WASHINGTON — Warren Buffett, chairman and chief executive officer of Berkshire Hathaway, expressed faith in the U.S. economy and in Hillary Clinton’s chances for the Democratic nomination and presidency on Tuesday.
Buffett, coming off a board meeting in Dallas 10 days ago, made the remarks in a wide-ranging discussion with Carol Loomis, a former financial journalist, at Fortune magazine’s “Most Powerful Women Summit” here.
Buffett said the economy is in good shape, growing at 2 percent a year, and predicted that Clinton will become the first woman president of the U.S.
“The interesting thing about the economy is you can give almost the same report ever since the fall of 2009,” Buffett said. “It really has been growing, is growing, at a couple percent a year, which is not bad. People have gotten more optimistic at times. They thought about a double dip at times, then they thought it was accelerating.
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“Our experience is that certain areas have accelerated a lot, like autos, recently,” Buffet continued. “But the overall gains keep running at about 2 percent per year and that’s been really quite steady and that is what we see now.”
Asked if that rate was “disappointing” growth, Buffett said “not in the least” and pointed to the improvement in real output per capita.
“The U.S. has $54,000 of GDP per capita,” Buffett said. “If you take 30 percent [the gain in real output per capita that he calculated] more of that, that means another $16,000 per person in real terms in one generation. If you take 2.7 people in a household, it is $43,000 of household GDP gained in one generation. It’s mind blowing.”
“Everybody in my neighborhood lives better than John D. Rockefeller Sr. lived in the year I was born,” Buffett said. “In two generations, virtually everybody will live better than I live. People talk about 2 percent and they think that’s kind of discouraging. It’s miraculous what compound interest does over time.”
Buffett also said he was not concerned about the recent fluctuations in the stock market, noting that the day-to-day moves have not been that “dramatic” in the historical context.
“In the 20th century we had two world wars, a Great Depression, God knows how many recessions, flu epidemics and the atomic bomb, you name it. The Dow Jones average went from 66 to 11,400,” Buffett said. “The stock market does wonderfully over time because American business does wonderfully over time.”
On the topic of politics, Buffett voiced his support for Clinton, but indicated he was less certain about the Republican nomination and race, while expounding on the state of U.S. politics. His prediction on Clinton came the day of the first Democratic primary debate taking place in Las Vegas Tuesday night.
“I think she is by far the most likely person to get the Democratic nomination,” Buffett said. “And I think she is the most likely person to be president of the United States. I saw some odds that were presented a day or two ago on the probabilities and it was 4 to 5 [for her], which was considerably better than anybody else.”
But Buffett stressed that Democrats will have to rev up their base and get people to the polls, which has been a problem in the past, as the base itself has a “low propensity to vote,” he said.
As for the Republican race, Buffett said: “This is something we haven’t seen before when you’ve got three nonpoliticians who hold an aggregate of 50 percent of the vote on the Republican side.”
He said the country is now dealing with a three-party government system, not a two-party system.
“We have always thought in terms of a two-party government. We now have a three-party government,” Buffett said. “We see that in the [House] Speaker selection. There is a distinct party now within the Republican Party. The traditional Republican Party has a plurality, but they do not have a majority.”
Buffett was referring to a conservative faction of the Republican base that essentially pressured John Boehner (R., Ohio) out of the top perch in the House. In the wake of Boehner’s announced resignation, House Majority Leader Kevin McCarthy (R., Calif.) threw his hat in the ring but his front-runner status lasted about a week. McCarthy quickly withdrew from the race last week after pressure again from conservative Republicans, leaving the party without a leader in the House.
“To imagine that you can’t find anyone who wants to be Speaker of the House is startling to me,” he noted. “My dad was in the House of Representatives and Sam Rayburn was Speaker. He was one powerful guy….You’re witnessing a quiet revolution in terms of how Americans will be governed. We may find a way that we can get back to two parties, but it’s not a two-party system now.
“That is something we have to come to grips with in this country,” Buffett continued. “In terms of culture, in terms of rules, in terms of a whole bunch of things. We have been set up for a two-party government. We don’t know how to deal with a three-party government.”
As for Berkshire Hathaway’s $32 billion acquisition this summer of Precision Castparts, a manufacturer of metal components and parts for the aerospace, power and industrial markets, Buffett indicated it was unplanned.
He said Precision’s ceo, Mark Donegan, was visiting one of Buffet’s employees to discuss his stock portfolio when Buffett dropped in and after a 10-minute conversation surmised the company would do better being privately held and “under the wing of Berkshire.”
He said Berkshire did “no due diligence” and relied only on public financial statements.
“My due diligence is looking into their eyes,” Buffett said, adding that his one question for Donegan was whether he planned to retire at 65, which Buffett said he hoped would not be the case.
On corporate activism, Buffett was asked by Kate Gutmann, senior vice president of worldwide sales and solution at UPS, what his insight was into what she said appears to be the targeting of female-run companies by activists. She asked Buffett what such companies can do to combat that.
“Right now, particularly in the last two years, activism is a salable form,” Buffett said. “I don’t know whether there’s been picking on of female-run businesses. I would say certainly there has been a picking on of really decent and well-managed businesses because they have run out of the other kind. There’s only so many mismanaged” businesses out there.
He said he has had a few business friends who have called him recently about activists surfacing and his advice to them was to tell the activists they were going to run their companies for the shareholders, and to not yield to their demands because it would never satisfy them.
“I tell them if they get desperate, send them over to Berkshire,” Buffett said, showing some of his wit that was sprinkled throughout the on-stage discussion. “We love activists. It is fun to joust with them. They’re not going to get anyplace. Maybe we could be sort of a rest home for activists.”