Former senior economist for International Affairs on the White House Council, Nouriel Roubini discusses why he believes the ‘crypto-bubble’ has burst for good.
Famed for predicting the 2007 Global Financial Crisis and Credit Crunch, Nouriel Roubini has predicted two of the biggest bubbles in the 21st century. He is now turning his attention to the cryptocurrency markets and has been highly critical of not only the currencies but the technology behind them, blockchain.
Roubini is a well-respected Professor of Economics at New York University’s Stern School of Business and the Chairman of Roubini Macro Associates, a global macroeconomic consultancy firm in New York. From serving as the Senior Economist for International Affairs on the White House Council of Economic Advisors, to advising the International Monetary Fund and The World Bank, Roubini is thought of as a highly esteemed economist.
Cryptocurrencies have been in steady decline since their peak in January 2018. Do you think this market is capable of ever reaching its original glory or has the bubble well and truly burst?
I have called crypto-currencies the mother and father of all bubbles now gone bust. The crypto bubble has burst for good and will not recover as these were assets with no intrinsic value. Since their peak in early 2018 Bitcoin has lost more than 80% of its value; the other top 10 crypto-currencies – such as ETH, XRP, etc – have lost over 90% of their value while 1000s of other “shitcoins” (a technical term of jargon for this garbage of pseudo-currencies) have lost between 95% and 99% of their value. This is no surprise as a study suggests that 81% of all Initial Coin Offerings (non-compliant securities illegally skirting all securities laws) were a scam in the first place, 11% are dead or failing and the remaining 8% traded on some crypto exchanges have lost over 90% of their value.
Crypto was the biggest bubble in human history as, compared to other historical bubbles – such as Tulipmania, the South Sea Bubble and the Mississipi Bubble, the parabolic price increase in the three years before the peak was much worse – at 60X price increase – than other bubbles (that increase at 10 to 30X rates) while its bust since the 2018 peak has been as fast and furious as any previous bubble (see the chart below). The Nasdaq bubble in the late 1990s was miniscule compared to the Bitcoin bubble as it increased 4X in the three years before the peak, not 60X. And this internet bubble included many real companies with real business plans, revenues and profits, not the scammy “white papers” of cryptocurrencies.
Comparing crypto-currencies to the early days of the internet is nonsense. A decade since the launch of the WWW in 1991 there were over 1 billion users of the internet, not the approximate 70 million wallets of crypto most of them dormant. A decade after the launch of the internet there were dozens of killer apps – such as email, web sites, etc – and exponentially increasing transactions in the billions of units; while in crypto there is not a single killer app – apart from useless “krypto-kitties”, Ponzi Pyramids and Casino Games with miniscule transactions – while total transaction volume has collapsed since 2018 by over 85%. And in successful real technologies like the internet or stock trading transaction costs collapse over time. Instead in crypto, transaction costs – measured as miners’ revenues divided by number of transactions – have skyrocketed since 2018. So any comparison of crypto to the early days of the internet is nonsense.
You publicly debated and criticised Ethereum with Vitalik Buterin, its founder. What do you think is the most flawed aspect of these cryptocurrencies in comparison to fiat currencies?
The most flawed aspect of so called “crypto-currencies” is that that they aren’t really currencies or moneys. For an asset to be considered a money or currency it must satisfy three criteria:
- it has to be the unit of account for all transactions and the single numeraire for pricing all goods, services and assets/liabilities.
- It must be a widely used and cheap means of payments. And
- it has to be a stable store of value and have stable purchasing power over goods and services.
Bitcoin alone – let alone thousands of other “shitcoins” fails miserably on all criteria. It is not a unit of account and given the proliferation of thousands of “crypto-currencies” there is no single numeraire for all transactions. It is a lousy means of payments as the “proof of work” authentication method doesn’t allow more than five transactions per second; instead, for example, the Visa network allows for 25K transactions per second and growing. And the transaction costs/fees – as measured by miners’ revenues – are high and growing over time. And it is a very poor store of value as its price can fluctuate by 5% to 20% per days. So, any merchant accepting Bitcoin could lose all its profit margin in a day given the price fluctuations. Also, the supply of most cryptocurrencies – with the exception of Bitcoin – is increased and debased at will by its issuers; so price inflation and currency debasement in the crypto world is several orders of magnitude worse than fiat currency in stable low inflation economies like all advanced economies and most emerging markets.
These fundamental flaws of cryptocurrencies cannot be resolved over time given the famous Buterin “Inconsistent Trinity” principle: ie no cryptocurrency can be at the same time
- scalable (in terms of number of transactions),
- decentralized and
Fiat currencies and traditional banking system are scalable and secure but are centralized with reputable institutions that have decades long histories of trust, credibility and reputation (central banks, private banks, other financial institutions). Cryptocurrencies are not scalable and future solutions that may lead to scalability – such as proof of stake – would not be decentralized and would thus not be secure. Decentralization in crypto is a myth as miners are now a centralized oligopoly in shady jurisdictions with poor rule of law such as China, Russia, Belarus, etc.; trading is centralized as 99% of trading occurs in highly insecure and hackable centralized exchanges rather than decentralized exchanges that are all failing given no volume or liquidity. Wealth is centralized as the index of inequality for Bitcoin is worse than North Korea where Kim Jung Un and his lackeys control most of income and wealth. And developers are centralized too as Vitalik Buterin is “benevolent dictator for life” while developers are effectively police, prosecutors and judges as the myth of “the code is law” is over-turned when things go wrong – an hack – and a fork of a crypto-currency takes places on totally arbitrary terms.‘Cryptocurrencies: Irrational Exuberance or Brave New World?’ Watch Nouriel Roubini speaking:
It is clear that central banks are in talks about challenging current cryptocurrencies with central bank digital currencies. Do you think that central bank digital currencies could compete with our current cryptocurrencies and in what timescale?
A number of central banks are considering issuing central bank digital currencies – or CBDC – but such CBDCs would have nothing to do with crypto-currencies or blockchain while completely dominating such inferior assets. Starry-eyed crypto-fanatics have seized on policymakers’ consideration of CBDCs as proof that even central banks need blockchain or crypto to enter the digital-currency game. This is nonsense. If anything, CBDCs would likely replace all private digital payment systems, regardless of whether they are connected to traditional bank accounts or cryptocurrencies.
As matters currently stand, only commercial banks have access to central banks’ balance sheets; and central banks’ reserves are already held as digital currencies. That is why central banks are so efficient and cost-effective at mediating interbank payments and lending transactions. Because individuals, corporations, and non-bank financial institutions do not enjoy the same access, they must rely on licensed commercial banks to process their transactions. Bank deposits, then, are a form of private money that is used for transactions among non-bank private agents. As a result, not even fully digital systems such as Alipay or Venmo can operate apart from the banking system. By allowing any individual to make transactions through the central bank, CBDCs would upend this arrangement, alleviating the need for cash, traditional bank accounts, and even digital payment services.
Better yet, CBDCs would not have to rely on public “permission-less,” “trustless” distributed ledgers like those underpinning cryptocurrencies. After all, central banks already have a centralized permissioned private non-distributed ledger that allows for payments and transactions to be facilitated safely and seamlessly. No central banker in his or her right mind would ever swap out that sound system for one based on blockchain.
