Billionaire investor Warren Buffett said Monday that he sees room to run in this historic climb in the stock markets.
"If you tell me 3 percent long bonds prevail over the next 30 years,” Buffett said during an interview with CNBC Monday, then “stocks are incredibly cheap. Interest rates govern everything.”
“The real question for stock investors," he said, "is are these rates a new normal? We live in a world that wasn’t described by classical economics.”
Global markets were booming Monday on President Trump’s announcement Sunday that he was removing the March 1 deadline on U.S.-China trade negotiations.
The Dow Jones industrial average was up 100 points Monday, about 0.7 percent. The Nasdaq composite and Standard & Poor’s 500-stock index also climbed as markets kept up their 2018 momentum. Asia and Europe were positive on the feel-good vibe over trade.
Buffett said the stock market has created $108 trillion in household wealth since he bought his first stock 77 years ago. He credits the “American Tailwind” as raising living standards and making the U.S. system the envy of the world.
“All you had to do is live in America” and own a stock index fund, he said. “That isn’t a tailwind. It’s more like a hurricane.”
Buffett said he is in favor of redistributing wealth more equally but not dismantling capital markets. He also said he favors greater taxation on the wealthy as a way to bridge America’s growing inequality gap.
“As we get more specialized, the rich will get richer,” Buffett said. “The question is: How do you take care of a guy who is a wonderful citizen whose father died in Normandy and just doesn’t have market skills? I think the income tax credit is the best way to address that.
“That probably means more taxes for guys like me," he said, “and I’m fine with it.”
Buffett said he would support fellow billionaire and former New York City mayor Michael Bloomberg if he ran for president.
“He knows how to run things,” Buffett said. “He’s got the right goals for America. He understands people. He understands the market system. And he understands the problems of people.”
Buffet said a run by former Starbucks chairman Howard Schultz as a third-party candidate would likely hurt the Democratic candidate. "I think generally [that] third-party candidates, they’re going to hurt one side or the other, and they’re more likely to hurt the side that they actually favor, “ Buffett said.
Buffett’s comments came during a wide-ranging, three-hour interview with CNBC co-anchor Becky Quick. Buffett said during the interview that stocks are a good deal if interest rates stay low, that his Berkshire Hathaway conglomerate overpaid for Kraft Foods and he will buy more Apple stock if it continues to go down in price.
He also said he hopes the United States and China will be sensible and reach a trade deal.
“I’m relieved at the idea that there is still some sense” that a deal is in the works, he said. “A trade war is bad for the U.S. and China.”
Buffett’s has long expressed support for higher taxes on the wealthy. Quick asked him whether he favored wealth taxes that have been proposed by senators Elizabeth Warren (Mass.) and Bernie Sanders (Vt.), both of whom are declared candidates for the Democratic presidential nomination.
He did not endorse either plan, but said he favored the income tax credit as a best way to redistribute wealth, adding that Americans can afford it.
“The wealthy are definitely undertaxed in relation to the general population,” Buffett said. Nevertheless, if everyone in the world could pick a country to lived in tomorrow, he said the vast majority would pick the United States, which he called "still an incredible country.”
The CNBC interview followed publication over the weekend of Buffett’s annual shareholder letter. The annual missives are full of ruminations that Wall Street investors and others scour for tidbits.
This year’s 15-page letter contained no big surprises, other than an unexpected fourth-quarter loss of $25.4 billion due to the write down of its investment in food giant Kraft Heinz.
Berkshire Hathaway teamed with private-equity firm 3G Capital in 2013 to buy Heinz, the iconic American ketchup maker. Heinz merged with Kraft two years later, creating the world’s fifth-largest food and beverage company and the third-largest in the United States.
Kraft Heinz stock tumbled 25 percent last week after the packaged goods giant registered a big loss on $15.4 billion write down of its Oscar Mayer and other brands.
The company cut its dividend and said it is the subject of an investigation by the U.S. Securities and Exchange Commission.
Buffett said Berkshire Hathaway will not sell any of its 26.7 percent interest in the company despite Berkshire’s fourth-quarter loss of $25.4 billion, because of Kraft Heinz.
"We don’t pull the plug,” Buffett said, adding that Kraft Heinz is still very profitable. “It isn’t our style. I have absolutely no intention of selling.”
He said retail giants Walmart and Amazon.com, which owns Whole Foods, are making it difficult for packaged goods companies like Kraft Heinz to compete the retailers’ house brands.
“When you are going toe to toe with Walmart and Amazon," Buffett said, "you’ve got a weaker bargaining hand than you did 10 years ago.”