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Buffett on CNBC - Stocks Still Cheap


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This is what I think he is saying: Stock is cheap if interest rate stay below 4. Interest rate will stay low unless we lose control of inflation. We will have big inflation if we get big deficit. We will have large deficit if Tax cut didn't result in GDP growth (researches have shown little evidence it will). So, the stock market may become expensive if we get a tax cut that doesn't work.

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This is what I think he is saying: Stock is cheap if interest rate stay below 4. Interest rate will stay low unless we lose control of inflation. We will have big inflation if we get big deficit. We will have large deficit if Tax cut didn't result in GDP growth (researches have shown little evidence it will). So, the stock market may become expensive if we get a tax cut that doesn't work.

Not necessarily true at all.

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Here is the transcript:

 

https://www.cnbc.com/2017/10/03/cnbc-transcript-chairman-ceo-of-berkshire-hathaway-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box-today.html

 

I liked especially these parts:

 

WARREN BUFFETT: Well-- a decrease in taxes would mean an increase in profits. It might-- it might not be totally the amount of the decrease in taxes. But it would-- it would increase earnings. There's no question about it. So the question is whether that's already built into the expectations. I doubt if it-- it fully is built into expectations....

 

WARREN BUFFETT: Well, anything that increases profits tends to push stocks. I mean, there can be 10 other variables happening, you know, for other-- but-- but as a single variable in the, in the equation-- for profits, and profits determine stock prices over time-- no, it's-- it is a plus for American business. And, you know, like I say, I've got a million-- I got a million shareholders at Berkshire Hathaway. And-- and they would all love to see a corporate tax cut.

 

:)

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Every time Joe Kernan opens his mouth a kitten dies.

 

He's the worst. He's got the opportunity to ask the best investor of all time questions and all he can do is talk about himself, make bad dad jokes, or try to score political points.

 

Buffett is incredibly patient and gracious with him. If I was Buffett, I'd long ago have asked to not have him be part of interviews as a condition for my being interviewed, not for me, but to avoid wasting the time of the millions of viewers.

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Every time Joe Kernan opens his mouth a kitten dies.

 

He's the worst. He's got the opportunity to ask the best investor of all time questions and all he can do is talk about himself, make bad dad jokes, or try to score political points.

 

Buffett is incredibly patient and gracious with him. If I was Buffett, I'd long ago have asked to not have him be part of interviews as a condition for my being interviewed, not for me, but to avoid wasting the time of the millions of viewers.

 

Keep in mind this is just a TV show. It need to entertain people too.. They still need a Joe to keep a lot of viewers who are not sophiscated in finance entertained.. these viewers may Only understand what Joe is saying, lol.

Web still talking sharpe and seems in a good mood. I just love this guy!

 

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Just read an article on seekingalpha that highlights the fact that Brk has $100B in cash from around $35B just 7 years ago.

 

My question is, how did his cash hoard get so huge. Is it from operations and dividends? or is it from stock sales? I just wonder if he is a net seller or buyer of publicly traded securities.

 

thanks (I know this is obvious from the 10K but I am lazy)

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Just read an article on seekingalpha that highlights the fact that Brk has $100B in cash from around $35B just 7 years ago.

 

My question is, how did his cash hoard get so huge. Is it from operations and dividends? or is it from stock sales? I just wonder if he is a net seller or buyer of publicly traded securities.

 

thanks (I know this is obvious from the 10K but I am lazy)

 

randomep,

 

Both, but primarily cash flow from operations in the subs.

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He's a large net buyer of stocks (AAPL, Airlines, etc) and has spent enormous sums on acquisitions like Precision Castparts.  Insurance float growth brings in free cash flow that shows up as cash and cash from operations is higher than reported net earnings.  Also, a few people payed him back - like Mars for one.

 

 

Just read an article on seekingalpha that highlights the fact that Brk has $100B in cash from around $35B just 7 years ago.

 

My question is, how did his cash hoard get so huge. Is it from operations and dividends? or is it from stock sales? I just wonder if he is a net seller or buyer of publicly traded securities.

 

thanks (I know this is obvious from the 10K but I am lazy)

 

randomep,

 

Both, but primarily cash flow from operations in the subs.

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  • 2 months later...

This is a good example of taking a keyword out of context.  What he actually says is:

 

BECKY QUICK: The-- the Fed has been sounding a little more hawkish. Even Janet Yellen has been sounding a little more hawkish. Does that concern you? Or are people getting complacent thinking rates are going to be low for an extended period of time here?

 

WARREN BUFFETT: Well, I think they expect 'em to increase. But the question is how much. I mean, if-- if three years from now interest rates are 100 basis points higher, then the stocks-- stocks will still look cheap at these prices. If they're 300 or 400 basis points, they won't look cheap.

 

Note he says "look," not "are." Quoting from another interview:

 

The most important thing is future interest rates,” Buffett said. “And people frequently plug in the current interest rate saying that’s the best they can do. After all, it does reflect the market’s judgment. And the 30-year bond should tell you what people are willing to put out money for 30 years and have no risk of dollar gain or dollar loss at the end of the 30-year period. But what better figure can you come up with? I’m not sure I can come up with a better figure. But that doesn’t mean I want to use the current figure, either.

 

In order to properly discount the cash flows of a business between now and judgement day, you need to know interest rates every single year.  Between 1956-2016, annualized inflation was 3.8%.  Buffett has been around a long time, and I guarantee he's not banking on present rates to last forever.  When you buy businesses to hold forever, you need a realistic long-term view.  By assuming higher rates in the future, you build in a margin of safety.

 

 

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