If a CBDC were to be issued, it would immediately displace cryptocurrencies, which are not scalable, cheap, secure, or actually decentralized. Enthusiasts will argue that cryptocurrencies would remain attractive to those who wish to remain anonymous. But, like private bank deposits today, CBDC transactions could also be made anonymous, with access to account-holder information available, when necessary, only to law-enforcement authorities or regulators, as already happens with private banks. Besides, cryptocurrencies like Bitcoin are not actually anonymous, given that individuals and organizations using crypto-wallets still leave a digital footprint. And authorities that legitimately want to track criminals and terrorists will soon crack down on attempts to create crypto-currencies with complete privacy.
Insofar as CBDCs would crowd out worthless cryptocurrencies, they should be welcomed. Moreover, by transferring payments from private to central banks, a CBDC-based system would be a boon for financial inclusion. Millions of unbanked people would have access to a near-free, efficient payment system through their cell phones.‘Crypto Brawl, Alex Mashinsky vs Nouriel Roubini. BlockShow Americas’ Watch Nouriel Roubini speaking:
What advice would you give to a business that are thinking of offering the possibility of transacting with their customers and clients in cryptocurrency?
First of all, almost no business accepts the use of crypto-currencies in transactions or as a means of payments. Not even crypto or blockchain conferences accept Bitcoin to register, they require hard dollars or euros. Second, any merchant using a cryptocurrency in transactions would be subject to massive market risk as the price of the cryptocurrency can change so fast that the entire profit margin of the business can be wiped out in minutes or hours by such price volatility.
Third and most important point, the business model behind firms requiring the use of cryptocurrencies to do purchases of goods or services is simply to rip off their customers. Indeed, in normal business transactions, customers can buy goods and service with conventional fiat currencies. But in an ICO, customers must convert that currency by buying into a limited pool of tokens in order to make a purchase. No legitimate business that is trying to maximize profits would require its customers to jump through such hoops. In fact, the only reason to restrict a purchase to token-holders is to create an illegal cartel of service providers who are safe from price competition and in a position to gouge their customers. Consider Dentacoin, a ridiculous cryptocurrency that can be spent only on dental services (and which almost no dentist actually accepts). It would be hard to come up with a better illustration of why business cartels are illegal in all civilized countries.
Of course, the crypto-cartels would counter that customers who incur the cost of buying a token will benefit if that token appreciates in value. But this makes no sense. If the price of the token rises above the market value of the good or service being provided, then no one would buy the token. The only plausible reason for forcing the use of a token, then, is to hike prices or bilk investors.
Beyond facilitating illegal activity, crypto-tokens obfuscate the price-discovery benefits that come when a single currency operates as a unit of account or numeraire. In a crypto-utopia, every single good and service would have its own distinct token, and average consumers would have no way to judge the relative prices of different – or even similar – goods and services. Nor would they have any real certainty about a token’s purchasing power, given the volatility of crypto-token prices.
Imagine living in a country where instead of simply using the national currency, you had to rely on 200 other world currencies to purchase different goods and services. There would be widespread price confusion, and you would have to eat the cost of converting one volatile currency into another every time you wanted to buy anything.
The fact that everyone within a given country or jurisdiction uses the same currency is precisely what gives money its value. Money is a public good that allows individuals to enter into free exchange without having to resort to the kind of imprecise, inefficient bartering on which traditional societies depended.
That is precisely where the ICO charlatans would effectively take us – not to the futuristic world of “The Jetsons,” but to the modern Stone Age world of “The Flintstones” where all transactions occur through the barter of different tokens or goods. Even the Flintstones had a more sophisticated financial system than the barter of crypto: they used shells as coins for payments and as a numeraire. Crypto instead takes us back to pure inefficient barter. It is time to recognize their utopian rhetoric for what it is: self-serving nonsense meant to separate credulous investors from their hard-earned savings.
Can we expect Blockchain to disrupt the finance industry over the next 10 years?
Blockchain will not disrupt the finance industry over the next decade. There is indeed a revolution in financial services, but it has nothing to do with crypto or blockchain. This revolution is called “FinTech” and is based on three related elements:
- Artificial Intelligence/Machine Learning (AI),
- Big Data (BD) and the
- Internet of Things (IoT).
It will revolutionize digital payment systems, credit allocation, insurance, asset management, capital market activities, risk management, etc. In the payments sphere you already have digital payment systems used by billions of individuals in billions of transactions a day that have nothing to do with blockchain or crypto: they are Alipay and WeChat Pay in China; UPI- based systems in India, M-Pesa in Kenya and all over Africa; PayPal, Venmo, Square and many other ones in the US and Europe. So, there is a revolution in the provision of financial services that will disrupt many traditional banks and providers of financial services, but it has nothing to do with a decentralized blockchain.
Blockchain is also failing to deliver solutions for both financial services firms and for corporations, non-profit organizations and governments in spite of the myth that blockchain will revolutionize all sorts of financial and corporate transactions. Indeed, faced with the public spectacle of a market bloodbath in cryptocurrencies, boosters have fled to the last refuge of the crypto scoundrel: a defense of “blockchain,” the distributed-ledger software underpinning all cryptocurrencies. Blockchain has been heralded as a potential panacea for everything from poverty and famine to cancer. In fact, it is the most overhyped – and least useful – technology in human history. In practice, blockchain is nothing more than a glorified spreadsheet.
But it has also become the byword for a libertarian ideology that treats all governments, central banks, traditional financial institutions, and real-world currencies as evil concentrations of power that must be destroyed. Blockchain fundamentalists’ ideal world is one in which all economic activity and human interactions are subject to anarchist or libertarian decentralization. They would like the entirety of social and political life to end up on public ledgers that are supposedly “permissionless” (accessible to everyone) and “trustless” (not reliant on a credible intermediary such as a bank). Yet far from ushering in a utopia, blockchain has given rise to a familiar form of economic hell. A few self-serving white men (there are hardly any women or minorities in the blockchain universe) pretending to be messiahs for the world’s impoverished, marginalized, and unbanked masses claim to have created billions of dollars of wealth out of nothing. But one need only consider the massive centralization of power among cryptocurrency “miners,” exchanges, developers, and wealth holders to see that blockchain is not about decentralization and democracy; it is about greed.
As for blockchain itself, there is no institution under the sun – bank, corporation, non-governmental organization, or government agency – that would put its balance sheet or register of transactions, trades, and interactions with clients and suppliers on public decentralized peer-to-peer permission-less ledgers. There is no good reason why such proprietary and highly valuable information should be recorded publicly.
Moreover, in cases where distributed-ledger technologies – so-called enterprise DLT – are actually being used, they have nothing to do with blockchain. They are private, centralized, and recorded on just a few controlled ledgers. They require permission for access, which is granted to qualified individuals. And, perhaps most important, they are based on trusted authorities that have established their credibility over time. All of which is to say, these are “blockchains” in name only. It is telling that all “decentralized” blockchains end up being centralized, permissioned databases when they are put into use. As such, blockchain has not even improved upon the standard electronic spreadsheet, which was invented in 1979.
No serious institution would ever allow its transactions to be verified by an anonymous cartel operating from the shadows of the world’s authoritarian kleptocracies. It is no surprise that whenever “blockchain” has been piloted in a traditional setting, it has either been thrown in the trash bin or turned into a private permissioned database that is nothing more than an Excel spreadsheet or a database with a misleading name. Indeed, a recent study of 43 experiments trying to use blockchain for development and non-profit purposes (remittances, refugees identities and services, banking the poor and unbanked, and other lofty philanthropic causes) has shown that zero out of 43 experiments have had any success; so blockchain experiments have had a 100% failure rate.
