Warren Buffett: 'Not off the bottom yet'

by Mark Silva

"We have not come off the bottom yet,'' Warren Buffett says.

Buffett, the multibillionaire oracle from Omaha and informal adviser to President Barack Obama, says the actions that the federal government is taking today raise the "probability'' of "very significant inflation down the road,'' but they are necessary and "appropriate.''

"What we're doing raises the probability significantly of very significant inflation down the road --not this year or next year or the year after that.. But we've taken actions and they were appropriate actions,'' Buffett said in an interview with FOX Business Network's Liz Claman.

"It will have consequences, and nobody knows exactly what they will be and how effective we will be at draining a system we've been flooding, but the probability of significant inflation has gone up,'' Buffett said. Asked about the possibility that the U.S. is issuing too much debt to pay for all the bailouts and economic stimulus underway, he said: "Well, it's doing what it has to do. And it was appropriate.''

With unemployment already clocked at 9.4 percent last month and expected to surpass 10 percent in the months ahead, the CEO of Berkshire Hathaway - its legendary stock down to the $86,000-per-share range since the recession took hold - said of the jobless rate: "It's going higher -- business has not bounced back. We have not come off the bottom yet...

"It will work out in the end,'' Buffett said. "Since 1776. it's been a mistake to bet against America. America solves its problems. How soon, nobody knows. But we have not come off the bottom yet. And it will work out in the end."

Here, courtesy of FOX Business Network, is a transcript of the talk with Buffett:

LIZ CLAMAN, HOST: Cheryl, Warren and I were just sitting here talking about if we could amortize $2.1 million for the side dishes like the broccoli and the French fries.

Or what would it be?

WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY: Well, my normal meal
costs about $5, so I can get about 425,000 meals out of $2.1 million normally.

CLAMAN: What a day. Today is the day that the last year's winner, Zhao Danyang, was able to cash in. He paid $2.1 million. You know, they've asked previous winners, why did you spend so much money to have lunch with Warren Buffett? Some of them actually compared having lunch with you to having lunch with Galileo, Einstein, Gandhi.

You're in pretty good company.

BUFFETT: Well, compared to a few others that you aren't mentioning.

CLAMAN: $2.1 last year. In this economy, do you expect for the Glide Foundation, the charity that it benefits, to go for anywhere near that much?

BUFFETT: It's sort of hard to imagine. On the other hand, they have had a number of bidders that have qualified and who, if they bid into seven figures, are good for it. So we will see what happens.

CLAMAN: They wait until the last couple of seconds.

BUFFETT: They wait -- yes, the last 15 minutes is where all the action takes place.

CLAMAN: We've got the paparazzi here. Everybody wants to see you. Not bad, especially because, in a time like this, the guidance that people want and crave from you, particularly Zhao, who will be having lunch with you, they all want to know, what do you see for the global economy, first? And then we'll get to America.

BUFFETT: Yes. Well, it's going to be tough for a while. I mean, what's going on in this country is going on in much of the world.
Actually, China is doing better, but much of the world is in the same boat we are, and right now it's a boat that's in rough seas.

CLAMAN: The first year that this luncheon happened, which was 10 years ago, it went for about $25,000. Last year, $2.1 million. And the Fed says that there's no inflation to speak of?

(LAUGHTER)

BUFFETT: Yes. Well, if we can keep that trend going, we'll have a lot of fun, won't we?

CLAMAN: Do you see inflation somewhere on the horizon? And I ask that because, of course, everybody says we've been printing a lot of money and spending so much money, and that it is somehow inevitable.

BUFFETT: Liz, what we're doing raises the profitability significantly of very significant inflation down the road. Not this year, next year, maybe the year after, but we have taken actions, and they were appropriate actions, to fight the war we were in that started with a vengeance last September.

In taking those actions, we've applied medicine dosages to a patient that's never been done before except in wartime. And it will have consequences. And nobody knows exactly what they will be and nobody knows how effective we will be draining a system that we've been flooding. But the probability of significant inflation has really gone up.

CLAMAN: And you look at the U.S. dollar, for example, which has been behaving a little squirrelly. But you talk to a lot of people who watch this and they say the dollar will eventually lose so much of its value because of this.

