Berkshire Hathaway CEO Greg Abel & Sec. Lutnick Blames Canada 9/2/26

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0:48So while others are busy talking, we're busy building. That's Venture Global. That's unstoppable energy. Bring in show music, please. Hi, I'm CNBC producer Katie Kramer. Today on Squawk Pod. Two big interviews you don't want to miss. Up first, Berkshire Hathaway CEO Greg Abel joins from Japan, where the conglomerate's nearly$400 billion portfolio includes big stakes in the historic trading houses there. It was really a long-term proposition that we saw this as a long-term holding. And he lets us in a little on the surprising shift, Berkshire's new investment in Alphabet. I called Warren and I said, we had a significant opportunity to invest in, continue to invest in Google, but with a significant block.

1:41Then a newsmaking interview with Commerce Secretary Howard Lutnick from the G20 Innovation Summit. When it comes to the breakdown in trade talks between the U.S. and our neighbor to the north, he says, blame Canada. Friday at four o 'clock, the Canadians call and say they start adding crazy ideas to the mix. And we said, what are you doing? And I said to one of the ministers, are you actually trying to blow this up? And his answer to me was, I'm not allowed to say that. And they blew it up for political reasons only. It's Wednesday, September 2nd, 2026. A supersized squawk pod begins right now.

2:20Stand Becky by in 3, 2, 1, cue it please.

2:49Rising not only here, but across the globe, a lot of concerns that those higher oil prices are going to lead to situations where central banks have to actually raise rates to fight inflation. What you're watching this morning with the 10-year is a yield of 4.812 percent. That is the highest level we've seen for that yield in close to three years. November of 2023 was the last time we saw levels like this. At that point, it was 4.935 percent. The 30-year this morning is at 528. The two-year is at 440. And again, these expectations kind of getting built into the market that rates will have to rise not only here in the U.S.

3:25but around the globe. If you were watching the Japanese 30-year, it is at its highest level in 30 years this morning in terms of what we've been seeing there, too. And year after year, to me, it's strange that negatives for the market seem to build up seasonally just by coincidence in late August and early September. And like clockwork yesterday, September 1st, big 300-plus point declines in the NASDAQ and the Dow, leading us into later September, leading us into October. October, the horrible October. There's no doubt that seasonally, it's just kind of interesting the way that happens. We've had so many sort of sickening September markets.

4:10It also reminds me back, harken back to Tom Lee, who thinks he's bullish, looks at earnings, looks at all these things, thinks we end above 8 ,000 on the S &P for the year. But it's not a straight shot up. Interrupted by a 10 to 15 percent drawdown. Now, not a smart man, but we got like three months left. That's a major volatility if that plays out. And if you're like, oh, well, you know, it's going to be a 10 or 15 percent correction. We just sit back and maybe we buy it. It doesn't work that way. It makes you think, no, this is more than a garden variety correction. So I don't feel like going through this gut-wrenching sell-off.

4:51I think the VIX has been really moderate, though. I think 16 is where it's been trading recently. I don't know where it is this morning. What's the average rise in the VIX in September? 9 percent. I just read that. OK, 2.8 percent on the volatility. You know, it's up to 0.8 percent, 16.8. But it has been nine I could deal with, you know, 30. Yeah, something like that.

5:18Berkshire Hathaway first invested in Japan's five main trading houses just over six years ago, and it consistently increased its position. Berkshire now owns more than 10 percent of each of the top five. And the company's CEO, Greg Abel, is in Japan right now. He joins us for a business update and what he's seeing there. And Greg, it's great to see you. Thank you for joining us. Good morning, Becky. Great to be on Sparkbox. Although I see it's evening there in Japan, as we would anticipate. Greg, let's talk a little bit about what you're doing there, why you're in Japan right now. Yeah, it really serves a couple of great purposes.

5:55First of all, upon arriving, I was able to go visit Tangaloy. It's one of our operating units here based in Japan. It's part of IMC, a company that makes Toolbit. So spent the afternoon up in Fukushima with our team there. And it's really amazing story. We acquired it back in 2008. and over that period of time really built a business from scratch. It came out of Toshiba, but a relatively small company. There's a number of significant plants up in Fukushima. So I spent the day there touring it. We have 1 ,500 employees in Japan and really just really unique. Here's a company that has just under$240 million of sales in Japan and an incremental$400 million internationally.

6:49So very small group, just doing remarkable things. And it's a it's a great way to start a trip. And then obviously been visiting with our each of the five trading houses in Tokyo, Marie. That purchase we first found out about six years ago. I think the purchase of those five trading houses that you all originally bought into at the time when we found out, I think it was around five percent that you owned of each of the trading houses. is you had made a deal with them, you and Warren Buffett, that you wouldn't buy more than 9.9 % without their permission. I think all of those houses have appreciated having Berkshire as a shareholder.

