Warren Buffett tears into banks, trashes bitcoin, and warns inflation and recession can lead to big problems

• Warren Buffett slammed deceptive banks and trashed bitcoin in a rare TV interview.

• The Berkshire Hathaway CEO warned inflation and recession are both serious risks to investors.

• We live-blogged the conversation. Scroll down for more of Buffett’s comments.

Warren Buffett called out deceptive banks, dismissed bitcoin buyers as gamblers, and warned inflation and recession pose serious risks to investors during a CNBC interview on Wednesday.

The billionaire boss of Berkshire Hathaway also touted his massive bets on five Japanese companies, hailed Tim Cook and Apple, and said he was impressed by ChatGPT and similar artificial-intelligence tools.

Here’s our live blog of Buffett’s interview:

What Buffett’s eating in Japan

Buffett famously guzzles Coca-Cola, munches McDonald’s, slurps Dairy Queen Blizzards, and feasts on See’s Candies. His diet hasn’t changed much while visiting Japan, he says, noting he’s drinking Coke during the conversation, and ate Hershey’s Kisses earlier that day.

“I always tell people I found everything I like to eat by the time I was six,” he jokes, adding that he wouldn’t sacrifice his favorite foods to live a bit longer.

The 92-year-old says he’s been extremely lucky to stay healthy and live so long.

BYD

Berkshire began paring its stake in Chinese EV maker BYD for the first time in recent months, after making a fortune by investing in the automaker in 2008.

Buffett explains that Berkshire has been taking profits given BYD’s remarkable stock gains over the past 13 years. Moreover, while he still views it as a great company, he believes he can find a better use for Berkshire’s money.

Paramount and streaming

The investor says “streaming is not really a very good business” when asked about Berkshire’s Paramount bet.

“The people in entertainment have made lots of money,” he says. “The shareholders really haven’t done that great over time.”

Buffett also questions whether streaming companies will be able to raise prices, and says even traditional movie distribution isn’t fundamentally that great a business.

Story continues

Apple

The Berkshire chief says he’s aware of Apple’s reliance on China, but suggests the typical Apple buyer wouldn’t accept $10,000 to give up their iPhone.

“I think that Tim Cook is one of the classiest CEOs,” Buffett says. “He understands the business and he has a project which Steve Jobs basically invented, but Tim Cook has managed that company in an extraordinary way.”

Buffett says he doesn’t really understand the intricacies of Apple’s products, but he understands how desirable and indispensable they are to many people. He also praised their iterative innovations.

“They come up with just one little addition after another and who knows what they come up with [next],” he continues.

“Tim Cook … is one of the greatest managers obviously in history,” he adds.

The investor adds that Berkshire sold some Apple shares a while back for tax reasons. “It was a dumb sale,” he says.

Buffett notes that Berkshire  only kept two stocks out of the roughly 27 owned by Alleghany when it acquired the insurer last year. Those two stocks were Berkshire and Apple.

Taiwan Semiconductor

Buffett says he was responsible for building a $4 billion stake in Taiwan Semiconductor (TSMC) in the third quarter of 2022, then selling 86% of it over the next three months.

“I think Taiwan Semiconductor is the best in that field and one of the best companies in the world,” he says, noting it’s a key supplier to Apple, by far the biggest holding in Berkshire’s stock portfolio.

“There’s actually a danger of seismic action where they’re located,” he says, likely referring to the possibility of Chinese intervention in Taiwan. Buffett said he still sees TSMC as a “fabulous company,” but he reevaluated the geopolitical risks attached to owning its stock.

Bitcoin and gambling

“Something like bitcoin, it’s a gambling token,” Buffett says. “It doesn’t have any intrinsic value.”

“That doesn’t stop people from wanting to play the roulette wheel,” he continues, noting that betting against the odds eats up people’s money, and only the winners are hyped up and promoted to get people excited. “I don’t know how to turn back the clock on that.”

Buffett suggests bitcoin’s longevity reflects speculation, a strong gambling instinct among humans, and more people wanting to buy in then get out.

“People love the idea they’re going to make more money tomorrow,” noting that it drives people crazy to see their neighbors getting rich without knowing anything.

“We’ve had an explosion of gambling essentially,” he says. “You had millions of people that were getting checks in the mail and sitting home and finding out that they could have a roulette wheel in their house,” he continued, adding that people found all the appeals of gambling at home that they used to travel to Las Vegas to enjoy.

“The urge to participate in something where it looks like easy money — it’s a human instinct that’s been unleashed,” Buffett says, talking about the legalization of sports betting in the US.

