Buffett talks IBM, China, politics

The Oracle of Omaha explains how he decided to buy IBM and gives his opinion on the US deficit and the Republican presidential race.

By Kim Peterson Nov 14, 2011 3:12PM
How did Warren Buffett decide to buy 64 million shares of IBM (IBM)?

It all started with IBM's annual report, which Buffett read in March. Buffett has read the technology company's annual report every year for 50 years, he tells CNBC in the video below. But this year he got a different perspective when IBM laid out its road map for 2015.

After perusing the report, Buffett read "Who Says Elephants Can't Dance?"by former IBM chief executive Lou Gerstner, Jr. Then he chatted up all the information-technology departments operating under Berkshire Hathaway (BRK.A) to figure out their relationships with IBM.

Now that's how you research a stock.

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Buffett was also asked about how the United States could tame its deficit. He reiterated his belief that the country's wealthy are not paying enough in taxes. "I was paying higher tax rates back in the '50s and '60s when I had a very small income," he said.

Spending should come down as well, he said. The country has $120,000 in gross domestic product per household, he said, which is very high. This country is a very rich family, he added, but "even a rich family can promise too much."

Buffett said Republican tax policies helped him save $6 million to $7 million last year. He could have paid more, he said, and it wouldn't have made much difference. "Corporations are awash in cash," he says in the following video.

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Buffett also talked about the U.S. relationship with China, saying the countries are going to be the two big factors in the world for decades to come.

China will be unhappy with the U.S. at times and the U.S. won't like China's actions as well, he said. But both countries have nuclear weapons, so it's not in the best interest for them to get really furious with each other.

"Don't expect the progress of any huge society to be totally without some bumps here and there," Buffett says in the following video. "But China and the U.S. over time will largely get along. We largely have the same interests."

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Buffett was also asked about how to fix the housing crisis in this country. He said he doesn't think any government stimulus is needed in housing.

Instead, the answer is simple: This country needs more households than housing units. And that's happening slowly, he said. Every day, the housing stock is getting smaller relative to population growth.

Finally, CNBC's Becky Quick asked Buffett about the current Republican race for the presidential nomination. Buffett downplayed the recent debate flub by Texas Gov. Rick Perry, saying it doesn't take Perry out of the race.

"I do not change my opinion of Gov. Perry by one iota because the guy forgets on national television a third point," he said. And what exactly is Buffett's opinion? "I don't want him to be president."

Buffett says in the following video that Mitt Romney is the strongest candidate to go up against President Barack Obama next year.

Nov 14, 2011 7:00PM
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