BUFFETT: Well, it won't necessarily lose value against the euro or the pound, because they're going through the same thing. But in terms of its real purchasing power, I think it's sure to lose some value over time, and the probability of it losing significant value in a 10-year time frame has been increased a lot.

CLAMAN: Times are obviously tough. And all you have to do is look and see what President Obama has had to do, which you just referenced, not to mention Congress. Everywhere they're trying to patch and fill and prop up, and it leads to the question, is the U.S. issuing too much debt, or just about right?

BUFFETT: Well, it's doing what it has to do. And it was appropriate to do it.

It has consequences. But when we fought World War II, we ran the national debt up like crazy. You know, it became 120 percent of GDP by the end of the war. It was still the right thing to do.

Now, it had inflationary consequences post-World War II. What we are doing will have consequences, but it's still appropriate.

CLAMAN: Do you believe, say, for example, as Bill Gross of Pimco does, that the U.S. is in danger of losing its AAA rating at some point down the line because of all of this?

BUFFETT: No. As long as you're issuing money and you're issuing debt in your own currency, you can print money. The U.S. -- no, I think we will have a AAA for not only as long as I live, but as long as you live, which is more important.

CLAMAN: OK. I'll take that. Happy about that.

Unemployment, had you said to me in the past that we could go up above 10 percent. And in fact, I remember it was October of 2007, when Fox Business launched, that you said we could hit nine percent. That was back then.

Where do you see it going?

BUFFETT: It's going higher. I mean, business has not bounced back.

CLAMAN: Twelve percent, 15 percent?

BUFFETT: Nobody knows. But we have not come off the bottom yet. And it will work out in the end.

I mean, since 1776, it's been a mistake to bet against America. I mean, America solves its problems. How soon, nobody knows.

CLAMAN: You and I talked in May, and you said that you issue, your companies issued some 50 percent of all carpet in the U.S. And so you have very much links to the housing market.

Any sign that you're seeing an uptick or some sign of life?

BUFFETT: I get the figures on carpet every day. Every single day I get the orders received, shipments, everything. No. The answer is that we have not bounced, no. We will at some point, but it has not happened to this day.

CLAMAN: Berkshire Hathaway's insurance businesses, I remember, you know, you also referenced that they were doing well in certain realms.
Right now, of course, President Obama pushing very hard for universal health care. Some of your Berkshire insurance companies issue medical malpractice insurance, for example.

BUFFETT: Yes.

CLAMAN: As you look at the plan the president puts out, in there is no cap, per se, on lawsuits, the malpractice lawsuits. Sort of pulling your heart away from your head, do you think there should be a cap on those lawsuits? Because if we start covering 46 million more people, clearly we may have more liability.

BUFFETT: Yes, and there are certain -- in certain states they have caps. That's not a big insurance business with us, so I really don't have a lot of conflict of interest in it. But yes, I do think, in general, there should be caps.

And like I say, we've had experience with certain states putting caps on them. But, you know, if I've lost, you know, a leg unnecessarily, or something, I don't know how I would feel for sure either, if I thought the physician had made a mistake. There should be caps, however.

CLAMAN: There should be caps.

BUFFETT: Yes.

CLAMAN: When you talk to doctors, like my dad, he used to rail against the lawyers because he said it's ruining the medical profession.

BUFFETT: Yes. Although, it's kind of interesting. We spend $2 trillion a year on -- more than that. And malpractice premiums are about a half of one percent of that. It's an interesting figure.
People think that it's a huge item in medical costs, but it's about a half of one percent.

CLAMAN: Continuing with insurance, there's going to be regulation, as you know.

BUFFETT: Sure.

CLAMAN: Regulation of banks and insurance. You own both.

BUFFETT: Right.

CLAMAN: Are you worried about what the president would like to do?

BUFFETT: Well, we'll see how the bill comes out. I'm worried that a bill will be drafted the wrong way, obviously. But I think the system in the last year has invited regulation.

We got so overleveraged in many important institutions, interconnected institutions. We have the wrong incentives in place in many very large institutions for what the managers were thinking about. So, you know, we deserve some regulation.

CLAMAN: What would be the wrong kind of regulation, as you just talked about?