“People love the idea of getting rich quick, and I don’t blame them,” Buffett says. “I’ve always wanted to get rich slow and have a lot of fun along the way.”

AI and ChatGPT

“I think it’s something that I don’t understand at all,” Buffett says about ChatGPT and similar artificial-intelligence tools. He recalls Bill Gates showing him the technology, and that he was impressed by its capabilities.

“The amount of time it could save you if you were doing all kinds of things is unbelievable,” Buffett says. “I don’t really understand it. I think it’s an incredible technological advance in terms of showing what we can do but I don’t know whether we know what happens.”

“I don’t want to change the world too many times without having some idea of the consequences of it,” he says. “I think this is extraordinary but I don’t know whether it’s beneficial.”

Buying businesses — and calmer markets

“Over time, we want to buy good businesses, it’s that simple, and we always want to have money,” Buffett says.

The Berkshire chief notes there’s less trading volume in markets nowadays, meaning it can’t buy a fifth of a company in a few weeks as it did with Occidental in early 2022.

Berkshire bought stocks in the first quarter

Berkshire spent about $4 billion on stocks in the first quarter, Buffett says. It’s unclear whether he was referring to gross or net purchases. He notes that Berkshire generates around $100 million each working day, and income from its roughly $100 billion of Treasury bills has ballooned due to rising interest rates, from $40 million to $5 billion.

A tough outlook

Buffett notes that several Berkshire subsidiaries are facing a “tougher world out there in a great many businesses.” He notes the bosses of the economically-sensitive businesses in Berkshire have been surprised by how their businesses are performing now compared to how they thought they’d be doing six months ago.

Buffett says he loves figures, and has been looking closely at See’s Candies sales across different states. He also says that hiring an economic forecaster is throwing money away.

Occidental Petroleum and clean energy

Buffett says Occidental Petroleum CEO Vicki Hollub is an “extremely competent, good citizen for America,” noting she understands oil and political realities. “She is extremely concerned with ways to have carbon capture.”

Buffett adds the clean-energy transition will likely cost well over $20 trillion, and shifting the world to renewable fuel sources will take time.

Inflation and recession

“Inflation is a constant threat to a country but so far the United States has done pretty well,” Buffett says. “The effects of inflation can be wild,” he continued, noting it affects prices of different things very unevenly. “It’s not a good thing for society,” he adds.

Buffett also reflects on the rapid inflation in the 1980s. “The country went crazy because they were afraid of cash,” he says.

“Extreme inflation is always a possibility,” Buffett says, noting it can lead to terrible things including hyperinflation.

Buffett warns that both inflation and recession threaten investors.

“Either one can cause a lot of trouble, and recessions can turn into depressions,” he says, noting a depression can wreck the economy and its financial markets. “You can disrupt an economy a lot easier than you can put it back together again.”

Government spending

Buffett cautions against excessive government spending, warning it may help politicians stay in office but it can be harmful for future generations.

“It’s fun sending money out to people if you want to stay in office, if you want their vote,” Buffett says when asked whether too much government spending was a driver of inflation.

“Fiscal policy scares me more than monetary policy,” Buffett says.

The Fed

Buffett praises the Federal Reserve, saying he doesn’t believe he could do as good a job as Fed Chair Jerome Powell. The investor applauds the US central bank for taking decisive action in the spring of 2020 to shore up the economy at the height of the COVID-19 pandemic.

The investor says he doesn’t know whether the Fed kept interest rates too low for too long as the virus threat faded.

Commercial real estate 

Buffett is asked about commercial real estate. He says that banks can handle losses on their loans. His comments suggest he thinks lenders could face a higher rate of defaults as higher interest rates, pressure on asset prices, and tighter lending standards weigh on the owners of office buildings, shopping malls, and other commercial real estate.

Banking woes

Buffett, who reportedly talked with the Biden administration about how he could help with the banking fiasco, says he speaks to White House officials, but hasn’t that recently.

“Some of the dumb things that banks do periodically become uncovered during this period,” Buffett says, recalling someone jokingly telling him that banks keep finding new ways to lose money.

“They expect to make some mistakes in making loans, but they haven’t made the same sort of mistakes that they made back in 2008 or ’09, but they have mismanaged assets and liabilities and bankers have been tempted to do that forever, and then it bites them in a big way.

Buffett calls out questionable accounting among banks designed to flatter their earnings. He notes that nobody was talking about the dangerous trend of disguising losses.

“It’s happened before, it’s happened this time, it’ll happen again some day.”

Buffett suggests Berkshire sold a bunch of bank stocks because their bosses got greedy. “I don’t like it when people get too focused on the earnings number and forget banking principles,” he says.

