Warren Buffett is ‘ahead of the game’ with Japanese investments, LaDucTrading founder says

LaDucTrading Founder Samantha LaDuc joins Yahoo Finance Live to discuss why Warren Buffett is betting big on Japanese companies, Japanese firms easing resilience on fossil fuel investments, and the outlook for the investment landscape in the U.S.

Video transcript

- Warren Buffett's latest bet is paying off, the billionaire investor seeing big gains from his stakes in five Japanese trading companies. We're diving deeper into Buffett's overseas venture ahead of Berkshire's annual shareholder meeting coming up this weekend. Joining me now is Samantha LaDuc, LaDucTrading founder. Good to have you back on the show, Samantha. So, a lot of people--

SAMANTHA LADUC: Thank you so much.

- --about this play here. Good to have you. So, these trading firms that are Berkshire Hathaway investing in, the five largest trading houses in Japan, really represent companies that are integral to the economy. Talk about this move, and why do you think he's making this move at this point?

SAMANTHA LADUC: Well, first, Japan in general is very important. They are the largest buyers of US treasuries they also are a very large importer of NAT gas. And since they have done their yen interventions back in September 22 when the gilt market, by the way, imploded and also throughout mid-October into December, widening their yield curve control, they have very much put a bottom in equities.

And this has basically this yen intervention en masse with central bank coordinated liquidity infusion. So it's a player. It's a key player with the United States in supporting our equity and bond markets first and foremost. Second of all, it has some very interesting characteristics.

It is the last bastion of low yields in this global world of hiking regimes. So, in the backdrop of Japan having the lowest yields in the world right now is one of the benefits, if you will, of going over where-- Buffett has already proven this-- went in before they widened their yield curve. And again, I think they will do it again.

Berkshire went in 2020, August of 2020, took a 5% stake in these holdings, mega conglomerates in Japan, where these are basically trading houses. They are very much instrumental to everything that goes on in Japan from their distribution of consumer to industrials. Again, a lot of commodity based value shopping right there.

And it's clear that Buffett is ahead of the game because he not only sold Berkshire bonds in yen, which yielded very nicely for him, but he bought interest in these commodities, in these trading companies, which have been increased to about 7 and 1/2% holding. And that's not unusual for Buffett. I mean, he's usually kind of a bottom up fundamental approach to investing.

So, why does this matter? First, I think it's very important that it shows this investment in things over paper. And that's been a mantra of mine since summer of 2020.

It also indicates that Japanese yields are likely to start to rise. So, investor-- Buffett is bullish Japan. Very likely, investors will follow.

- And to that point, I mean, these are also-- these five trading houses, they all have price to earnings ratios of below 10. They pay healthy dividends. But some of them also represent a pivot away from fossil fuels. So, when you look at the energy play that Berkshire already has, what should we make of this?

SAMANTHA LADUC: Well, I'm not quite sure that this is a longer term bet on the demise of fossil fuels. Absolutely not. I just think this is a very strong bet on commodities.

So, you know, Druckenmiller has his dollar short thesis. Marginally, the dollar is devaluing relative to rest of world currencies as it relates to commodities. That's very bullish.

So I really think this is more a play on these yields are going higher in Japan. This is obviously supportive for not only the trading houses but stocks and countries that are asset-rich, resource rich. I think this is a very smart play on higher commodities, not necessarily fossil fuels. But their dependence on importing energy is obviously famous. So, this is a really great gateway play for Berkshire to take advantage of these value plays.

- And so when you compare that to the investment landscape in the US, I mean, obviously, we have a looming debt ceiling fight. We have still some uncertainty as to what the Fed will do next. Do we expect, then, the next bull run to be in Japan?

SAMANTHA LADUC: Well, I think this is putting in a play for there's value in Japan. Yields are likely to rise in Japan. There are still many problems in Japan-- demographics and debt to GDP.

But as it relates to these subsidiaries basically benefiting from an inflationary impulse, it's very smart to basically issue these bonds in yen to buy commodity-rich trading houses. So it's Buffett locking in world's cheapest source of funding to then buy access to hard assets.

As it relates to the US, we will have a different complexity because we're actually at the end of a Fed hiking regime, right? we're expected on Wednesday for the Fed to be one and done, one last 25 basis point hike. The market is very jittery about that, by the way, today, as you can see from VIX spiking off that 16 and 1/2 handle that we discussed last time I was here.

And the dollar yen has moved higher, definitely. USD, JPY-- again, that was my baseline bet-- from 134, 135, 137. We're digesting here a little bit. Above this, we're going to push into 140.

So this has impact on our dollar, on yields, equities, and they're feeling that nervousness, no question. And the ultimate play, I believe, is dollar is coming under some pressure, probably into the 98 handle, for Dixie this year.

And right now, it doesn't look that way. It looks like we're getting a little support into 103. But after this unwind, after this yen unwind that I talked about on the last show, there is a massive, crowded yen long carry trade that we have seen unwind in the past few weeks. And I think it has further to go. So, it definitely-- carry trade matters to US equities, and we're feeling some of that volatility come into play right now ahead of a potentially hawkish Fed with one more rate hike and pause in June.

- And we know people will be passing through those comments on Wednesday from Powell. A big thank you there. Samantha LaDuc, LaDucTrading founder. Thank you for your time this morning.

SAMANTHA LADUC: Thank you so much.

- Well, we're bringing you-- you're so welcome. We're bringing you more Berkshire coverage ahead of Saturday's big show in Omaha. Tomorrow, a closer look at Buffett's bet on Occidental.

You won't want to miss it. Stay with us. We'll be right back.