Do you believe that once the flaws and shortcomings surrounding security, scalability and of cryptocurrencies have been addressed, it would make more sense to transact using it?
I do not believe that the problems of security and scalability of cryptocurrencies can ever be resolved. At the conceptual level security and scalability are incompatible with the decentralization that crypto and blockchain claim to want to achieve. And if you have a system that gets you scalability and security with centralization you are back to traditional financial systems and/or their modern evolution that is non-blockchain based FinTech. The problems of security in cryptocurrencies are extremely severe and cannot be resolved. If you take traditional financial systems based on central banks, fiat currencies and commercial banks you have significant amounts of security. You have deposit insurance for your deposit; you have lender of last resort support by central banks in case of destructive runs; you have support of systemically important financial institutions; you have supervision and regulation with liquidity and capital requirements. And when something goes wrong – like fraud on your credit card balances or bank account – it takes one phone call to block or reverse such fraud and being issued a new credit card or bank accounts. Of course, the provision of such public goods of financial security comes at a modest price of some reasonable fees for the safety of your financial assets, accounts and transactions.
In crypto-land you have instead a total Wild West of financial insecurity; no deposit insurance, no lender of last resort, no support of systemically important institutions, no proper regulation and enforcement of security laws. If an exchange is hacked your money is gone for good as scores of episodes of centralized exchanges being hacked show. If you are subject to a crypto-robbery as someone hacked your computer, or tablet or smart-phone your financial wealth is gone in the black-hole of crypto. If there is a “51% attack” – a form of crypto-robbery that is very common among smaller crypto-currencies your wealth is gone for good. If you lose your private key or someone steals it from you your crypto assets are gone for good. The only safe solution is “cold storage”, the equivalent of hiding your crypto wealth in a cave and hiding on a piece of paper your private key for good and not being able to transact your crypto-assets. It is a return to stone-age financial technology.
There is a reason why all societies rely on trusted institutions with a history of reputation, credibility and redress of fraud to ensure the safety and legality of financial and other transactions. The utopia of having decentralized, permission-less, trust-less algorythms that replace trusted and reputable institutions is a delusion that technology can provide a solution to fundamental problems of trust that only human institutions that have developed for millennia can resolve. There is no decentralized trust-less security or scalability in crypto and there will never be one.
The US continues to defy all rational valuation metrics as it continues to make new highs. I contend this is the result of the huge amount of liquidity being provided to the markets by the FED. This bubble now appears to be entering its blow off phase. As I have said before, just because a market is overvalued does not earn it cannot become more overvalued.
Nevertheless, at some point the music will stop and a massive decline in the stock market will occur.
Will the reduced economic activity caused by the coronavirus be the needle that pricks this bubble. So far the markets, with the exception of commodity markets, are shrugging off the news that China is basically on lockdown.
The German energy transition continues to fail as the country considers building more coal generation as energy rates soar and CO2 emission targets are not being met. A lesson for policy makers in the US to take into consideration.
Transcript00:00hey guys John Paula me here actionable00:03intelligence00:04today is Sunday February 16 2020 this is00:09the weekly market update00:11so before right before I get into the00:14charts I just want to make some comments00:16on the continuing coronavirus situation00:20as it relates to what we’re doing when00:23it relates to in the markets and I’m a00:28little bit I don’t know00:31shocked not shocked but what’s the right00:34word confused we’re seeing all-time00:38highs last week and in many stocks in00:42the stock market and so you know it00:49makes you wonder what’s going on is the00:51market so efficient that its pricing and00:54the fact that this isn’t going to be a00:56big deal or is it more that I what I01:00think it is which is a liquidity bubble01:03plus all kinds of money coming into the01:06US for various reasons safe haven flows01:10if you will I think that’s probably an01:14explanation for why stocks are going up01:15there’s some stocks that are01:17inexplicably not going down which should01:20I’ll give some examples as we go and get01:23into the discussion what I want to say01:25though is is that I’m getting very very01:27concerned about the bubblicious01:29conditions we are at some of the highest01:31bubble levels that I’ve ever seen01:34now we’ve been talking about that for a01:36while and we’ve said that liquidity01:39flows matter you know the stock market01:42isn’t necessarily correlated with the01:44economy in the longer term it seems to01:47be but you know it’s liquidity matters01:50and with the QE for that that the Fed is01:55doing that the QE for non QE for01:58whatever they want to call it the repos02:00that’s high-powered money that’s t-bills02:03they’re buying this is the first time02:04they’ve done that in many years and that02:06money is going directly into the markets02:09couple that with the fact that you02:11already had dollar flows into the u.s.02:13prior to the coronavirus and now the02:16u.s. still being a safe haven that’s02:19where the money’s going so I would02:22caution you it what’s what’s fascinating02:25is is the the only thing that’s really02:27bad are commodities so the commodities02:30are showing us that you know demand is02:34obviously gonna have a knock-on effect02:36from this you know when you shut down02:39the Chinese economy basically you’re02:41gonna in some largest consumer of things02:43like oil largest importer of oil copper02:46aluminum cement things like this you’re02:51going to have a knock-on effect as China02:54basically everybody’s in quarantine and02:56Industry slows down we’ve also seen that02:58in the supply chains we’ve seen more03:01announcement this week we saw one03:03announcement where the company went back03:06to work and there was like a thousand or03:092,000 employees and what the employees03:11had coronavirus now everybody’s03:13quarantined to the factory they can’t03:14even go home so I don’t know I’m back to03:18what I’ve said before I don’t really03:20know what’s going on here do you trust03:23the data in China no if you look at the03:24John Hopkins tracker coronavirus tracker03:28they take in they don’t just take in one03:30bit of information they gather03:32information from several sources it03:33seems like things may be starting to03:36peak in China if you believe the data03:38which I want I don’t believe the data I03:41would say though that I think the rest03:46of the world cases are still going up03:48slightly they’re still under a thousand03:49cases it’s like 750 outside of China03:54most of them concentrated in the areas03:56directly around China so there’s 1504:00cases in the US for example so we’re not04:03seeing this big epidemic now there are04:06many commentators or people that I’ve04:08listened to that said that the next wave04:10is coming and this thing is going to04:11explode outwards I don’t really know04:13what I’m I’m not a you know happened04:15epithelium ologist04:17I don’t have not an expert on academics04:20epidemics outside my circle of04:22confidence we still have to look at04:23those it’s affecting the markets that04:25were involved with which is resource04:27markets04:27for in a large part so I would be very04:34cautious if I was basically one of the04:38things I’m recommending is you know I04:39mean I think we’re going to see some04:42interest rate cuts from the Federal04:43Reserve as the economic numbers have to04:47be affected by this they have to be I04:50mean you’re just not going to have this04:52kind of slowdown in China and not have04:54it have a have an effect on the rest of04:55the world so I expect that that means05:00higher bond prices probably especially05:02in the Treasury market that’s a good05:03place play to put money in a short term05:06cash is always good I have a lot of cash05:09I like gold still Gold’s in a bull05:12market I think with the accelerating05:14monetary malfeasance that continues05:16around the world especially in the US05:18and I