glory days, which is no longer, of course you got to go way back. Way back. I mean, to be able to go up for 4 to 60 , you got to be a handy stock. Basically. The market gap is tiny still. Brookshires Warren Buffett joins becky quick from omaha to talk about brookshires board. Its a squawk box exclusive, and it happens at the p top of the hour meantime, take a check on futures. Weve been looking at them all morning. They almost triple digit losses looks like for the dow looking to lose 98 s p looking to be down almost 10 squawk box will return with Warren Buffett after the break and the wolf huffed and puffed. Like you do sometimes, grandpa . Well, when you have copd, it can be hard to breathe. It can be hard to get air out, which can make it hard to get air in. So i talked to my doctor. She said. Symbicort could help you breathe better, starting within 5 minutes. Symbicort doesnt replace a rescue inhaler for sudden symptoms. Symbicort helps provide significant improvement of your lung function. Symbicort is for copd, including chronic bronchitis and emphysema. It should not be taken more than twice a day. Symbicort contains formoterol. Medicines like formoterol increase the risk of death from asthma problems. Symbicort may increase your risk of lung infections, osteoporosis, and some eye problems. You should tell your doctor if you have a heart condition or high Blood Pressure before taking it. Symbicort could mean a day with better breathing. Watch out, piggies get symbicort free for up to one year. Visit saveonsymbicort. Com today to learn more. If you cant afford your medication, astrazeneca may be able to help. Breaking news. Brookshire hathaway announces major changes to its board ajit jain and two big newsmakers coming up Warren Buffett and charlie mu munger join us live in omaha a special hour of squawk box begins right now live from the most powerful city in the world, new york. This is squawk box. Good morning. Welcome back to squawk box here on cnbc live from the Nasdaq Market site in squawk square im joe kernan along with melissa lee. Fast money square. It does yeah. Becky quick is live in omaha shes going to join us with two special guests this hour first, Warren Buffett himself live live with becky. Then at 8 45a. M. Eastern time charles Charlie Munger is going to join us and becky 8 45 east coast time from omaha square. From brookshire square. Buffett square buffett conveyor. Weve been noticing how the futures have been holding negative all morning long. This is after six Straight Record closes for the s p as well as the nasdaq really a change in tune for 2018 s p looking to lose about ten at the open dow looking to lose about 1100 nasdaq going to be down by about 38 points here just taking a scan of premarket action it looks like a lot of the fang stocks, for instance, are down about a percent premarket along with tesla, where we are seeing some pressure here taking a check on whats going in europe, and we are seeing a similar sort of action here with the da kb down the cac is also down the rest of the markets there are just fractionally changed. This is the story of the morning. The move in treasury yields. Its not just u. S. Yields moving higher the tenyear yield at 2. 59 is the highest level at least since march of last year were seeing worldwide bond yields rise as well. Were seeing a rise in the tenyear bunde and jgp that is helping to lift the action on the yield side our top story this morning, this is great to have warren today, but Brookshire Hathaway making big changes to its board. Lets get to becky quick in omaha. She joins us now with a very special guest. Yields, warren im sure well want to weigh in on that. I think Insurance Companies have to invest a bunch of stuff, dont they, becky . I mean, it might be better to get might be better to get a little bit higher. Bond yields have been painful for the Insurance Companies, for the pension companies, and, yeah, im guessing thats probably so. Is he really there with you, honest to god . Yep you want to see . You want to see . Take a shot. Ill be darn. Ill be darn thats not tom cruz with one of those masks on like thats really nope. He is still smiling. He heard everything he was watching. Fooelgs, Warren Buffett, the clarm and ceo of Brookshire Hathaway is with us this morning, and this is on a morning that Brookshire Hathaway has big news two new apoims to the Brookshire Hathaway board greg abel who runs Brookshire Hathaway energy and ajit jain who runs Brookshire Hathaway reinsurance. They will both be promode to vice chairman and be named to the board, and will each have their own portfolio to run in the company. Greg abeel, you see there 55 years old will be running all the noninsurance parts of Brookshire Hathaway. Ajit jain, pictured here, who is 66 years old, is going to be running all the insurance parts of Brookshire Hathaway warren, we made a comment about this earlier today this is the closest that weve ever heard so a succession plan. Is that how we should be reading this its part of a Movement Towards succession over time, and they are the two key figures at brookshire. This would have made sense five years ago. They both have brookshire in their blood. They love the company. They know their operations like the back of their hand its really its very good for brookshire, and its even better for me. You mentioned yourself that this could have happened five years ago. There have been people who have been pushing you to make public your succession plans for quite a bit longer than that that raises the question why now . Like you say, it probably should have been done a few years ago, but everything has been working fine. On the other hand, theres some value in having both of them in those positions and getting more familiar with the ones they havent been the operations they havent been in contact with about, and ive got a certain amount of Institutional Knowledge and can tell them the strong points and the weak points and this and that of the various operators. Its just its a transition period that may last a