Here’s an example of the kind of candor I think was missing from Saturday’s meeting given current market action. This was a follow up interview with CNBC from 2019, but this type of discourse was common in years past, especially in the meeting:
BECKY QUICK: Hey, Joe, thank you very much. And gentlemen, just taking a look at what we’ve been watching with the markets today. Obviously things are under a little of pressure today. But we have been looking at much higher markets if you go back to the Christmas Eve low. And the concern about what would the Fed might or might not be doing. Since that time the Fed has sounded much more dovish. And I just wonder if you can talk a little bit about your own take on the markets. And Bill, again, I’ve spoken with Warren and Charlie earlier about this a little bit. So how about your take? When you hear that the Federal Reserve is probably not gonna be raising interest rates any time soon, how does that change your outlook on equities or equities versus treasuries?
BILL GATES: Well, the interest rate is like gravity and all these valuations are dramatically affected by it. At the start of the year people didn’t think the ten-year bond would be where it is today. And that’s provided a lot of lift. So it was a big first quarter for U.S. equities. We still, if you look forward, are at these very high valuation levels. And so it’s hard to see that the market will be gaining a lot over the next few years. I think people should have fairly modest expectations on what their portfolios will make in the years in front of us.
BECKY QUICK: Have you changed your positions, I mean, your own portfolio as a result of this? Have you done any major—
BILL GATES: No, it’s a very equity-oriented portfolio. It’s overweight in the U.S. even though it’s got a lot of overseas exposure. You know, it’s a bullish portfolio that the American economy over time will do well. You know, fortunately, even if we have a few years here where markets aren’t doing that well, you know, we’ve been lucky we have a cushion the foundation can continue to spend generously. But I’m amazed at how high the valuations are if you look broadly.
BECKY QUICK: Charlie, do you think that?
CHARLIE MUNGER: Well, sure. I think that if you drive indices down to zero and all the countries print money like crazy, it’s lifted the asset boat for everybody. And I think it really is – they didn’t have anything else to do in the great recession. And so they took the only weapon they had and used it aggressively. I don’t think we should quarrel with that. It did cause the people who are already rich to get richer. But that wasn’t done on purpose or anything like that. And I think that will correct automatically.
BECKY QUICK: Do you think we should still be using that weapon aggressively which is what President Trump would like to see happen. He wants them to cut interest rates again. I think he said by 1%. And also push up quantitative easing once again, build up the balance sheet.
CHARLIE MUNGER: I am so afraid of a democracy getting the idea that you can just print money to solve all problems. And eventually I know that will fail. Singapore which has a marvelous economy has zero debt. If I were running the world I would like the United States to be in that position. That is not the typical. That’s nobody’s position. No, all these politicians here in America have learned to print money.
BECKY QUICK: And if we keep at these extraordinary measures for the Fed – I guess not just the Fed here, but central banks around the globe.
CHARLIE MUNGER: Yes, but who knows when money finally runs out of control? And at the end, if you print too much you end up with something like Venezuela.
BECKY QUICK: You’re not suggesting that happens any time soon?
CHARLIE MUNGER: No, but I don’t like the idea. And both parties, you have politicians that say, “what we’ve learned is we can print all the money we want. We don’t have to raise taxes. We just print.”
BECKY QUICK: Warren, you share those concerns?
WARREN BUFFETT: Yeah. It probably could not have conceived the world as recently as ten years ago – I learned I would not have conceived of a world where you would have full employment, five percent budget deficits, with actually the probability of those rising from that level, and at the same time have the long bond at 3%. I would’ve said that couldn’t happen. And then people now, you have this modern monetary – there’s no question you should borrow – any country should borrow money in its own currency. I mean, that is not like it is some great discovery. Some things have been announced but
CHARLIE MUNGER: No, but it can be overdone.
WARREN BUFFETT: Yeah and that’s the point. I mean, that doesn’t solve anything just to save – it is much safer to borrow money in your own currency. But the convergence of these factors would’ve seemed impossible to me. And generally if I feel something is impossible it’s going to change. Over time, I don’t know in what way, but I don’t think we can continue to have these variables in this relationship. Now if we can, then stocks are ridiculously cheap.
BECKY QUICK: The one thing I will say though is this is a conversation I feel like we’ve had for at least four or five years.
WARREN BUFFETT: Right.
BECKY QUICK: Where you’re watching and continuing to wait for these interest rates, the yields to rise. We’re still sitting at 2.5% on the ten-year, which is shocking.
WARREN BUFFETT: And we’re sitting with very, very little inflation, with a Federal Reserve that put a target for 2% on it not that long ago. And it looks like nirvana. It looks like we found the promised land where we just essentially money doesn’t cost anything and you can print lots of money and have full employment and no inflation. And I would’ve thought that something would’ve happened before now. I don’t know what would’ve happened. But I wouldn’t think you could have these things at these levels – the long-term rates, inflation rates, budget deficits – and have that be a stable situation for a long period of time. And I still believe that. But so far I am wrong.
BECKY QUICK: So in the meantime you haven’t really changed how you—
WARREN BUFFETT: I think stocks are ridiculously cheap compared – if you believe that you’re going to have 3% interest, well, 30-year bonds make sense.
BECKY QUICK: That’s a big if though.
WARREN BUFFETT: That’s what makes going to work interesting.
CHARLIE MUNGER: This threesome is comfortable if everything goes down that way 90%. So we’re now a fair cross section.
BECKY QUICK: I’m sorry, Charlie, what was that?
CHARLIE MUNGER: I say this threesome is comfortable if everything goes down by 90%.
BECKY QUICK: Oh stock prices. Equities know the rest.
CHARLIE MUNGER: It doesn’t really hurt us. Yeah, but we wouldn’t want that kind of a world, I mean, everybody else