think you know what’s gonna happen05:20in China I think gold is poised to go a05:23lot higher especially with the debt05:26levels in the US we’re gonna be hitting05:28trillion dollar deficits I wrote an05:30article this week that kind of pointed05:33out the fact that I believe this is the05:35first year when the Social Security05:37trust fund now goes into the red and is05:40now going to become an on budget item so05:42you’re gonna have to pay out of the05:46federal budget there’s the two hundred05:48billion dollars that you don’t have in05:50the Social Security trust fund and I’ve05:52written articles about that people can05:54go my my site and look at that so there05:57is no lockbox there is no thing nothing06:00to dip into it’s just a bunch of IOU use06:01that now come do so things are not06:05getting better they’re getting worse but06:08yet the markets move higher and higher06:10and higher because it’s all about06:11liquidity so you know if you look at the06:16Venezuelan and Zimbabwe stock markets06:19when they went into hyperinflations06:21that’s not what I’m suggesting is gonna06:22happen in the US I’m not suggesting the06:24hyperinflation but if you look at their06:25stock markets they crashed upwards06:27there’s people piled in the stocks who06:30tried to hold some type of value so like06:35I said all these bubbles and we’ve06:37talked about bubbles even since I’ve had06:38this channel we’ve went through two06:40bubbles the Bitcoin06:41bubble that was one of the first videos06:42I did was about Bitcoin being a bubble06:44it was it crashed people a lot of people06:47lost a lot of money06:48same thing with cannabis stocks we06:50talked about that that’s now crashed06:52people have lost a lot of money so you06:56know we’ve seen bubbles before here’s a07:02chart shows various bubbles what happens07:04they crash they don’t usually come back07:07for a while you see the this particular07:10person chose excuse us what as07:11disruptors it’s just the post great07:14financial crisis that induced bubble but07:17this is the greatest one of all and it’s07:19now gonna go it’s I now believe it’s07:21accelerating too far it’s blow off top07:22and this is something we suggested in07:24previous videos what happened I’ve07:25talked about this I’ve got a Cassandra07:29but I suggested that even though the07:33stock market was overvalued and it’s07:34been overvalued from a long time it can07:37get way more it can get way overvalued07:39you can get much more overvalued and it07:42probably will another chart here you can07:47see going back to 1991 this is the07:51build-up to y2k that was going to be the07:53you know computers were gonna lock up07:55the world was gonna end the Greenspan07:58Fed printed a bunch of money it led to08:01the tech bubble it blew off but what08:04happened this is the Nasdaq he crashed08:0690% then you had your great financial08:09crisis in here we’ve had nothing but08:11money printing since and now QE 4 if you08:14will and we are now accelerating to what08:16I think is the blow-off top in this US08:19stock market so you need to be you need08:24to be concerned you need to be08:26understand what’s happening now I don’tknow what’s gonna prick the bubble someI’m looking at my my indicators as Ilook at the high-yield debt market whichI think will be the first thing thatrolls over and it’s not there’s no feverthere there’s no issues there right now08:42that can change you know as we start you08:45know one of the things like forecasts08:47are thought what could happen was that08:50if we did go into a recession there’s a08:52lot of zombie companies about 25 to 3008:55percent08:55the companies out there that have junk08:57debt are zombie companies and they08:59cannot afford to have rates go up rates09:05won’t go up unless we have some huge09:07breakout inflation so what could happen09:10though is that the economy slows09:11massively because of this China thing09:13cash flows can be constricted and that09:16could force companies into a situation09:18where they do not have sufficient cash09:21flow to service their debt and then you09:23begin a cascading flow of waterfall09:27effect if you will of debt explosions09:32and and you know reorganizations so I09:35think that’s a possibility but my09:39original thesis was that this thing was09:41gonna rip and roar we were gonna have an09:43energy was going to drag the inflation09:45rate up I we were on that track and then09:48the coronavirus had you remember we had09:50WT I was over it was sixty two dollars a09:52barrel at the beginning of January and I09:56was forecasting higher oil prices09:58because of the lack of investment and10:00the slowdown in shale and I thought that10:02that might be what kicks inflation into10:05gear and forces the Fed to raise rates10:08but now with the coronavirus and the10:11collapse and commodity prices that’s10:14happened that particular pin has been10:17put back into the into the drawer so10:21this is really amazing though because if10:23you look here at what’s happening in our10:25stock market I mean you could this just10:27correlates perfectly with what happened10:29with that we whole repo QE for non QE10:33for is what I call it so liquidity10:36really does drive these markets whether10:39people can then me you know you10:40supercharge this what the fund flows10:42into the US as because of it being a10:45safe haven or considered a safe haven or10:47the least dirty shirt in the HAMP or10:50however you want to characterize it but10:52this is what we are seen and this is not10:55healthy this is not going to end well10:57folks this is not good we’re gonna see10:59this blow off and then we’re gonna see11:01and I don’t know what’s gonna happen on11:03the downside so let’s go back talk about11:07some China stuff11:08for a while here her the resource11:10markets you know so the Baltic Dry Index11:12you know 415 it’s been a decline since11:18mid-2009 teen as the world economy was11:20slowing down but then we’ve got this you11:23know really what’s happened since the11:25beginning of the year and this11:26coronavirus took off and this things11:28crashed by you know three quarters or11:33two-thirds this is that lows we haven’t11:36seen in a decade so or almost of the11:41lows of 2016 so anyway this is not good11:44this is an indication that you know iron11:47or various ore concentrates they’re not11:52flowing you know because China is11:55basically shut down you know we’ve11:57already seen China declare a force11:58majeure on some energy deliveries like12:00LNG deliveries not good but what I’m12:08showing you this for is because I’m not12:09seeing the knock-on effect the market so12:11really don’t seem to be pricing any of12:12this in and it’s kind of it’s very weird12:15the signal is not good there’s China12:19travel collapse this was the passenger12:21transport volumes in China during the12:23Lunar New Year you see that we are12:25downed on rail roadway and air travel12:30anywhere from sixty to eighty percent12:33almost it’s a complete collapse the12:35whole country’s in lockdown basically12:39what I want to talk about why is this12:41relevant I just picked this one company12:43because I’ve heard other people talking12:45about it and kind of piqued my interest12:46this is wind resorts that’s a casino12:48operator they have properties in Las12:52Vegas but they also have two casinos I12:54believe in Macau which is a another12:56small island off the coast of China12:59where they allow gambling a lot of13:01Chinese well ninety five percent I’m13:04sure 99 percent of the traffic there is13:06is to these casinos is from China13:13mainland China what I find fascinating13:16here is is that the two casinos I look13:19at some of the financials real quickly13:20for Wynn Resorts13:22and the casinos the two casinos in Macau13:29are shut down now they’re still making13:30payroll basically they’re not to just13:34keep the casinos in the current state13:37they are paying payroll the 12,00013:39employees is about 2.5 million a day13:41they have no revenue coming in I believe13:43these two casinos if I read it correctly13:45contribute 300 million dollars of EBIT13:48da to the two Wynn Resorts bottom line13:52last year I think a billion dollars in13:54sales if I’m not mistaken regardless13:58when you shut down a large portion I13:59mean you had a bit of a drop off14:00obviously I mean actually if you look at14:05the beginning of 2020 when this virus14:06took off this thing made all new time14:07highs and then it it kind of did pull14:09back but not like you would think I mean14:12it pulled back about you know 20 percent14:15and now it’s rallying again why is this14:17thing rallying when there’s you know two14:20of their major properties and their14:21major revenue generators I mean are not14:24you know in business they’re just14:27sitting there we have no idea when14:28they’re gonna reopen so well I like I14:31said there’s two things going on here14:33either