long time or something happened to me it could happen very soon theres nothing magic about the time its kind of interesting, actually i talked to the directors one at a time before we had this meeting last night the degree to which they jumped at the suggestion was a little alarming wanting you to go ahead and make the switch. Yeah. There was no persuasion needed you just said that this could happen it could last a long time, or it could happen more immediately. Should people be concerned about your health . No. I am remarkably in good health, particularly concerning the life ive led everything physical gets a little your balance isnt as good, and your endurance may not be quite as good, and all of that i have slipped in all these various ways, but i wasnt much to start with, so the amount of slippage is fairly minor just because i started from a low base no, i feel terrific. I love what i do i cant wait to go to the ochgs in the morning, and, no, theres no theres been no change in that incidentally, if there was anything about my health, and this has been true since i took over, i would tell the shareholders immediately im not wrong to talk about my health in fact, i think you have a duty to do that when you are ceo. How will this change operations at brookshire you will now have three vice chairman Charlie Munger, ajit jain and it Means Nothing in terms of physical change. Ajit lives in new york, work in connecticut, and also in new york city. Greg lives in des moines they wont change anything theres no change in our office. Cfos in omaha there wont be a change in one person in omaha or really any place else except somebody will move up to the head of Brookshire Hathaway energy is this the potential setup with todd and ted each running two things and kind of operating together. Is that how we should anticipate succession planning at Brookshire Hathaway . When im not discovery, there will be another ceo. There will be a ceo. How that ceo will organize things will be up to him in this case, and that will he will figure out the best way to do it, and it boewont change very much it will change a little, but not very much. Do you know which of the two would be ceo if this were to happen overnight you never know, but our directors know what they would do tomorrow morning if it happened, but they dont know what they would do four years from now i guess that raises the question, does this raise a little bit of a horse jockeying competition. Theres no horse race at all in these two fellows they know each other well. They like each other well. They both have their areas of specialty. I mean, greg would not want to be running insurance ajit would not be running the other operations they are extremely good at what they do. Those are two pretty different businesses theyre roughly equal businesses theres more there are more people on one side, but the Insurance Business generates over 100 billion of float in addition to having well over 100 billion envested in it in terms of net worth theres more or less parody of earning power. Thats what i was going to ask you. Weve been looking at some of the measures this morning just from analyst notes on some of these things if you look at 2016 profit and break it down, the Insurance Company represents about a quarter. At least for the profits for that year and obviously insurance profits can swing pretty rapidly you look at it a little differently. Yeah. If we have 100 million plus a float, that means those interests in dividends and a fair amount of Capital Gains over time come from the insurance operation. Theyre really of equal importance imauto n im not sure if we were to sell one side or the other which one would bring more money they both are enormously important to brookshire. And the key is its kind of the secret behind brookshire hat ware from all these years. The Insurance Company creating the float that then you can turn around and invest either in purchasing other businesses or in purchasing securities and bringing them in how does that work when its not the same person who is kind of responsible for overseeing all of that . They would have to be people who work well together well, they certainly have to understand each other. I invers the capital, and charlie does it with me, but in our insurance operations, tony nicely at geico, he doesnt think for five seconds how the money is getting invested, and actually the same way with ajit. Their job is to develop good Insurance Business, create more over time, and my job is to invest it. Theres really three functions in the businesses. Two different types of operations, and then theres the money. Why didnt you do this years ago . What was the reasoning behind that probablileiley lethergy bordg on sloth it will be valuable to anybody that succeeds me to have had more experience in the overall management of a large area, and we have so many different we have a lot of different ones than insurance we have even more than the other operations just in terms of the history of which managers really dont need any help whatsoever and which ones if theyre doing acquisitions may need more input than others. Theres a lot of different individuals running our different businesses, and they have different strengths and weaknesses over time on both the insurance side and the noninsurance side, each much those fellows will pick up theyll know a lot more a year from now than they know now theyll have the businesses reporting through to them . To them theyll decide the compensation of the people underneath i mean, certain people we have compensation arrangements with that we will have in force for their lifetime and people think that we made up the type of acquisition, but aside from the ones that are fixed, those decisions will be theirs, and smaller acquisitions will probably be theirs if theres a large acquisition, then charlie and i will get involved you will get involved in making the acquisition, but i would assume that any future acquisitions would report through those divisions would report through to one of these two