BUFFETT: Well, the wrong kind of regulation is something that, in attempting to solve those evils, really stifles the market system that works pretty darn well over the years.

CLAMAN: With the flurry of new government programs and the stimulus that's been pushed through, Obama, in just the first few months, has given quite a bit of attention. As you say, of course, it was definitely needed. But as you look all that's happened, do you still endorse him with as much enthusiasm as you did during the election?

BUFFETT: A hundred percent. Yes. No, I think he is exactly the right president for this country at this time, but really any other time.
We're lucky we elected him.

CLAMAN: People focus on things now like North Korea, Iran.

BUFFETT: Sure.

CLAMAN: You're an insurance guy. You place odds, you place bets.
What's the thinking?

BUFFETT: It's a dangerous world, Liz. And we have to focus on policies, and I've participated a little bit in a few that reduce the probabilities that the wrong people will have the wrong weapons, because you have plenty of people that wish ill on their neighbor, and particularly on the United States. And there is the knowledge out there as to what to do to cause a lot of damage, and you've got to keep the materials away from people. But we are in a very dangerous world that way.

CLAMAN: What's worse, in your opinion, North Korea and how close they are with missiles, or Iran?

BUFFETT: It's hard to tell. I mean, it's one person or one small governmental unit deciding that somehow they have something to gain by doing something that's very dangerous for the world.

CLAMAN: No matter what state the world's in, you find ways to make money, Mr. Buffett.

(LAUGHTER)

CLAMAN: You do.

BUFFETT: I like to work on it, yes.

CLAMAN: Well, word is that you're sitting on a billion-dollar profit from your Goldman Sachs investment just at the height of all of the fear. The government's cashed out, it got their TARP money back.

Would you cash out?

BUFFETT: No, no, no. I will keep those Goldman warrants right through their full -- they've got four and a quarter years or so to run. But I think we'll make a lot of money out of those.

CLAMAN: Are you still extremely worried about the state of the economy as much as you were back in September?

BUFFETT: Well, we got past that point. We were at a meltdown point.
On September 16th, or thereabouts, if Bernanke and Paulson and whoever else, if they hadn't had made the right moves then, if we had somebody there that was like a deer in the headlights, this system would have melted down, the financial system.

CLAMAN: We've talked to Reverend Cecil Williams of the Glide Foundation. This lunch benefits them. And he says he's seen such an influx of the needy, the people who need help.

BUFFETT: Yes. They had a huge basin. It's up 20 percent this year.
They're going to serve close to a million meals. I mean, there's going to be no shortage of demand for their services.

CLAMAN: Well, thanks to the gentleman who bid last year $2.1 million, it will definitely help. Zhao Danyang was his name, and he's with the Pure Heart hedge fund.

Hi, Zhao. Come on in.

BUFFETT: He's a hero.

Hi, Zhao. Good to see you.

CLAMAN: Come right over here.

Just quickly, we want to say congratulations. And how excited are you?

ZHAO DANYANG, PURE HEART: Oh, it's very nice.

CLAMAN: Here. Come right over here.

BUFFETT: Come on over here.

What did you say? This is the camera, yes. Turn to it.

So tell us quickly, are you excited?

ZHAO: Yes. It's very nice.

CLAMAN: How much is your fund? How much is your fund up for the year?

ZHAO: About 47 percent.

CLAMAN: Forty-seven -- what do you need his advice for?

BUFFETT: Wait a second. Here you are, Zhao. Here's your 47 percent.
Go to it.

(LAUGHTER)

CLAMAN: It is in the wallet. Not bad.

ZHAO: But it's our country (INAUDIBLE). I learned a lot of knowledge from him.

CLAMAN: Everyone loves to learn from Mr. Buffett.

ZHAO: Yes.

BUFFETT: This man is a hero.

CLAMAN: Well, have a great time. Enjoy your lunch. And just take one more seat here so we can properly thank you.

BUFFETT: OK.

CLAMAN: And Dermot (ph), get the man a Cherry Coke, what he drinks.

Thank you so much, and we appreciate you coming on Fox Business. And have a great time. We hope it goes for more.

BUFFETT: I hope so. And Liz, I've enjoyed it. OK.

CLAMAN: Good to see you.