the market is efficient and its14:35pricing and the information and the14:36coronavirus is gonna blow over in the14:38next you know a few weeks or month or14:41two and then we’re gonna be back to14:42business as usual that’s one option of14:45another option as the market is just not14:47getting this I mean the same thing14:48you’re seeing like some of these cruise14:49ship companies these things should be14:51crashing who is taking a cruise with you14:54know to cruise ships go around like you14:56know Typhoid ships that can’t even get14:58into various ports I know I’m15:00overdramatizing that one of the ships15:02can’t but one of the one of the ships I15:04think that’s in Japan they’re finally15:05taking off British and American15:07passengers the governments of the UK and15:10the United States are dealing with this15:12but you know this news is not good this15:16thing’s supposed supposedly is so very15:17early and yet people are still taking15:21cruises and the you know it’s not really15:24being reflected you think any stock15:25prices only stock prices it’s reading15:27reflected as the resource markets you15:30know gold and copper down you know15:33anywhere from 15 or that gold but what15:36copper or down anywhere from 15 to 2015:38percent the stocks are down 30% which is15:42what you would expect get priced in15:45because of the you know like I showed15:47you earlier China’s basically shut down15:48so I don’t know this is not making a lot15:51of sense this thing is either gonna blow15:53over or it’s just going to we don’t know15:55what’s gonna happen and I just think15:57that some of the reactions in this15:58market are just ridiculous and they16:01don’t make any sense it’s just I think16:04like I said liquidity driven and no16:08fundamentals are even being considered16:09so you got to be careful out there guys16:11this is not this is really not textbook16:15what’s going on here well like I said16:17I’m still I still like gold I think you16:20can’t go wrong at gold sir we already16:22knows was in a bull market if we’re16:24gonna see increased money or increased16:27currency units being put into16:29circulation then I think that that’s16:33going to manifest itself in a higher16:34gold price at some point continued16:37higher gold price we’re starting to see16:38earnings come out excuse me16:41cup sum up some of the gold companies16:43ones that I follow I’ll just give you16:47one that I like that I follow I don’t16:48have it in the portfolio but I like it16:50it’s a company called Caledonia mining16:52they have a mine a very very profitable16:55mine in Zimbabwe and yeah I know people16:59kind of scoff at that but the company17:00really is a performer and they really up17:02their guidance for this year next year17:06because just of the gold price and how17:10that leverage is translating with their17:12low costs and their increase in17:13production so you really you know with17:17lower fuel costs with the oil price down17:19that’s a major component of a lot of the17:20miners and that’s going to have a17:23knock-on effect also so it also depends17:26where you’re operate if you’re operating17:27in a country like Zimbabwe and your17:29costs are in Zimbabwe dollars which are17:31being depreciated by the government and17:33yet you’re selling your commodity for US17:35dollars that also helps quite a bit I17:40want to give some other things here17:42quickly us to create a uranium reserve17:46we saw the news it was all over the17:47tortoise Twittersphere you17:49twit it looks like that starting next17:55year the Trump administration put into17:58the budget to create a uranium reserve18:04if you will 150 million dollars a year18:06for the next ten years do I think that’s18:09a major market mover no but I think it’s18:13it’s part of the commitment the Trump18:14administration is making to uranium and18:17to nuclear power in the US I mean we are18:19totally behind everyone else I mean it’s18:22just ridiculous18:22I mean somewhere close to 20 percent of18:28our our power in the United States is18:32from nuclear power and we don’t even18:34mind 1% of our fuel and process it here18:37I mean that’s just a national security18:38issue not only that just based on our18:40nuclear Navy fleet so I think that if18:44the if Trump gets reelected he is18:48pro-nuclear I’m Pro nuclear I think this18:50is good for the country18:52we shouldn’t be relying on Russia and18:56causality z’ and for our uranium it’s19:02just not in our interest to do that we19:05also need to get you know I’ve always19:06been an advocate for this I’m gonna say19:08it again19:08you know if you really are into stem19:10which is science technology engineering19:11and math and you really want high wages19:14and you really want to deal with climate19:16change if you if you think that co2 is19:19the control knob for climate then why19:22not do something like build 100 nuclear19:25power plants in the next 10 years or 2019:27in 10 years or something like that19:28because these are high paying jobs and19:30long life construction projects very19:32technical even for the operations19:34personnel that work there you have to19:36have be very highly educated19:38these are high-paying jobs it would19:41create a infrastructure manufacturing19:45infrastructure based here in the US that19:46we could export and we’ve just left this19:49to the Chinese and Russians and that’s19:51just stupid because the Chinese and19:53Russians use their nuclear industry to19:58gain political footholds and countries20:00and to cozy up with him and they20:02run the thing fullcycle they’ll come in20:04engineering procure and construct then20:06operate then deal with the fuel supply20:09and the waste you just sit there and you20:11know charge for the electricity while20:13they run everything so that helps their20:16home industries that are involved in20:18this it helps them politically as they20:21go around the world and try to woo20:24various countries to their block so the20:31u.s. from any perspective you look at if20:34you are look at it from wages climate20:36change energy supply energy diversity20:40national security it just makes sense20:42and I think that you know a lot of20:46people make fun of Trump but I think he20:48does he spot-on on this so this isn’t a20:52game changer but it’s more you know more20:54wind in the sails and it certainly isn’t20:56going to hurt things now I want to bring20:59up some things this is gonna get me some21:01bad mail people don’t like this wanted21:04to talk about read some good articles21:06this week about the energy transition in21:09Germany’s fleet joke it’s it’s it’s big21:13problems I’ll put an article up had it21:17really pretty good vignettes in there I21:19mean basically you know here’s that21:20here’s a slide from the article this is21:22green Germany’s proposed coal plant21:25expansions you know you’ve got your yeah21:28just in the yellow that you’ve got for21:30these late-night mines21:31that’s that surface mining with that21:33cheap dirty coal of course you got the21:35other plant sees that these are plants21:37that are going to be built because solar21:41and wind are not getting that the energy21:43transitions not happening and the Merkel21:46regime there which is not going to be in21:48power much longer I don’t think well is21:52you know did a snap judgment on shutting21:56down or phasing out and shutting down21:59the German nuclear fleet which is in22:02progress so you have to get power from22:04somewhere so now you have a situation22:06where Germany is now suffering power22:08rates are some of the highest in the in22:10Europe German industry is suffering22:14people are suffering because they don’t22:16have there’s poor people there that22:17don’t have enough money to pay there’s a22:20link to an article in the article that22:23I’m going to link to where people are22:24shifting to wood stoves and they’re22:26sneaking out into the woods and chopping22:28down wood illegally I mean it’s it’s not22:32working it’s not gonna work and I think22:34that you know just in the article the22:36one article there’s linked to and22:38they’re you know it gave it vignette of22:40you know Merkel just as just does things22:43on a snap judgment she’s a consummate22:45grubby politician and with her finger in22:49the wind so you know with the Greens22:51party making inroads in Germany she’s22:55counting to it but the problem is is22:57that you know it’s hurting business and22:59industry and jobs and most people23:02there’s a lot of people that don’t care23:04about that that green a lot of people in23:07the green movement could care less they23:09want deindustrialization they want you23:12know they tie everything into socialism23:14and equality and to you know however23:17they define it rights of different23:20indigenous peoples all this thing is23:22just tied into one big goulash that they23:24create and they’re in their philosophy23:26and they could care less23:27but