gentlemen. Thats right. Will that make it more difficult for you to make acquisitions because one of the big lures in the past has been being able to report to Warren Buffett . Well, it isnt that i disappear. I will tell all these fellows and women to send me the statistical information they get. Its like looking at baseball scores or something from my standpoint ill keep getting information, but i will not be setting the pay. I mean, they will be working for either ajit or but ill be as interested as ever theres not a drop of brookshire blood thats leaving my body you said that this is something that you feel great. Ist terrific. Your health is in Perfect Health are you tired . Do you not want to be doing as much im down im at the office on saturday any saturday im in town, unless theres something very unusual going on. I love it. I love brock shire i look forward every morning to being there, and its a great you couldnt have a better job than ive got. I just have made it one notch better theres a jp morgan report from september of last year and the analyst there points out that succession has always been a big question the next link of who is going to be there has always been a huge question she also points out she wouldnt be surprised to see you running things for the next ten years or so you have an actuarial brain. What do you think when you start thinking about how long youll be running brookshire . Ten years would be a long time, but every time i see one of my doctors, i say just guarantee me the next five years. Its sort of a running extension as i go along. It was like it was ten years ago. If theres a deal someplace, ill get on a plane as soon as i leave here i love what i do at brookshire theres nothing i would rather be doing because i could do anything else if i wanted to do something differently. Its more fun than i think i could imagine. And how you did this decision come about i just was maybe six weeks ago or so i just decided why not now . As i said, i talked to the directors one at a time individually before we had this vote last night, and they jumped all over it. I was hoping there would be a little disent or something then the meeting took about 15 minutes yesterday on the phone it just makes sense now. I know that if i were in the position of those two fellows, i would just asoon have some of the stuff. I would like to get some experience with supervising a whole group of businesses before i eventually took over potentially making sure they feel comfortable with all these issues too Charlie Munger will be sharing the title. How does he feel about it . It was his idea, actually in terms of the title. I got about halfway through the first sentence, which is more than i usually get through with charlie before he comes up with a better idea, and he just says, look, lets just have we will be joined by Charlie Munger later this morning to talk about his perspective on all of this as well. When we come back right here in omaha, we will have more from Warren Buffett we will talk to him about what he sees in the markets at the beginning pa of this year, what he thinks about Interest Rates this morning and p more. Again, we are live in omaha, nebraska, this morning with war enbuff rett, the chairman and ceo of Brookshire Hathaway news this morning and much more. Well be right back. Lets begin. Yes or no . Do you want the same tools and seamless experience across web and tablet . Do you want 4. 95 commissions for stocks, 0. 50 options contracts . 1. 50 futures contracts . What about a dedicated service team of trading specialists . Did you say yes . Good, then its time for power e trade. The platform, price and service that gives you the edge you need. Looks like we have a couple seconds left. Lets do some card twirling twirling cards e trade. The original place to invest online. We know life can be hectic. Thats why, at xfinity, weve been working hard to simplify your experiences with us. Now, with instant text and email updates, youll always be up to date. You can easily add premium channels, so you dont miss your favorite show. And with just a single word, find all the answers youre looking for because getting what you need should be simple, fast, and easy. Download the xfinity my account app or go online today. Sflo do the markets seem richly valued to you . Theyre not richly valued relative to Interest Rates you know, stocks Interest Rates are the longterm rate its 3 , and were quite a bit less than exit the longterm rate 7 theres panic many in stocks if the longterm rate is 15 like it was in 1982 Interest Rates are the gravity to value basically everything is worth the present value of what its going to cash is going to deliver in the future obviously, if rates go up, that present value brings the number today down weve had low Interest Rates now for a very long period, and weve had a bull market since well, really since march of 2009 when i was on, and joe asked why i wasnt buying more mesh express at 12, and i told him that i was buying things that we werent allowed to what has happened in the market has been very sensible i mean, nobody thought we would have these kind of Interest Rates for a long time. Now, additionally, you had the tax act, which is a huge factor in valuation i mean, if you had bought lets say you had bought the Union Pacific railroad yourself, like we bought the bnsf. If you bought it a year or two ago, you could have bought 100 of the stock, but the u. S. Government would have had a super stock that was entitled to 35 of the earnings. They had just changed that without you paying them a penny to where they now have 21 of the stock. In effect, you bought in their 14 . Theres a major change in the silent stockholder theres various things about foreign earnings and all that, but 5 of a basic are basic businesses now instead of getting i have not heard anybody explain it just like that. When you Say Something like that, you know, were constantly asking is this baked into the market is this reflected in the market. When you Say Something like that, that makes me think no, that this is a much longer term, much bigger deal than the runup that weave seen in the last month or so. Its a big deal how much of its been baked in as people started things the tax bill and how big would it be . 21 was not baked in thats a huge, huge reduction. If you and i were partners in a business and you owned 35 of it and i own 65 and you showed up one day and said im giving you 14 of my 35 points, now my interest has gone from 65 to 79 . Thats more than a 20 increase in the earning power, and you just have given it to me nothing has changed in the business thats its a big factor. Now, they can take it away too go the other direction were looking at this new change its just been on a case by case basis that investors are trying to figure out what this means for companies. We are just beginning to hear the very early pieces of this. Youre basically saying that this is good news for shareholders across the board because sometimes this is painted as something thats a giveaway to ceos or skorpt executives, things along those chbz lines people who own the businesses have just owned they now own 20 more of the domestic earnings its more complicated. Its good if you own the foreign stuff too, foreign earnings. We happen to be overwhelm iing. Its an interesting point. The government doesnt own the assets of the business we own 100 of the assets of bsf, but we dont own 100 of the profits. We went from 65 to 79 percent of the profits at bsf, and that is more than a 20 increase. 14 points. Its a big deal. What does it mean specifically for Brookshire Hathaway stlfs an analyst that just put out a note that said that its a 37 billion book value increase for brookshire instantaneously it doesnt mean a dime of cash today we have a huge of amount of deferred tax liabilities im fulg these figures out dont file a suit if im off a little bit we have perhaps 100 billion of unrealized appreciation in the securities we own, and if you own securities that have gone up, you dont have to pay a tax just because theyve gone up, but if you saw them, you do, and if you kept your books on an accounting basis, you set up a liability for the tax on your unrealized gain. Well, our tax on the unrealized gain on 100 billion would be 35 billion, and then that goes down to 21 billion under the new tax law. Anybody that has a lot of deferred tax liabilities gets a big kick up in book value. A company like citigroup has a big Deferred Tax Asset the reverse is true there because that tax asset is not worth as much. What it does is it reduces their taxes in it future years, and that reduction is worth 21 cents on the dollar instead of 35 cents on the dollar. It depends whether you have a lot of deferred tax liabilities among other things, but thats a big one with us. Its a change in accounting, but what does it mean instantaneous instantaneously . It does mean if i sell stock, i was going to sell in december, and i wanted sell it i didnt sell it in december i would have had a 35 tax on the profit, and by waiting until january 1st, if i sell it today, i have a 21 tax hike. 79 of the profits for brookshire this month and last month i would have gotten 65 . You hinted at this in october and said if the tax changed, and as early as i think it was october 3rd the last time we sat down with you. And hinted at this whole idea of what you would be potentially selling or not selling as a result are you selling stocks now that net were buying. Net youre buying yeah. Net. Ive lived under 15 of the 44 president s of the United States, and i have bought under every single one of them except hoover i was only a toddler then most of the year. Were basically buyers over time that doesnt mean there could be conditions you should which were sellers, but thats not for one thing, the money keeps coming in. We keep buying let me ask pesk sli on one stock, ibm, are you a buyer or a siller of that because weve talked with you in the past when you were selling yeah. Well, around the middle of february we have to report what we did in the Fourth Quarter well, it was advantageous if you had a loss in shares and we did in some, it was advantageous to sell last year rather than this year so does that mean youre not selling ibm this year . It would certainly mean that if we had high cost ibm, we would have sold it last year, and if we had low cost, we would have waited until this year, and we had some of both. So that sounds like youre selling all the way around on february 15 at, youll be the first to oven. I tried i tried. Back to the tax law really quickly, what does it mean in terms of just what it will be on cost of business is it going to mean brookshire earns a lot more are you going to raise well, depends on the business if you are talking about regulating utility business, all of it goes to the customer, as it should. Then in some businesses it will tend to get competed away, and in other businesses, it will be less likely to be competed away. Theres a big difference in how it affects different kinds of businesses, and you cant total totally. Cost of diesel fuel is more important, but it all remains to be seen on that, but then it certainly is a significant plus, and if you own the kind of business where people really have no choice but it isnt regulated, i mean, it would be regulated in case of utility or something. Theyre likely to widen out for foreign and domestic what does this mean for the American Economy overall we talked about the stock market and what this means. What do you think it means on a broader basis . Thats the big question well find out i mean, were essentially changing the mix the fed was buying a lot of the treasury issuance net. That the purchasing from the private sector of debt earlier needed to be less than the treasury was actually raising because the fed was there buying they took their Balance Sheet were effectively taking our own. They were buying their own stuff. They took there was 3. 