7:26You now own more than 10 % in each of them. A lot of that's been because those companies have been buying back shares too. But what is your long-term plan for these trading house positions and what kind of partnership do you have with these companies? Yeah, you're absolutely right. It goes back to six years ago. we actually announced at US time, it was Warren's 90th birthday. And the next day it was announced in Tokyo and in Japan that we had acquired just over 5%. And at that time we communicated, it was really a long-term proposition that we saw this as a long-term holding. And we look forward at that moment to building a relationship with each of the five companies.

8:12Three years later, we attended, we're here in Tokyo in 2023, and we met with each of the companies. And that was part of building the relationship because one, we're very pleased with the underlying investment at that time. At that point in time, our investment percentage had clicked over the 7%. And the The businesses were performing well. As you highlighted, they were really managing their capital well, purchasing shares back in, increasing their dividends, and their overall performance continued to improve. And then you're absolutely right. We highlighted and requested their approval that we could go over 10%.

8:58Because up to that point, we'd always highlighted we would stay below 10 % and only exceeded if the five management companies or the five trading companies agreed to us exceeding the 10%. And then upon receiving their approval, we went above 10%. And it's really, one, a long-term investment that we intend to hold for many decades. And then secondly, we've been building really strong relationships with each of the companies and looking at other opportunities here in Japan. and for that matter abroad. And those are just exceptional discussions that each visit we continue to build on the prior discussions and look at incremental opportunities.

9:44And Greg, I'll bring up the relationship with Tokyo Marine and the percentage that you've bought into that. There have been some reports recently suggesting that the Japanese insurer is on the look for a purchase, maybe even looking at Australia's Suncorp or Canada's IAG as a potential purchase acquisition. These reports suggest that they would do this with Berkshire's balance sheet backing it up. Can you tell us anything about what may be happening with some of those talks and whether Berkshire would back financially those acquisitions potentially? Yeah, we have a, right before our annual meeting, we announced the transaction with Tokyo Marine.

10:24and it's an exceptional opportunity because they are a great partner and we were absolutely thrilled to be able to reach an agreement with them where we have two and a half percent of their quota share of their book i.e. what they're underwriting we have a two and a half percent interest in the company and then we announced a strategic partnership but what i would highlight is that strategic partnership is very broad. And either of us can bring ideas back and forth to each other. There's no obligation to act on it. But if it were to make sense both for Tokyo Marine and for ourselves, of course, we'd love to pursue a transaction with them.

11:06And as you would guess, we're not commenting on any of the specific companies you noted. Okay. Greg, one of the things that you all did when you started making these moves into Japanese equities was to start issuing bonds in Japan, yen denominated bonds. And I think that's been a pretty profitable position for you all because of where interest rates have been with Japanese bonds. We are talking this morning about how the Japanese 10 year bond has now yield is now yielding the highest levels that we've seen in 30 years. I believe, just according to the latest filings, that you all have something north of$15 billion worth of Japanese yen-denominated debt.

11:52How does that stand? Will you still issue that debt? What are the maturities on some of those things? And what does it mean to see higher interest rates in Japan? Yeah, it's very topical, obviously, here in Tokyo and in Japan, in the newspapers. I will say, Becky, I found it interesting. Not a single one of the trading companies raised it as a fundamental challenge right now. Really? Because they're still, when you think about, they're talking about, yeah, but they're still relatively modest when you think about it. I think the 10-year hit a 30-year high, and it's, yeah, it went right to 3%, as you're highlighting.

12:36So I think they see it as very manageable. And then from our perspective, you're right, we have a debt portfolio there in yen that pretty much reflects the cost basis of our investments. And the tenure or the remaining life on that debt is a little more than five years. and so we still have a significant carry, i.e. the difference between the dividend and the interest we're paying. But I would highlight that we would envision still raising debt as appropriate in yen. And at the same time, we do see the underlying companies earning performance growing. We do see an increase in dividends likely over the coming years and continued share repurchases.

13:27So So, yes, there's an incremental cost, but clearly within the various trading houses, we do see nice increases in the underlying returning capital they're delivering back to shareholders. Greg, we spoke with Warren Buffett back in July right here on CNBC and talked to him about a lot of things. But one of the interesting things he brought up was the Berkshire portfolio. Obviously, you're running things. He said that you're the decision maker, but that you all talk frequently, almost daily, and that the position that was initiated in Alphabet, he said, was his. I just wonder if you can talk a little bit about your relationship with Warren, how you all are doing, and how you're managing that portfolio at this point, the stock portfolio for Berkshire.

14:13Yeah, great. Well, a great example of it is Warren turned 96 on Sunday. so before I left to come to Tokyo stopped in had a great celebration with Warren as he turned 96 with his family and friends so we had a very nice afternoon after that flew here to Tokyo and Warren absolutely loves the Japanese investments and the companies we've invested in. So I could tell it wasn't easy for Warren that off I went to Tokyo. But yeah, we have a great working relationship in that we discuss a variety of things on a regular basis. So we would have had some discussions even on Sunday about our Japanese investments.

15:11And I talked to him earlier this morning just to give him an update on how each of the meetings went and how the companies are performing. But it's very much just a dialogue we've always had. We love talking business. We love talking about what we're seeing across our portfolio. And you're absolutely right relative to the Alphabet position. Warren initiated that probably close to 15 months ago or a little bit more. And so we initiated the initial purchases in Elphabit. We continued, or he continued, and we discussed it then and continued to discuss it, initiated a variety of purchases. And then I want to say in late May, I received the call on a Sunday morning to see if we wanted to participate in their upcoming equity offering.

16:09Really no terms or amount were set. And I said, well, I'd get back to him right away. and very much consistent with how we manage Berkshire, but also how the governance around it, I called Warren and I said, we had a significant opportunity to continue to invest in Google, but with a significant block. Discuss the size. They hadn't set the size, but recommended that we consider$10 billion, and Warren and I discussed the size. We discussed the size of discount. And I'd recommended 6.5 % discount. And we were comfortable with that. And we went back to them and highlighted we would be interested in a block on those terms and then ultimately consummated the transaction.

16:58Why do you like Alphabet? I think just from a real high level. Obviously, we don't discuss the underlying specifics of any of the concepts around any of our equity investments. But the one thing that is unique with Alphabet, and I guess we do see this across other businesses, but number one, obviously, we all are seeing and feeling the impact of AI. So we knew it was going to have a significant impact on America and businesses. We have a lot of visibility from within our companies as to how we're using AI, what type of benefits it's delivering. So that brought incremental interest. And then we saw Google as a significant player.

17:46Now, there's a lot more to Google than what I just said and why we like it. But those were the fundamental reasons as to why we took a serious look at Google and now have a significant investment in it. Well, let me ask you a little more about AI and the data center build out that's taking place. You're somebody who spent decades working in infrastructure building at Kiewit and also at Berkshire Energy. So you understand one of the key places that's seen as a limiting factor for AI build-out, and that's energy. Where are we right now in terms of that data center build-out? Where do you see opportunities specifically for Berkshire?

18:28Yeah. So it's really interesting as they continue to announce all the data centers and data center sites. I've sort of always had a strong view that energy would be the constraint. And there'd be energy, we can produce the energy. It's how long it would take to get the sites prepared and being in a position they could serve the data centers. And I continue to see that as a big constraint will come to one of the other challenges. So and but we do still see it as a significant opportunity for Berkshire and Berkshire Hathaway Energy in that, for example, if you look at Iowa, where we have a number of data centers, I want to say last year, approximately eight percent of our load came from data centers.

19:18And we see incremental load coming on both customers requesting it and what we can serve. but we've really operated to some pretty basic principles right from the get-go. And we've shared that with each of the hyperscalers, and it's really policy we've discussed with our state, our governors, and our regulators. And we highlighted we are interested in serving these hyperscalers, one, if there was no impact to the rates of our other customers. And in fact, we've pretty much taken the approach there has to be a net benefit to our customers. The communities have to understand the impact on water, and that has become much more manageable as they address that, use the technologies that are available to minimize water use.

20:18And then lastly, the communities have to be open to having the data center in their community. We very much believe in the fact that you have to be a welcomed member of the community. Now, that's a decision the data center has to make, but we can encourage them to seriously evaluate their reaction from the communities. And I know you've had many discussions around it. There is a lot more pushback in the communities across the U.S. We have not had any specific site rejected to date. We're continuing to move forward on the various sites we have under construction. And our sites would be the energy infrastructure, not the data center site.

21:08But it has to be done on the terms and conditions I just highlighted. You know, Greg, if you don't define a narrative, if there's a vacuum, then other people are going to define it for you. There's a piece in the journal today just about the data centers, protect the earth, build more data centers. Their need for reliable power drives innovation while AI helps develop new clean technology. It just points out this could be a once in a generation opportunity to clean up the electricity grid and to learn how to improve water quality across the board and accelerate technologies that, you know, that the people that don't like this, they're behind a lot of these technologies.

21:55And you could act there's a need for so much power. It could actually generate the type of change that they're looking for. But if you don't sell it that way, they're going to sell it a different way. I guarantee it. Joe, you're absolutely right. I mean, the narrative around these is so critical and it continues to evolve. So it really did start from the impact on rates. And were you impacting other customers? You can see they've, as you've just highlighted, they've moved on from that narrative. I would say that the water narrative is very strong coming from the data centers and how they minimize the use.

22:36And now there's starting to evolve to other narratives. I think a very strong narrative on the side, at least in Iowa, where it's still a strong farming community. When we see both the energy infrastructure put in place and a data center put in place in an individual county or community, The tax relief specifically on property taxes and also revenues that come into the county to support other services, schools, police, fire. It's very, very substantial. And that's equally has to be part of the narrative and make sure people recognize the benefits that come with that type of development. Hey, Greg, let's shift gears a little bit and talk about housing, specifically in the United States.

23:30Obviously, since the last time we spoke with you, you all bought or you bought the made the acquisition in Taylor Morrison for six point eight billion dollars. We also saw in the latest filings that came out, you had increased the stake in Lennar. So these are just some of the ways the Berkshire kind of plays into housing. but you have so many different places that you are kind of measuring how the housing market is doing from the paints that you sell, from other things that go into housing building, but also from the real estate portfolio in Berkshire Hathaway real estate that follows through all of that.

24:04What do you see happening in the housing market, particularly as interest rates and mortgage rates are rising in the United States? Yeah, it's really interesting because it was an important part of the discussions with Taylor Morrison and the discussions I had with Cheryl, their CEO, in that when we looked at housing and housing specifically in North America, we were taking a very long term view that that American dream will continue to exist. And five years and 10 years from now, this will be a very strong asset for Berkshire, i.e. Taylor Morrison. And I'll come back. We did combine and are combining some of our operations from Clayton Homes.

24:51We had 15 site, what we call site builders, but home builders over in Clayton Homes. They're now joining the Taylor Morrison team. But the conversation we were having, Becky, was that we didn't see any type of immediate recovery or any type of hockey stick there. That we did see it from Berkshire's perspective that it was going to be a bumpy road for a while. And obviously, as you're discussing it with people in the industry, there's and we've got a great leader in Cheryl and brings great optimism. But you can see as we discuss it, we don't envision a quick recovery there. But we do see it as an industry that we definitely want to be invested in and we're invested in for the long term.

25:42And Greg, just when you look at the economy in the U.S., around the world, how are things doing from a business perspective? How's the consumer doing? Yeah, it's really interesting. I mean, here in Tokyo, incredibly vibrant. You can feel a great deal of energy. And when I met with the five companies, the trading houses, very strong results they're having and feel very good about their businesses. And that would be a number of my resource base. But a number of the businesses also have what they call non-resource businesses. And they're performing very well. If you look across our businesses and our results through the second quarter, again, very strong in our larger businesses, including our manufacturing businesses.

26:33So you can see there's still strong demand. But I think you do feel the customer, there's a consumer that is still clearly feeling the pain and struggling and having to stretch a lot further with that dollar. And I think that does exist. There's no question when we look at the underlying results. But at the same time, the fundamentals around the economy, at least from what we're seeing through the through the second quarter, remain very, very strong. Greg Abel. Greg, thank you very much for joining us this morning, this evening in Tokyo. We appreciate it. Thank you, Becky. Thank you, Joe. Have a great day.

27:19Thank you very much. Thanks, Greg. Again, Greg Abel, the CEO of Berkshire Hathaway. I like, right at the beginning, I like the way you said, yeah, it's dark. We were anticipating it would be dark there. Trying to think of what word, but I was too. Explain the obvious. As well. No, but think if it had been. Like, we'd be totally. Thrown for a loop? We'd be totally thrown. Yeah. So what word would we, I don't know. Anyway, I thought about that and said, Becky. Captain Obvious, that's what you thought. Yeah, that's right. The cheese will be next. Coming up on Squawk Pod, a lively interview with Commerce Secretary Howard Lutnick.

27:59He's at the G20 with tech leaders like Jensen Huang and Sam Altman. Well, you know, one of my favorite things is when people talk about data centers using water. The number one product in America that uses water is cattle. I mean, data centers don't use water. The data centers, this is propaganda by our adversaries to try to slow us down. Plus more on what caused the collapse of trade talks between the U.S. and Canada. Stay tuned.

28:33At Venture Global, we think about what can be done, not what's usually done. Through innovation, Venture Global is not only building some of the largest energy facilities in the world right here, in the United States, but delivering American energy at a fraction of the cost in a fraction of the time. So while others are busy talking, we're busy building. That's Venture Global. That's unstoppable energy. With the Discover Cashback Card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases.

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