the majority of people do care the23:30majority of people do not want to see23:33their standard of living go down the23:34majority of people want a better you23:39know standard of living and I believe23:41that you’re going to see a big upheaval23:43in German politics culminating with a23:45reversal I think of the nuclear band and23:50I think Germany may even start building23:52nuclear plants23:53I mean I’ve put up article after article23:55you can’t even build a new wind farms in23:57Germany the opposition out in the23:59hinterlands and farms and rural areas is24:03just too high they will not allow it and24:05especially the East Germans East Germans24:07have had enough of this they they see24:10right through it and that’s why you’re24:13seeing AF D alternative for Deutschland24:16make inroads in some of the recent24:18elections and you’ve also seen you know24:21this this has led to the Christian24:24Democratic Union Merkel’s24:27Hera parents she actually resigned24:29because of something that just happened24:31in one of the states German states in24:34East Germany one of the CDU person that24:38was elected got elected with the support24:40of the AFD in a coalition and that was24:44determined to be racist and all that24:45stuff to say FD supposedly is right-wing24:47and so this governor resigned and that24:51reflected back on the Hera parents so24:53there’s a lot of upheaval coming in24:55Europe that’s a whole nother video just24:59about you know the EU is on its way out25:02this is not sustainable25:04there’s too many competing agendas and25:07it’s just not going to last and breaks25:11it is the beginning the populist revolt25:13whether it’s populism coming from the25:14left or the right25:15it will continue around the world the25:20other thing to point out and the article25:22which I thought was interesting or I got25:24this from somebody else I can’t remember25:26here are the emissions of co2 in Germany25:29I believe 2009 was the year they started25:32the energy transition and I somewhere25:35around here I can’t remember I have to25:36look it up the energy and I can’t25:40pronounce it so they long german word25:41that means energy transition basically25:43the solar and wind but you see there’s25:46really not been no decline and that25:48emissions of co2 in germany you know if25:51you wanted to get this down you get your25:54nuclear fleet back and you get rid of25:56all those coal plants and why are you25:58going to build more coal plants that26:02does say in the article though that26:03because these are supercritical boilers26:06supercritical blowers are boilers that26:07run at like 3000 psi coal-fired they26:11actually have 30% reduced emissions of26:14co2 but you’re still going to be pumping26:16out a lot of co2 and this number is not26:19gonna get better so something to watch26:23you know like I said I’ve said this26:25before you know Germany is a real-life26:26Laboratory of a major industrial country26:29that has attempted and we can argue in26:33state if actually that is still trying26:36to attempt to do an energy transition26:38from fossil fuels to26:40it’s simply you see what happens it’s26:43not working it cost a lot of money power26:46rates go up and you know what your net26:48co2 doesn’t go down26:49that’s like I’ve said before there’s a26:51reason why we use Coal Fired there’s a26:53reason why we use nuclear power because26:55large base load generation is cheap and26:58reliable that’s why we use it you’re not27:01going to play solar panels into Baltic a27:04lot of the Baltic Sea where you know and27:06it does the Sun doesn’t shine that often27:08that’s just I mean the certain areas27:10it’s not Arizona or Texas where the Sun27:14shines all the time or Florida or27:15Southern California this is Germany for27:17heaven’s sakes northern Europe but you27:20can’t explain to some people I want to27:23point out another thing saw an article27:26shale pioneer John Hass heading off27:28Shores Hess production Hess oil from the27:35article production of the Eagle Ford27:37Shale in South Texas is starting to27:39plateau while the bat Bakken field North27:41Dakota where Hess as a major producer27:43will hit its peak production levels27:45within the next two years this is a27:47speech that our presentation has gave at27:50a recent oil conference the Permian27:53Basin the top US shale field in Texas27:55and New Mexico will plateau plateau in27:58mid decade and is already facing well28:00interference issues has said so has John28:05Hess plans to use cash flow their Hess28:07company it’s a big very big oil company28:10plans to use cash flow from the Bakken28:11to invest in longer-term offshore28:13investments the company is relied on28:15offshore Guiana one of the world’s most28:18important oil and gas discoveries in the28:19last decade so just another piece of28:23information piece of the puzzle you know28:27I really about shale peaking and shale28:32accounted for 98 percent of the oil that28:37met the demand increases over the last28:39you know five six years in the world you28:43know oil demand goes up a million28:45barrels to a million point one point28:47five million barrels a day every year28:49increases by one to 11.5% every year28:53and that increase has been met by the28:55increases in shale production it’s been28:58huge28:58so non-opec conventional oil has not29:03been invested in it’s not been a29:05contributor and OPEC is just sitting29:08there we don’t you know it’s it’s the29:10call on OPEC has not been to increased29:12production so I think what’s going to29:15happen if things stay correct and we see29:18this decline in growth and shale which29:23is happening if it stays consistent if29:27in fact we are at the top and this29:29thing’s rolling over which I believe it29:31is that being shale the cup there’s not29:38that enough investment main offshore29:39that’s been my thesis and that’s where29:41people that’s where the money’s gonna go29:42now the problem is is with this29:44coronavirus it kind of short-circuited29:46the recovery in oil prices we don’t29:49really know we have to watch inventory29:51levels things are very chaotic right now29:53we don’t have enough information we29:55don’t know where this is going to end29:57but you know looking out three to five30:00years I hate to say that because you30:02know it’s like you just keep saying that30:04every year another three years and30:05people just aren’t going to wait that30:07long I get it but you know if you look30:10at the Reserve life indexes of major oil30:12companies if you look at the investment30:15dollars that have went into oil30:17exploration it’s not been enough to30:19sustain production and the penetration30:22of electric vehicles is not going to be30:24sufficient in the timeframe that’s30:25necessary to create demand destruction30:30and oil I mean in fact electric vehicle30:33sales were down last year they weren’t30:35up so that should tell people something30:39I think oils gonna be around for a lot30:41longer and once we get to this30:43coronavirus which has really been a30:45septic shock to the oil and commodity30:49markets we’ll have to see what happens30:50as we come out of this but I think as30:54this thing gets back on plane and we can30:55see real data it’s gonna become more and30:57more obvious what’s happening that the31:00call on non-opec a conventional supplies31:04will not be able to be met because the31:06lack of investment31:07and then we’ll see if OPEC has the31:09weather with all or has the ability to31:11increase production regardless these are31:15extractive industries and if you don’t31:17invest enough money in replacing your31:20reserves you eventually go out of31:21business I mean I’ve said that over and31:23over and over and that’s really where31:24we’re at so a lot of information there31:28guys that’s it for this week31:31appreciate the support appreciate the31:32viewership you guys are the inspiration31:36to why I do this more people keep31:38subscribing I thank you a lot it means a31:42lot to me and keep on sharing keep on31:46liking the videos it really helps out31:48enjoy the comments switching to a less31:52stressful career so I probably should31:54have more time and I’m hoping to make31:57some changes get some more interviews31:58but we’ll see how things happen over the32:00next coming months that’s it for this32:02week guys thanks a lot and we’ll talk to32:04you next week
Watch Brent Johnson’s follow up to The Dollar Milkshake Theory: https://rvtv.io/2tdRouM and The Great Dollar Debate with Brent Johnson and Luke Gromen: https://rvtv.io/2TGSnza only on Real Vision. — Santiago Capital CEO Brent Johnson rejoins Real Vision with a plethora of predictions that revolve around a strengthening dollar. Johnson believes that a global currency crisis looms, but that there is a bull case to be made for the greenback, gold and U.S. equities. Filmed on May 29, 2018 in San Francisco. Published on June 6th, 2018.
Now, one thing I want to make clear is this is not a story that ends well.
This is a story that ends very, very badly.
The strength of the dollar is going to cause such chaos in the global monetary system that
the safe haven that gold has always provided, I think, is going to become into higher demand.
And there will be a point where they rise together.
This isn’t a Pollyanna view.
I’m not saying to go out and buy equities, because things are good.
I’m saying, go out and buy equities, because things are bad.
Things are really bad.
It’s just that the road to bad looks much different than what the typical person thinks.
I’m really happy to be able to come onto Real Vision today, because I haven’t been this
excited about markets in a very long time– not because I think everything is going to
be easy, and things are fine, but really, because I think everything is bad, and it’s
going to be very hard.
But I think that it’s also going to present a lot of amazing opportunities for those who
can kind of see through the fog of what the markets are going to do over the next year
to two years.
Now, I’m sure over the next 30 or 40 minutes, there’s going to be a few of you out there
who agree with what I say.
But I know for a fact that there’s going to be a lot of people who disagree or who maybe
agree with part of what I say, but who are going to disagree with a lot of what I say.
And there’s also going to be some people out there who absolutely disagree with everything
And that’s fine.
What I’m asking you to do now is, at least for now, let’s put aside challenging me, and
just actually listen to what I say and think about how I might be right.
And if it turns out after you’ve actually thought about it and more than for a minute
or two, and you still want to have a conversation to discuss it, I’m more than happy to do that.
We’ve seen a nice bounce in the dollar after losing 10% to 12% on the dollar over the last
12 to 18 months.
So I think it’s a good time to discuss this.
I really think the dollar move higher is really just getting started.
Now, that doesn’t mean that there’s not going to be starts and stops, and in the short term,
it’s probably due for somewhat of a pause or even a short pullback.
But one thing I want to get across to people is this move is only just getting started.
The dollar, in my opinion, is going to go much, much higher over the next year to two
And so as I get into what the actual dollar milkshake theory is, it really comes down
to the fact that I think the whole world is really one trade right now.
And it’s the trade on the dollar.
Everything wraps around the dollar.
I’m going to talk about gold after a while, but I think even gold– all roads go through
So even though I’m very bullish gold long-term, that road also goes through the dollar.
And so at the end of the day, why I think the dollar is so important is because whether
you’re talking about a company, whether you’re talking about a family, or whether you’re
talking about a country, everything comes down to cash flow.
Everything investing ultimately comes down to cash flow.
And if you don’t have enough supply of cash, then you need flow of cash coming through
to keep operations going.
And I really think that’s where the whole monetary system is right now.
And that’s really the heart of the dollar milkshake theory.
And so I’m going to get into that as we go further into the conversation.
Now, one thing I want to make clear is this is not a story that ends well.
This is a story that ends very, very badly.
But I think the road to badly is much different than a lot of my peers think it is.
To get really into the theory, we all know that the central banks of the world injected
$20 trillion of new money into the global economy over the last 10 years.
And I kind of title this as this is the milkshake that all the different countries created.
They pushed down on their syringes, and they injected this tons of liquidity into the market–
euros, yen, pounds, yuan, dollars.
And they created this soup or this milkshake of all this liquidity out there.
But now, while the rest of the world is still pushing down on their syringes, the United
States has– we’ve gotten this monetary policy divergence, where we’re not using a syringe
We’re no longer injecting liquidity.
In fact, we’ve swapped out our syringe for a straw.
And so as we lift up on our interest rates, that sucks that liquidity to the US domestic
It sucks that liquidity up into our domestic markets.
And I think it’s going to push asset prices higher.
In other words, we’re going to drink the milkshake that the rest of the world is still mixing.
So the implications of this milkshake theory are several, and I’m going to try to walk
through them step by step.
But they really kind of all happen at the same time, and they all kind of go on at the
So while I’m going to try to walk through this linearly, I don’t want you to think of
it as necessarily a progression.
One might happen before the other.
They might happen at the same time.
But it’s really this soup.
It’s this milkshake that we’re dealing with.
So there’s three main implications of the theory, and the first part of the theory is
that the US dollar is going to strengthen.
And when I say the US dollar is going to strengthen, I don’t mean that it’s going to
strengthen a little bit.
I mean it’s going to strengthen a lot, and I hesitate to use the
word “supernova,” but it has the opportunity to really break out to incredible highs.
The second implication is that this dollar strength is going to lead to all kinds of
trouble in the global marketplace, specifically in the international markets and the
And finally, the third implication of this is it will ultimately react into
a currency crisis.
And we’re already starting to see the beginnings of that.
The monetary system is just not designed for a
So the implications of a strong dollar are really profound.
It really comes down to the flow that I was talking about earlier, but it’s the monetary
policy divergence as interest rates differentials eventually pull flow into the dollar.
Now, that hasn’t happened for a while.
The first part of the year, it didn’t look like
interest rate differentials mattered.
But you’re starting to see with a two or three-month lag that it actually does matter.
We’re also in a period where there’s not only this
increasing demand for US dollars due to the flow into the higher interest rates, but
we’re also– it’s compounded by the fact that we now have a situation where supply is
So you have increased demand with contracting supply.
That’s through the quantitative tightening that the Fed is
The other thing is that demand for dollars– there’s a lot of talk about a lack of
demand for dollars.
There is an incredible amount of demand for dollars just to pay
the interest on dollar-based debt in the world.
Now, a lot of people will focus on the $20 trillion that the United States government
And that is a problem.
I’m not going to deny it.
But the fact is that there’s another $20 trillion outside the United
States, either through direct dollar loans or the shadow dollar market, that
international entities own.
Oh, and those are dollar-based demand that they need as
And so if you add up all the dollar-based debt in the world, and if you just assume
that all that debt has the same rate as the US Treasury, which is 2.3%, which is
There’s no way that that’s what all these different loans are actually made
at, but if they did, there’s over a trillion dollars a year in demand for dollars just
to pay the interest on the dollar-based debt.
And that stays the same, whether– even if people totally move away from the dollar and
never borrow another dollar going forward, there’s still a trillion dollars
in demand to service the existing dollar-based debt.
And the reality is it’s probably twice that high.
It’s probably $2 trillion.
Now, another reason is that– we’re getting into a period where the dollar is going to
go higher– is that the US debt ceiling is now gone.
And we’re at a place where the government is providing fiscal stimulus.
And this provides increased demand.
And what I mean by that is a year ago, we bumped
up against the debt ceiling, and we could not issue new bonds.
And so the checking account that the US government, that
the Treasury has at the Federal Reserve, had about $500 billion in it.
And they drew that down to less than $100 billion.
So they pushed $400 billion out into the system.
That created supply of dollars, and that’s part of the reason why the dollar dropped.
That’s completely flipped now.