5 trillion or thereabouts added. I think its about 300 trillion, and basically that was the fed funding parts of the deficit of the United States government now it will be the other way around a little bit as the fed the fed is going to take it down very gently, but nevertheless, instead of being a buyer, theyll be a seller, and at the same time the treasury will be raising more money youve changed that equation how that plays out, i dont know netnet, i cant imagine that it will hurt the American Economy or gdp at least over the shortterm its hard to tell thats the one thing ive learned weve never tried to make money by predicting economics. I mean, a tax law change actually changes numbers that you can see, but its macrostuff is very hard to predict, and, you know, you have seen that in the years when people come on and try and predict what the economy is going do do. Charlie and i have never made a marketable security decision or the purchase of an entire business where weve talked at all about macroeconomics if are you putting money to work in the markets and trying to figure it out, those macrodecisions would have a big impact he just said Interest Rates act as gravity the tax bill will add some stimulus, and certainly makes it more valuable to own any shares. I mean, that you have actually changed who gets the value who gets the earnings of american corporations in a fairly major way you may not buy a company or a business as a result, but you may decide to allocate more money into stocks. You never can do one thing in economics. You know, i mean, everything you do, its the butterfly effect. You know i would have in you didnt have a choice of a different bill and you were looking at leaving things exactly as it was or lowering the corporate rate if i did it as a representative of brookshire shareholders, would i have to vote for it. Ive got a million shareholders that are pretty much happy about the fact it happened, but i would have had a different bill. Lets talk about Interest Rates again and just talk about whats happening today you can look at the tenyear note touching up, getting 2. 56 and a little north of that this morning. That kicked off early this morning after the japanese tenyear bond started climbing as well. When i say climbing, you have to look at this in relative terms it was 0. 06 when i saw it it did that because the yield moved up because the Japanese Central bank was expected to not be buying quite as much as had earlier been anticipated when you start seeing moves like that, it tells you what . It tells me i dont know anything more about Interest Rates than i did five years ago, ten years ago. Sydney holder wrote a book, and when you kwet through the book, theres nobody whose predictions on Interest Rates i would Pay Attention to, including mine even including charlie Interest Rates are extraordinarily been extraordinarily low for a long, long time. That has that has acted to buoy the stock market very significantly. People originally in 2009 and 2010 didnt think they would be at these levels. They wirnded is this sort of permanent . Its a very strange situation. Were going to have 2 inflation. If you get a nominal return of 2. 8 or something, you are going to pay income tax on that. You are going to have nothing in the way of more purchasing power by deferring consumption today why do you defer consumption you are hoping to have more consumption later on thats the reason for saving essentially the Federal Reserve has now said for a few years that were going to try and make sure you dont have any net gain in consumption so what could get in the way and mess things up i mean, that sounds like a sure bet for putting money in equities and people have taken it as a cue for years at this point. Thats why ive said for a long time that equities were the place to be. I mean, theyve been no comparison to me its just been absurd to see Pension Funds and those people in the early teens of the century saying we dont have 30 or 40 bonds theres no comparison. A bond that pays you 2 is selling at 50 times earnings, and the earnings cant go up you may have to own it for legal reasons, but to make that as a voluntarily choice in the last ten years against owning assets has struck me as absolutely foolish. So what changes that equation what happens you have higher Interest Rates. Higher. You are not talking about 3 Interest Rates you are talking about 7 north of that. 3 is a 3 you pay 20 you have to look at the underlying stream of cash youre going to get over time, and that determines what you should pay now. Now, the question is how sure are you of getting the cash. Nice thing about a bnd is you know exactly what the coupon is. If you look at american business, if you look at the s p 500, theyre earning theyre earning well into the midteens or higher. Well say theyre earning 15 on assets employed, and they continue to earn thats a 15 bond. I mean, in comparison between a 15 bond and 2. 6 or 3 doesnt really make very much difference right even before you talk about the bigger percent of those earnings that you get because of the tax bill sflo hey, oracle man good to see you. You remember you know i always ask you the same question insurance is important to brookshire i mean, obviously. We just heard that 100 billion number youre very savvy. I love the way you do things insurance is such a great business because a lot of times you can figure out whats likely to happen and charge more than you really need because the things that people worry about probably arent going to happen. I rmt right afterwards you were like this, because you knew everyone was going to predict. Thats going to be every year. Then for 12 years you charge these exorbitant rates because it was going to happen again, and it never happened, and Brookshire Hathaway went up five fold or something because of that my question is we just had the worst year ever for catastrophic losses both insured and uninsured. Is that going to be the norm from here on out, or do you think its within the range of standard deviations for losses do you think it goes back down do you need to raise rates as near as you can tell, youve got pretty good records back to the early 1800s on hurricanes that have hit the mainland United States it looks awfully random if you look all the way back to 1830 or 1840 its true that we had the longest period here up until last year most consecutive years without a hurricane hitting the main land. That came right after katrina and the year when we had hugo and i forget various ones. Right it appears random, doesnt it incidentally, we did not we went away from insuring we moved away from it after katrina because the rates kept just coming down, down, down, down. We just thought we were not getting paid enough. We have not been in the super cat business to any degree at all in recent years. We the rates have not been high. You argued against every shareholder. Every year you get shareholder proposals that you got to start, you know, taking into account Climate Change you got to sell all your fossil fuel holdings. You got to do all that you dont go for it every year no, but we it goes on the ballot it will be on the balance rlot this year, and since we now web cast our meeting and we get lots of viewers around the world, im sure well have a lot of people to keep putting i think we have two proposals on the ballot this year. I explained our position on it a couple of years ago. Sf weapons of mass destruction, thats the big worry its been the worry ever since august of 1945 i agree fukushima and whatever number is attached to it that doesnt go away for 500 years might be more of a worry than co2. I dont know thats just me melissa has okay. I would say that there was a little catchup in september when we had irma and sflo no doubt where. Harvey and yeah. No doubt. We were but we were not insuring super cats. We had a fair amount of exposure just generally, but not super cats i didnt know you were going to go all the way back to 1800 on a 400 billionyearold plan youre whacky. I can tell you i can tell you my earthquake. Im the guy to come to. Hey, warren, i have a question about bitcoin jaime diment called it a fraud back in november he followed up saying it was a mile an hourage. Jaime diment yesterday backed away from those comments saying the bitcoin is a fraud have you rethought your position on bitcoin, and how would you feel if some of your portfolio banks wanted to make a market in bitcoin, wanted to trade bitcoin, wanted to make a business out of Bitcoin Trading . I can say almost with certainty that they will come to a bad ending now, when it happens or how or anything else, i dont know, but i know this. If i can buy longterm puts, i could buy a fiveyear put on every one of the crypto currencies, i would be glad to do it, but i would never short a dimes worth have you thought about trading the futures to take a negative position of bitcoin no. You would not do that no. Theres no reason. Theres no reason. I get into enough trouble with things i think i know something about. Why in the world should i take a long or short position of something i dont know anything about . I think it will definitely come to a bad ending you have virtually everybody i have 11 schools coming on friday the questions will be on bitcoin, and i wont know the answers. Although, when we sat down, warr warren, you did say i should have announced we were getting involved in bitcoin this morning. Thats true to that would be much more interesting to the audience that we were going to issue a whole series of crypto currencies tomorrow snoo before we get to that, i want to run through a couple of stock issues with you too. You already spoke about about ibm, whatever you would or wouldnt whether it comes to apple, theres a huge position you are one of the top five shareholders in apple. They have a big Holiday Season from what weve been seeing, what weve been watching with some of the channel checks and beyond you still feel like its a great Consumer Products business at this point from all the stuff we published, weve added to our holdings consistently up through all the published reports, and well public lsh more on see, the market is not yet saturated for iphones. I just want to point that out. When tim cook sent me a Christmas Card again this year saying he was going to sell ple an iphone this year, when i actually buy it, its all over, folks. The last person has a samsung flip phone that you still yeah. Youre still positive on it youre going to be when you buy it, its jumping the shark essentially . Pardon me when you buy a smartphone, its jumping the shark thats the end of the run . He keeps sending me reminders every christmas. Jim cramer wrote in too he has a question. I wan he wants to know if there is a point where you think General Electric shares represent value. Well, there has to be there always is for almost any company. Different people will have different views on what the price would be, but, i mean, if you came to me and said well sell you the whole General Electric company and x was the right number, we would like to buy it if we buy little pieces in the market, thats the way we think about it i think he may have been specifically asking what is that price target if you have one yeah. Well, that would depend also on what other stocks were selling in the end my job is to have the capital of brookshire invested in businessesthat we think we understand pretty well, and that are an attractive valuation. Now, we cant move around in big positions that easily. It takes a pretty billing disparity from something we want to sell to move to something we want to buy. General electric is a big strong company. How much cash does brookshire have on hand right now well, we have something a little over 100 billion its almost all in treasury bills. I think theres about 1. 