Every year at around this time, Warren Buffett, CEO of Berkshire Hathaway and America’s favorite billionaire, pens a letter to shareholders that provides in-depth updates on the company and its future, his take on the overall economy and projections regarding certain matters of the day. These always lead to headlines in the news media and extensive interviews, where hosts attempt to get his opinions on headlining issues.
Two days after releasing his in-depth letter, Buffett sat down with CNBC for an interview to discuss a wide range of topics, such as the minimum wage increase, bitcoin, the Keystone pipeline and the overall economy.
Berkshire Hathaway operates more than 80 different businesses in an array of sectors, including ice cream, insurance, railroads and utilities. It presently maintains holdings of more than $117.5 billion in stocks.
Pension Financial Crisis
One of the important points of his published the 24-page letter to shareholders was in regards to the potential financial crisis in public and private sector pension plans. Buffett wrote in his memo that he expects a lot of more bad news to transpire because local and state public entities made numerous pension promises they couldn’t afford to keep.
A part of the problem, says Buffett, is the fact that public officials and citizens do not comprehend “pension mathematics” very well. Pension funds are different than regular retirement plans because employers guarantee a certain retirement benefit – traditional 401(k) schemes do not consist of such promises. He hopes his letter will be “helpful to you in understanding the necessity for prompt remedial action where problems exist."
Minimum Wage Hike
Since United States President Barack Obama delivered his annual State of the Union address, the issue of an increase in the federal minimum wage has been the subject of fierce debate. Proponents of raising the minimum wage say it’ll help the poor, while opponents argue it’ll hurt the poor, as well as small businesses across the country.
What does Buffett think? He told the hosts that he would love to see a hike in the minimum wage rate to $15 per hour – the president has proposed a modest increase from $7.25 to $10.10. However, he stated that he understands that it might not be done because the economy isn’t in the best shape for an abrupt increase.
If you could have a minimum wage of $15 and it didn’t hurt anything else, I would love it," Buffett said. "But clearly that isn’t the case.
Instead of raising the minimum wage, Buffett proposed another way to help those less fortunate: an Earned Income Tax Credit, a program that gives tax money back to those who earn below a certain level of income, which is quite similar to economist Milton Friedman’s concept of a negative income tax (NIT).
I think you can accomplish way more through the earned income tax credit without negative effects," Buffett argued.
In addition, Buffett explained that he doesn’t believe either side of the debate when they say they have studies that show either job increases, or job losses because it’s very difficult to “quantify those tradeoffs.”
In the end, Buffett believes the U.S. government should be doing more to address income inequality, especially considering that the country is a very rich one. Some of his suggestions include a minimum tax for millionaires and higher tax rates for top earners.
Bitcoin, a digital currency that operates on a peer-to-peer network, has garnered headlines all over the world. Although it has generated significant media buzz, polls show that a majority of people either have never heard of it or they still don’t understand what it is. Whatever the case may be, bitcoin has experienced a tremendous month of February.
In the past month, bitcoin’s value has suffered immense volatility, one of the world’s largest exchange platforms, Mt. Gox, declared insolvency and the establishment media has pretty much declared bitcoin has collapsed.
Buffett concurred with his colleague Charlie Munger, vice-chairman of Berkshire Hathaway, in believing that bitcoin is “not a currency.” He went onto explain that bitcoin is nothing more than a speculative bet and that bitcoins do not maintain a store of value. Essentially, with bitcoins being pegged to the value of the dollar, bitcoin would not qualify as a legitimate currency.
Buffett noted that he wouldn’t be surprised if bitcoin ceased to exist in the next 10 to 20 years.
On Sunday, police arrested 200 or so protesters who had strapped themselves to the White House fence in opposition to the Keystone XL oil pipeline. Chanting various slogans such as “climate justice now” and “don’t tarnish the Earth,” the college protesters urged President Obama to reject the pipeline because it’ll contribute to global warming.
The Keystone pipeline has been another issue that has become part of the public discourse. What side does Buffett fall on? He thinks it would be great for the country, but he doesn’t know if the president will approve of the line that would run from the Canadian province of Alberta to the state of Nebraska.
Buffett doesn’t support it because of the jobs it would create but because “it’s a useful pipeline.” Buffett did concede that rail cars carrying the oil will need to be safer.
The oil from the Bakken, and from the Eagle Ford as well, turned out to be more volatile than people anticipated. ... We’ve lowered the speeds. It’s [also] going to require another kind of tank car, too,” said Buffett. "We have found in the last year or so that it’s more dangerous to move certain types of crude certainly more than was thought previously."
The American people may not believe the U.S. economy is improving. Polls suggest that Americans are pessimistic and feel as if the economy isn’t getting any better. Nearly 70 percent in a CNN poll said the economy is in poor shape, while close to one-third (32 percent) said it’s in good shape.
Buffett oppugned that the economy is growing, even though it’s at a slower rate than expected. He projects the economy to gain 20 percent output over the next decade, a figure based on a conservative two percent estimated annual rate of growth.
He blamed the weather for having a big impact on certain industries and wouldn’t pull out of specific investments because of the harsh winter or of the escalating tensions and violence in Ukraine. He did say that the broader U.S. and global economies are getting better.
Exactly what’s been going on since the fall of 2009 continues," Buffett said. "We’ve had this moderate but consistent growth. Every now and then we get excited about it speeding up and every now and then we start to worry about a double dip," Buffett said. "But I would say it’s been almost a straight line, not at the kind of slope that people would like, but not flat either.”
What do you think about Warren Buffett’s analysis? Share your concerns, suggestions and ideas in the comment section.