Japanese trading houses offered a low-risk carry trade
The guest argued that Warren Buffett's investment in Japanese trading houses was a highly favorable basket trade that leveraged cheap valuations and a virtually free yen-denominated debt arbitrage.
The argument
The guest explained that these sprawling, diversified conglomerates were trading too cheaply after decades of a moribund Japanese market. By issuing yen-denominated debt at 0% interest, Buffett created a low-risk carry trade where the dividend income was essentially free cash flow.
The thesis, stress-tested
✓ What validates it
- ✓Stable or growing dividend yields from the Japanese conglomerates
- ✓Continued low interest rates on yen-denominated debt
▸ Risks discussed
- ▸Historical lack of shareholder-friendly corporate governance in Japan
- ▸Currency and exchange rate fluctuations
Hear it yourself
"So he got this carry trade where all of the dividend income was essentially free. And so he was making hundreds of millions, $708,100,000,000 dollars a year in dividends from these transactions."
00:00 / 00:13
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE