Jeff Greene, who made his first fortune shorting subprime mortgages during the Great Recession, sees trouble ahead for real estate and no relief for crypto or tech stocks.
During the last major recession from 2007 to 2009, a little-known entrepreneur named Jeff Greene made billions of dollars by buying credit default swaps on subprime mortgage-backed bonds as the housing bubble collapsed.
Now Greene, a Palm Beach-based real estate mogul with an estimated $5.1 billion fortune, thinks the economy is going through another bubble in assets ranging from crypto and SPACs to overvalued tech stocks and real estate. “We’ve been in an omnibubble, there’s no question about it,” Greene, 67, told Forbes in a phone call from his Hamptons estate, something he’s been saying for months now. “If you spend trillions and trillions of dollars in every advanced economy in the world and have coordinated fiscal and monetary stimulus, obviously you’re going to create bubbles and inflation.”
Asked when he thinks a recession will hit, Greene guessed it might come in the first or second quarter of 2023. “Next spring [we’ll] definitely be in a much slower economy,” he said. “If this recession really happens, you’ll have all kinds of people stopping their construction projects and laying people off and [you’ll] start to see unemployment creep up quickly.”
More than a decade ago, Greene made a fortune from the wreckage of the housing market and reinvested some of his profits into apartments and condominiums, eventually building a residential real estate empire concentrated in south Florida and Los Angeles. But despite skyrocketing prices for real estate across the country, Greene thinks the boom will soon turn to bust. “The real estate market is in a bubble,” he said. “We’re way overbuilt and you’re going to see a lot of people have problems with their real estate developments,” he posited, referring to residential real estate.
He also sees a parallel between the subprime mortgage crisis of 2007 and the booming stock market and crypto wave of 2021. “It’s like when I was doing the subprime short [betting that the value of subprime mortgages would fall] and I remember saying, ‘Who’s on the other side of this trade?’ These mortgage-backed securities had almost no possibility of being paid back,” he said.
“It’s the same thing with people saying, ‘Well I have to buy equities because I don’t want to make one percent [return with low interest rates] so I’m going to put my money in something that’s highly inflated,” Greene said. “And they bought crypto, SPAC shares, houses to flip, equities and private equity investments at unprecedented multiples of revenue with no prospect of earnings whatsoever.”
While he still invests in a range of stocks and private equity, he told Forbes he’s now more risk averse than he was a decade ago, with little debt on his real estate projects in Florida and New York, where he recently finished construction on a 30-story residential building in lower Manhattan. He’s also turned down several offers to sell his buildings for cash or invest in highly-valued private companies in early funding rounds. (He won’t say which particular companies have approached him.)
Unlike his successful bets against the housing market in the Great Recession, Greene isn’t shorting anything this time around. Asked what he would do if he was more open to taking risks, he outlined a potential strategy. “If I were more aggressive, because I saw this [bubble] happening, I would have sold more at the top. I would have built a war chest and been sitting here waiting for opportunities [to buy at lower values],” Greene said. “The kinds of deals that people were bringing to me to invest in some of these tech companies, I was getting calls [saying] ‘I can get you into this special round at a billion dollars, the company is doing $40 million in sales.’”
He found those offers to be overpriced: Greene thinks many of those tech companies are bound to run into difficulties as the stock market continues to drop and the economy enters a recession next year. “[I’m] thinking, ‘Who’s doing this?’” he said, referring to investing in startups at sky-high valuations.
“I have friends who are very smart people that were doing this and everybody thought they were going to be the next Zoom. A lot of these companies lose money and now they’re cutting expenses and trying to make it through this period,” he said. “You can be sure that there are companies that are going to be up against the wall. You’ll be able to get into some of these—what I call ‘science projects’ [because] they’re just sort of ideas that are unlikely to become huge—at very favorable terms. And people will make a lot of money, one of them will be the next Google or Amazon. In those spaces, there’ll be opportunities.”
Still there is no doubt that Greene is a beneficiary of the bubble. Greene, who’s lived in Palm Beach since 2009, pointed out the increasing exodus of billionaires and wealthy investors leaving northern states to relocate to south Florida, where property prices have soared since 2020. And it’s not just billionaires who are moving to the Sunshine State: rents in Miami rose nearly 26% on a year-on-year basis in the second quarter of 2022—higher than all major U.S. metro areas—and demand for apartments is near record levels, according to Marcus & Millichap.
The influx of the superrich to Palm Beach has also increased enrollment at the Greene School, a nonprofit pre-K-through-high school in Palm Beach that Greene founded with his wife, Mei Sze, in 2016. There are now 150 students enrolled at the school, up from 123 in the 2019-2020 school year.
“The kinds of families who are moving into our town and putting their kids in our school, it’s like the all-star team,” he said, citing a pre-K class with parents including several Ivy League-educated hedge fund founders. “These are people that will create all kinds of jobs and businesses that are going to juice the Palm Beach county economy. I’m very bullish long-term on the economic growth and the value of my holdings there.”
Greene estimates that he owns “virtually all of the remaining high-rise development sites on the water” in Palm Beach, much of which he acquired after the housing market crash in 2009 when land values were cheap. But even if the property market in south Florida is still booming, Greene sees dark clouds ahead if, as he expects, the economy tips into a recession in early 2023—particularly for real estate investors who are highly leveraged.
Even among fellow billionaires, Greene has seen the impact of recession fears on their high-spending lifestyles. “I was at Hotel du Cap with a bunch of superrich people [two weeks ago], one of the most expensive hotels in the world in Antibes, France, and everybody’s saying ‘Oh my god, I’ve lost 30% of my net worth.’ But they’d already booked the hotel,” he said. “Those days are going to be over this winter. You’re going to start seeing people spending less money and the recession will kick in.”
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
