One Big Bear Is Not Running With The Bulls
"It's still scary out there."
That's what billionaire Jeff Greene told me as we sat inside one of his Southern California mansions. Greene has made a killing going against conventional wisdom. As I've reported before, Greene began buying credit default swaps on mortgage backed securities in 2006, basically buying a form of insurance on bonds filled with subprime loans from California and Florida. He figured those bonds would fail, and when they did, he was in the money on his "insurance".
He went from being a multi-millionaire to a billionaire last year.
When I first interviewed him, Greene said he was mostly in cash, because he just didn't trust what the banks were telling him. A few weeks later, Bear Stearns collapsed.
These days, he's still mostly in cash, and remains a bear. "I don't have any conviction that things are getting better," Greene says. He's particularly concerned about the escalating jobless rate. But, being a really rich guy, he's also privy to information the rest of us don't get access to. For example, Greene says he was recently approached by Credit Suisse to gauge his interest in buying a portion of a $7.5 billion loan portfolio. "They're selling loans that are great loans," he says, including "one loan I'm not going to mention who it's to, but it's to a billionaire developer in one of America's largest cities, and there's hundreds of million of dollars of hard equity behind the loan, and they're selling it at a discount." By the way, the loan has nothing to do with Kirk Kerkorian and MGM Mirage's CityCenter-I asked. Greene says it's a much better loan. "If Credit Suisse is still selling their (prime) loans...in viable markets at discounts and above average return, then they're not obviously lending money." And Greene says that banks can't turn around until they've stopped selling good loans and start making mediocre loans.
Here's a portion of my interview with Jeff Greene.
He explains that while he's mostly out of credit default swaps now, having cashed in anywhere from 45 cents on the dollar to 93 cents, he says it's "absolutely essential" to put those trades on an exchange.
It'll make it easier to get a fair price and to execute trades.
Greene also talks about what he's investing in now: making money shorting 30-year Treasuries through interest rate swaps, buying a basket of equities then selling covered calls.
He's also invested in some mortgage backed securities—oh, the irony!—which he says are performing well, but are marked so low to market that they wouldn't be worth much if he had to sell.
Finally, Greene talks about the state of real estate, something which made him his first fortune.
Bottom line, it's not just about location, location, location.
It's about jobs, jobs, jobs.
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