Jeremy Steinberg
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Warren Buffett buys an auto dealer, defends the burger king deal, and says interest rates are like gravity read

Warren Buffett just finished an appearance on CNBC's Squawk Box.

Buffett, the chairman of Berkshire Hathaway, kicked off the interview announcing that Berkshire Hathaway bought Van Tuyl Group, which operates car dealerships.

"We're playing the strength in autos now," Buffett said, adding, "I fully expect we'll buy a lot more dealerships over time."

Buffett declined to comment on the size of the deal but said Van Tuyl's sales are about $9 billion. Van Tuyl is the fifth-largest auto dealership group in the US.

Buffett's announcement that Berkshire is acquiring Van Tuyl comes after Buffett last month commented on the strength in the auto industry in an interview on Bloomberg TV.

Buffett said the deal is a cash deal, and said that Van Tuyl would be on the Fortune 500 company on its own. Berkshire now owns 9.5 companies that, were they to stand alone, would be on the Fortune 500.

On Bill Gross And Bonds

Buffett said that Gross leaving PIMCO is "huge news... a big story." Buffett added, however, that he doesn't know anything about Gross' departure beyond what has been written about it.

Buffett said that, as far as he knows, no investments or pension funds for Berkshire companies have investments in PIMCO.

And in fact, all of the pension funds for Berkshire's portfolio companies — except for a few of the utility companies — are 100% in stocks.

On Interest Rates And The Stock Market

Buffett said that he's owned junk bonds a few different times, but said that right now, he doesn't own any. On the broader bond market, Buffett said that when he sees a US 10-year Treasury Bond at 2.4%: "I'm not salivating."

Buffett said of interest rates around the world, "I don't really understand it... and I don't really have to understand it."

On the recent moves in the stock market, Buffett said that, "Well yesterday, we bought a business. We would've bought it if the market was down 200 points or up 200 points."

"We actually bought a few stocks yesterday," Buffett said, adding that, "if you told me the stock market was going to go down 500 points next week, I would've bought those businesses anyway." Buffett said that the stocks he bought are, "stocks you know."

"When stocks go down, I will be more aggressive [in buying stocks]," Buffett said.

"Anybody that has owned a cross-section of American businesses over last 10, 20, 30, 40, 50, 60 years has done fine," Buffett said.

On the stock market broadly, "Everything is a function of interest rates... interest rates are like gravity."

"If interest rates were 10%, all of our stocks would be worth less." Buffett said then that with interest rates near 0%, all assets are worth more. "Every asset, at present value, is worth the cash it will return before its termination date."

"I have no notion of what the next 18 months are going to look like, and I never have... I don't think anybody does," Buffett said. Buffett said the question isn't whether or not you know what's going to happen next, but whether or not you can do something intelligent not knowing.

"You are buying businesses when you buy stocks," Buffett said.

On the sectors in the US economy that are interesting Buffett, he said he looks at opportunities as they come along, but said he isn't making any judgement about where the market is going and not considering any macroeconomic factors.

On Coke's Executive Compensation Plan

On Wednesday, Coke announced a new executive compensation plan, and Buffett said that this plan "makes great sense." Coke's new plan involves a reduction in stock-based compensation.

Earlier this year, Buffett said that he disagreed with Coke's executive compensation plan but abstained from voting against it. "I think it was the right thing to do," Buffett said.

Regarding these changes, Buffett said he was involved, "only when they asked me... [Coke] was not adversarial."

"I feel as good about my Coke investment as I've ever felt."

On The Burger King Deal

Buffett is financing Burger King's merger with Tim Horton's, and Andrew Ross Sorkin if he thinks financing the deal (Buffett is providing $3 billion of financing for the deal, which is a tax inversion that will see Burger King move its headquarters to Canada), is un-American.

"Overwhelmingly, most inversion deals have had a huge tax motivation, but I can tell you this one didn't," Buffett said.

"It doesn't have anything to do with taxes," Buffett said. "It has to do with Tim Horton's earns twice as much money as Burger King, and this deal has to go before Canadian authorities."

Buffett said that the tax code, however, needs an overhaul. "I think the four of us at this table could write a better [tax program]," Buffett said.

On The Economy, Hedge Funds, And LeBron James

On the broader economy, Buffett said that since the third quarter of 2009, the businesses he owns have improved, "at a constant pace."

"If you look at the overall [economy], the improvement has been remarkably consistent, but the mood swings have been considerable," Buffett said.

But despite this steady improvement, the economy has not taken off, Buffett said.

On Fed policy, CNBC's Steve Liesman asked if he had a few: "No." Adding that if he was on the Fed, "I wouldn't know what the hell to do."

"Hedge funds after fees, in my view, are not going to deliver a return as good as a low-cost index fund," Buffett said.

Buffett said he sent LeBron James a congratulatory note after LeBron announced he was returning to Cleveland. "I'm really glad LeBron went back," Buffett said.

On Alibaba, "I don't think we've bought an IPO in over 50 years."

On the AIG lawsuit, Buffett said that AIG was going broke and, "there isn't anybody in the world, including us, who could've bailed them out... The factual question over whether AIG could've lasted another 24 hours is clear to me."

Read more: http://www.businessinsider.com/warren-buffett-speaks-on-cnbc-oct-2-2014-10#ixzz3EziIWqm5