7 trillion treasury bills in the world. U. S. Treasury bills. We own 12 of them we actually get the calls from dealers who need a bill for this if they need 200 million april 12th or something. They come to us where. Because you have it sitting around in the couch cushions yeah. We we are usually on monday were usually buying about four bull billion or so of bills, but theyre very short, so they roll solomon brothers, which was i was involved in 25 years ago, theres a rule you cant buy more than 35 of the issuing thats the that rule was called the mozier rule because the guy there loved breaking it. He went to jail for a few months afterwards were very careful about how many we bid for. We never we dont own commercial paper we dont count on bank lines we dont do any of that. When 2008, 2009 comes along, we want to have short bills if the only thing we buy for short bills is liquidity you said you like to have 25 billion in hand and that leaves 80 billion for acquisition. Anything you have your sights set on right now no, but i would like to on that note, lets bring in right now Charlie Munger, the vice chairman of Brookshire Hathaway, who is joining us on the squawk news line from california at the very early hour of a5 45 a. M. California time i want to thank you for joining us today and calling in. Well, im glad to do it you are with us this morning because of the big news at Brookshire Hathaway. The announcement that both greg abel and the ajit jain have been named as vice chairman of the Brookshire Hathaway. The first vice chairman of brookshire who is, by the way, staying in that position what do you think about this what can you tell us about greg and ajit and what you think about them being pushed into these positions. Bemoated into these positions. Zplie think its a very good idea, and all of the brookshire shareholders should be very happy about it. Its a deserved recognition coming to people who should get more recognition of course, i like it you said that you think its a great idea warren told us just a little bit ago that it was actually your idea when he came to you and mentioned all of this. Brookshire has always looked peculiar, and its done better than yeah, why charlie, we have been talking with warren just about the future, what you see coming, what you see happening, and weve pointed out to warren that for a long time people have been pushing for a success plan because he isle 7. You just turned 94 i forgot that until a couple of hours ago. I was still thinking you were 93 you just turned 94 what do you see in the future . Lets talk about your involvement. To demonstrate to shareholders, they probably got seven. How many for good years coming out of you, charlie . Well, not very many i have to face reality brookshire is good at reality recognition. Lets talk a little bit about the broader markets too. You always have some big thoughts about what you see out there. Weve been talking about share prices and whether share prices look expensive or not here, and what do you think when you look at the stock market and see new records set almost every day and just for the beginning of this year, the strongest start for the s p since 1987 well, i dont think share prices are crazy i know where bonds still are less than 3 are there things that concern you when you look at the markets because its part of what we get all the time procrastinators saying, well there are always probably you know its going to end badly. Im sorry Venture Capital . There are bubbles there what do you see in Venture Capital that concerns you . Bubbles too much money as measured how is this just something that you think that the arena itself has gotten too big well, there are always these excesses and bubbles theyre just we have disht bubbles at different times think of the bubble back in 2000 that year they could have taken 50 billion into a bushel bav ee and burned it. Might have gotten the same results. What in particular started you thinking about Venture Capital . Is that something you just thought the last year or longer . Everything is going on. Mostly we just stau away we dont what do you like right now . I actually like this tax reduction that brookshire has gotten im an unabashed appreciator what do you think about the tax plan overall this is something you would havv voted for . Well, i more likely to vote for it than warren what do you think the broader implications are, what this means for corporate america, what this means for the markets and what it means for the economy . I think theres a chance that it may work quite well youre talking in india, a very poor nation, the Capital Gains tax is zero and the income tax on dividends is zero and really poor nation that seems justin conceivable and rich in india are very rich. That is really peculiar, its a lot more peculiar than the United States. And im not at all sure that india is wrong is doing what its doing because because i think their economy may grow better doing what they are doing than it would if they were less friendly to their to the pest thapeople that invey what do you think happens to our Economic Growth . This is the big question in all of this. Do you think gdp will see big gains because of the tax cut no i think the people that are sure it wont work are probably shouldnt be quite so sure. Warren, what do you say to that i agree with him on that. I think its predicting what the economy will do, when i went to colombia, i took a course and they thought they were getting the answer you have not been able to make money in the stock market or even make great decisions in business by listening to economists. Right. You know, warren, you and charlie both are allocators who look and take berkshires money and try to figure out the best place to be putting those in the market charlie, weve spoken with warren a little bit about what he likes and doesnt like. When you look around at the stock market, are there stocks and sectors that you think are really interesting places to be . Obviously, stocks are valued higher than they were a long time ago and its harder to make a lot of money in the stock market that sells at 20 times earnings than one that sells at 15 and so but that does not mean that you should put all of your money in long term bonds at 2 or 3 i agree with warren totally on this stuff i think youre the right answer for investors, a lot of deferred gratification and being well to suffer a fair amount of agony, just riding out as us buying equities and riding out the declines i think joe has a question for you as well, charlie. Willing to try. Weve got delays from here to you and delays on the phone and everything else. Just people can bear with us thats what were dealing with but charlie, you seem to have a really good grasp as far as im concerned of tax policy and the role of government and the private sector and i was just wondering, warren is quite a bit younger than you. When people are young, they are like that, more idealistic and do you think that eventually as he grows up, hell adhere to your tax policy or youre thinking more or is he just hopele hopeless where do you come down on that maybe he can figure it out. We dont have to agree perfectly on everything. Its probably better if we dont. I guess so, but im just usually with age comes sort of the realization that maybe less is more in terms of warren, is there any hope . Youve got a few years where you have the idea about Capital Gains and lower tax rates for corporations or are you hopeless i cant campaigned for wilke in 1940 and head of the club in you went backwards. Yeah, im a time reversal machine. Well, i am too. I voted for kennedy and i changed too. Were coming together. It just takes more time than life is going to give us. Kennedy was a tax cutter. Yeah. By the way, i really like that, when he did it [ laughter ] charlie, you mentioned broadly that stocks are the place to be not bonds, but when you look particularly, any stocks that have caught your eye recently oranything you think would be worth pointing out . Well, i dont want to get into talking about specific stocks lets talk about other bubbles then if you think private equity or Venture Capital is potentially a place where you see bubbles and bitcoin and the other cryptocurrencies are also bubbles. And what tells you that im just thinking of the millennials and young investors who get so excited about Something Like this. What would you tell them what would your message be well they are excited because things are going up at the moment and it sounds vaguely modern and i think im sure the Computer Science involved is difficult and interesting. So you can understand where they get excited. But im not excited. If youre buying something and go on somewhere else. If youre buying something because it went up yesterday or last week, that is not a good reason for buying anything it will get you in trouble over time. Yesterday bill miller was on cnbc and he talked a little bit about what he sees happening he says theres a possibility he thinks for a market meltup. He pointed back to what happened in 2013 where you saw 30 plus gains in the market and said that he would think that is more likely if the 10year gets closer to 3 i didnt quite understand or follow that but what do you think about that potential i think its pointless that people if they own bonds, their bonds would be going down. They would be losing money. Theres no question that markets have momentum. And that when there is enough momentum, it takes over everything, i mean, when you thats how you get bubbles used to say you get in more trouble with a good idea than a bad idea because the good idea originally had the idea that stocks were cheaper than bonds generally, after a while, the very action of the stocks becomes more important than the fundamental reasons and the fundamental reasons disappear and people buy something because its going up. When people buy something because its gone up theres no telling how far it will go but you can be pretty sure there will be a bad ending. Anything to you that really jumps out in the markets and in the news these days . Youve been watching this a long time is there anything you think may be different this time around . Well, the whole situation is quite weird. Whoever would have guessed that you could have 20 years of real Interest Rates at zero a lot of different advanced nations. Who would have guessed we could print as much money as have as low inflation as we did. My attitude towards the Economic Situation has always been one of skepticism i dont think any of these people know what the hell they are doing. Any of these people being who . Economics profession. Theyve been theyve been confident in various formulas but economics is not physics the same formula that works in one decade doesnt work in the next economics is a difficult subject. And a lot of over confidence has been removed from the economics profession over the last 20 years. Theyve been really surprised. And warren, your comment . Well, im going to point out, the National Debt now is 1,000 times what it was when i was born and now if you told my parents or anything, my dad in the waiting room that the National Debt would go up 1,000 times during his sons lifetime, he would have said, everything is going to turn into pumpkins and mice and of course gdp and real terms in six times per capital what it was then and everything. Its hard to get dogmatic in economic matters people that i would say that the just the whole emphasis on the debt going up during my lifetime has been way off the mark and ive been way off the mark when i was back in my young republican days, i was going around saying another dollar of National Debt was likely to threaten our future or something of the sort. You dont want to get dogmattic in economics. Well, warren, want to thank you very much for joining us today. Charlie, thank you for calling in its a pleasure talking to both of you we truly appreciate your time and joe, well send it back over to you. Thanks for that and thank you to warren and charlie, that was great. Weve dwgot to go. Squawk on the street is coming up right now good wednesday morning, im Carl Quintanilla with jim cramer and david faber. Pressure on Interest Rates put pressure on the futures as names like buffett on our air a few minutes ago weigh in what it means for the stocks reports that the chinese have suggested slowing or halting purchases of u. S. Treasuries roadma
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