“It’s important that banks retain the confidence of the public and they can lose it within seconds,” noting that Silicon Valley Bank’s collapse ignited fears of bank runs in a matter of days.

Buffett notes that the mistakes of 2008 and 2009 have affected how people behave today. “Lazy money in 2008 doesn’t exist in the same way at all, and we’ll see how it plays out.”

“The people that have run banks the wrong way, their shareholders are going to lose money, but the depositors aren’t going to lose money,” he adds.

Swimming naked

The Berkshire chief expects bad actors to be exposed in the weeks and months ahead as a tougher economic and market backdrop takes hold.

“When the tide goes out, you learn who’s been swimming naked. We actually ran into a nudist colony here, in terms of banks all over do that sort of thing.”

Buffett also described the FDIC as a “very peculiar neutral insurance operation that is run by the government but financed by the banks,” and notes that bailing out the banks doesn’t cost the government or taxpayers.

A $1 million bet and painful rate hikes

Buffett dismisses concerns that the federal government won’t get approval from Congress to guarantee all bank deposits. He compares it to what are, in his view, unfounded concerns about the US debt ceiling.

The investor says he will bet $1 million to anyone who calls him that no depositor in a US bank will lose money in the next year.

Buffett also underlines the painful impact of rising interest rates on consumers and businesses. He celebrates the value of 30-year mortgages to society, noting Berkshire can’t get as good a deal as that despite its exceptional credit rating.

Managing risks

Buffett dismisses the idea of having a risk committee, as he believes the CEO should identify the risks and stop the company getting into trouble.

“It’s my job to think about risks that nobody else thinks about,” Buffett says. “I’ve got 99% of my net worth in Berkshire, I’ve got all my relatives in, I’ve got everybody in. If I thought that I wasn’t going to be able to do a better than decent job of managing the risk, I’d be crazy to take on that responsibility.”

Buffett adds that he wouldn’t risk his and all of his family’s money if he wasn’t confident he could do a good job protecting it.

Greg Abel

Abel says he enjoys spending time with the 92-year-old investor and his 99-year-old business partner and Berkshire’s vice-chairman, Charlie Munger.

“He does all the work and I take the bows,” Buffett jokes about Abel. “The difference is he likes to work and I like to sit around.”

“He’s probably tougher than I would be in terms of getting things done,” Buffett says. “He’s a big improvement on me but don’t tell everybody.”

Berkshire famously has a decentralized, autonomous structure with a very small headquarters and scores of effectively independent subsidiaries. Buffett notes that while his managers enjoy their autonomy, they also get “lonesome” and Abel has bolstered communications with them.

“We’ve got a unique organization which now has tremendous resources, and nobody can really copy our style,” Buffett says, noting that Berkshire can say whether it’s interested or not in acquiring a company in five minutes.

Buffett praises Abel for putting $100 million of his own money into Berkshire at the same terms as any other shareholder, with no discount or preferential terms. He underscores how rare that is in corporate America.

“We’ve got a unique organization which now has tremendous resources, and nobody can really copy our style,” Buffett says, noting that Berkshire can say whether it’s interested or not in acquiring a company in five minutes.

Buffett jokes about how prolific Abel is on a daily basis. “He has found apparently some little area in Des Moines where there’s 48 hours in the day. That’s the only explanation for how he gets everything done that he does.”

Abel says he spends more time at Berkshire Hathaway Energy than the BNSF Railway, as he has deep ties in the energy industry that lead to more opportunities. He also notes that Berkshire’s 12 largest subsidiaries account for around 85% of the company’s underlying cash flow, so he prioritizes spending his time helping the dozen largest businesses.

Japan bets

Buffett confirms that Berkshire raised its stakes in Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo to 7.4%, up from about 5% in August 2020.

The investor says he made the bets because the companies were big enough to move the needle at Berkshire, he understood what they did, like Berkshire they were well-diversified with lots of different interests, and they were trading at prices that were “ridiculous” relative to the prevailing interest rates at the time.

Buffett says Berkshire’s sale of yen-denominated bonds is intended to “insulate” the company from exchange-rate risks. He notes that he and Greg Abel, the head of Berkshire’s non-insurance operations and Buffett’s planned successor as CEO, are meeting with the bosses of all five Japanese companies this week.

Abel notes that he and Buffett have encouraged all of the Japanese companies to phone Berkshire with any potential business opportunities, and reassured them that Buffett will “pick up the phone on the first ring” and Berkshire will never run out of money.

Read more: Warren Buffett’s Berkshire Hathaway faces a brutal mix of economic headwinds. It will capitalize on the chaos, 8 experts say.

Read the original article on Business Insider