Warren Buffett CNBC Interview - October 2017

Buffett explains stock valuations relative to interest rates: at 2.3% 10-year, stocks make sense and will do 'considerably better.' Interest rates are gravity - if zero forever, could pay lot for assets. Expected rates to rise after 2009 but wrong. Longer low rates persist, more people expect continuation. At 5-6% rates, stocks would need different valuation standards. Long-term conviction: short 30-year bond at 3%, long S&P 30 years - stocks far outperform.

Rare admission: Berkshire actually pausing certain transactions in October 2017 due to tax reform prospects. Strategy: defer gains (avoid 35% rate if 25% coming Jan 1), realize losses now (offset high-rate gains). Foolish to pay $350M tax on $1B gain when waiting months could save $100M. First time in Buffett's 87 years this factor matters. Billions in potential sales affected. Market impact: losers get depressed (selling), winners supported (deferred selling).

Buffett predicts tax bill will pass - odds higher than consensus. Republicans controlling Congress + White House won't accept year-one shutout after healthcare failure and no infrastructure. Key distinction: not tax reform, it's tax cut - any politician should be able to pass cuts. Different dynamics from healthcare allowing compromise. Could get bipartisan support. Fundamentally easier to cut taxes than reform complex system.

Passionate opposition to estate tax elimination. Reality: 2.6M deaths/year, only 5,000 pay estate tax - average 40 years between taxable funerals. Under proposal, could leave $75B to 35 heirs tax-free ($2B+ each, $100M annual income). Lucky sperm club - come out of 'right womb' with Buffett name, build Egyptian pharaoh tombs. Terrible for: (1) capitalism (misallocates resources), (2) children (corrupts development), (3) society (exacerbates inequality). Dynastic wealth contradicts American meritocracy.

Stunning wealth concentration: top 400 Americans now hold $2.4T vs $90B just 25 years ago - 25x increase. Against $20T GDP, represents massive resource share. These 400 families could pass $2.4T to heirs under proposal. If 5,000 richest estates can't spend $20-25B, have plenty left. Would also hurt philanthropy. Meritocracy analogy: Olympic team shouldn't be eldest sons of current olympians - same principle for wealth.

Challenges corporate tax cut necessity: None of Berkshire's 60-70 businesses non-competitive due to current rates. American business earns extraordinary returns on tangible equity vs 100-year history. Top 5 companies (10% of market) capital-light unlike old steel/auto/oil era. US among world's highest earners on tangible assets. 35% statutory but most companies don't pay through loopholes - ones paying full rate penalized. Exception: banks pay nearly full rate.

Near end of famous 10-year bet: S&P 500 will 'absolutely kill' fund of funds despite their strong incentive to pick best underlying funds. Proves passive beats active in aggregate due to fees. Not cherry-picked period - typical decade returns. What's unusual: fee sizes. Fund managers and underlying managers did great, investors got killed vs simple index. Will accept new bets but only from people wagering substantial percentage of net worth (not publicity seekers with $100).