Not only is the government not pushing that $500
billion or $400 billion out into the market, but they’re actually entering the
dollar market to get funding.
They’re selling bonds in exchange for dollars.
So you have a situation where the supply of dollars is
no longer increasing, and now you have the biggest buyer in the world– the US
government– entering the dollar market, buying dollars, competing with everybody
That’s a recipe for price to rise.
Another part of the cash flow back to the United States theory is the US repatriation
after the new tax bill.
A lot of people didn’t think that even if they passed it,
governments– or I mean corporations– wouldn’t repatriate.
But we are seeing a repatriation.
And I think one thing a lot of people forget is it’s not just US corporates
repatriating cash back to the United States.
Foreign banks, foreign entities can also send cash back to United States, and they
can get that higher interest rate on doing it.
Now, if you don’t think that’s possible, just go look at the breakdown of the reserves
of the Fed.
Over half of the reserves, bank reserves at the US Fed, are from
So not only are they going to do it, but they’re already doing it in
a big way.
Now a fifth reason that the dollar will gain some of this flow coming from around the
world is that as the dollar does get stronger, it creates chaos everywhere else.
And so the dollar will start to get flow just from
a safe haven demand.
And we’re actually starting to see this already.
We’ve got problems in Turkey.
We’ve got problems in Italy.
China has just recently come out and said they’re probably going to have to
lower their reserve ratio requirements and provide stimulus at some point over the
So we’re already seeing that the strong dollar is impacting other markets.
And I don’t really have time to get into the whole euro
situation, other than to say that the euro is
just– I mean it’s really a disaster.
I really don’t know how else to say it.
It’s just not a currency that is going to be able to function
They have all the same problems that we do.
Their balance sheet is bigger than ours.
They’re still providing stimulus.
They don’t really have a way to draw down the stimulus.
And they’ve also got the political problems on top of it.
So as people real– and they’re overregulated.
The number of regulations that have gone on in the EU in the last two years are
dramatic, and we’re already starting to see the impact that that has on corporations.
So I think all of these five combined are really going to push the flows back to the
So one of the arguments that I often hear is that, what if people just leave?
What if they default on the dollars that they owe
and just go off to a new agreement that they’ve created?
Would that cause chaos?
It would absolutely cause a lot of chaos.
But is it possible?
Yes, it’s absolutely possible.
And that’s one of the reasons, by the way, you should own gold, because you
never know what could happen.
That said, one thing you have to realize is if these people default on their dollar
loans, and they leave, and they go somewhere else, in a debt-based monetary
system, it’s not just the debt that leaves.
It’s not just the obligations that leave.
Money disappears as well, because in a debt-based
monetary system, when debt gets defaulted on, money evaporates.
And if money disappears, that means supply falls.
So if you think about this like a musical chairs example, and we’ve got a number of
digital or paper participants swirling around the limited number of monetary base
dollars that actually exist, if some of these players decide they don’t want to play
anymore, and they leave, and they default on that debt, that’s fine.
But when they leave, money disappears as well.
So the chairs disappear as well.
And if the chairs start to disappear at the same
rate that the obligations disappear, if you get supply falling even faster than demand,
price still rises.
So I don’t buy that argument that they can just walk away and
that there won’t be any chaos and any implications involved with that.
Another thing I would say is even if they do raise rates, and it does cause a recession,
well, then, that means the US is now in recession, and the rest of the world’s biggest
customer now have a cold and cannot buy all the goods from those other countries
that they were selling before.
So that has a knock-on effect to EM, and I actually think
it hurts EM and international more than it hurts the US.
So even if that does turn out to be correct, I don’t think that that’s necessarily
Now, the big one that I always hear is that the Fed is going to have to– again, they’ll
have to– they can’t keep raising rates, so they’ll have to reverse course, and they’ll
actually have to implement QE again.
And that’s not going to happen either, in my
And the reason that I don’t think that that’s going to happen is because the
whole point of QE is to provide artificial flow from somewhere outside the current
That’s the whole point of buying the bonds to get that injection.
When the Fed would buy bonds, they would inject currency
into the system.
So if you can get that injection of currency into the system from somewhere other than
the Fed, then the Fed doesn’t need to provide it.
And this is the heart of the dollar milkshake theory.
The rest of the world is still providing an incredible amount of
stimulus into the market.
But we’re the only ones with a straw.
Everybody else is pushing the liquidity out into the market.
The Fed has a straw, and they’re sucking up that liquidity.
And as they suck up that liquidity, that is an injection from outside the
domestic market into the market that allows the flow to keep happening.
And that is no different than QE if we were doing it ourself.
Just because they’re operating QE out of Tokyo or out of Frankfurt doesn’t mean that
those dollars or that liquidity– the euros, the yen, whatever– stays in those domestic
In a global marketplace, all those assets can flow to the US, and I think that’s
what’s going to happen.
And that is literally the heart of the dollar milkshake theory.
It doesn’t really matter who provides the QE.
What really matters is who captures the QE.
And with our higher rates and relatively better economy than the rest of the
world, we’re going to capture that QE.
One of the other arguments that often gets made is the fact that if the Fed continues
to raise rates, then it’s going to invert the
Now, I can’t argue with that.
If you look back at history, whenever the yield
curve inverts, it almost always does lead to a recession.
But what many forget to put forth when they put forth this argument is
that the length of time from when it inverts until when it goes into recession is typically
18 to 24 months, and that goes back on several occasions as well.
Not only that, but what happens during that 18 to 24 months is typically a speculative
And that leads to the blow-off top.
And if you think about it– and I can’t prove this– but if you think about the typical
yield curve that a bank would want, they want a very steep curve.
They want short-term interest rates and high long-term interest
They want to lend long, and they want to pay short, and they make that
Well, if that’s great for the banks, that’s probably not great for the speculators.
But if you reverse it, and you get into an inverted
yield curve, that’s not good for the banks, because they’re having to pay short and lend
long, and they’re upside down.
But if it’s bad for the banks, who takes the other
side of the banks’ trade?
Well, that’s the speculators.
And if the speculators can borrow long and invest short and make that
spread and lever it up, that’s like Disneyland for them.
And that leads to the speculative mania, and that’s what leads to
the crazy excesses, and that’s what leads to the blow-off tops that nobody think can
And that’s why I don’t think that an inverted yield curve– I don’t think it’s
negative for the dollar, and in the short term, I
don’t think it’s negative for the markets.
OK, so where does all this lead?
What does this dollar milkshake mean to us in the
Well, I think what it means is that we haven’t seen the blow-off top yet.
I still think it’s coming.
I think equities are going a lot higher.
And again, this isn’t a Pollyanna view.
I’m not saying to go out and buy equities, because things are good.
I’m saying go out and buy equities, because things are bad.
Things are really bad.
It’s just that the road to bad looks much different
than what the typical person thinks.
And I think that as we get into this inverted yield curve, as we get into problems
around the world, as we have currency crises, the United States is going to be seen
as a safe haven.
And all roads go through the dollar.
And when that money flows into the dollar, it eventually goes into US
And I think it’s going to push equities to all-time highs.
I also think that it’s going to have a big impact on bonds.
Now, I’m of the opinion that interest rates are headed higher.
I don’t necessarily think that bonds are going to
crash, but I think they are going to break.
And I think that that is going to have a big impact on assets as well.
Now, there’s no doubt that there’s going to be some
moments of pure panic and terror along the way.
I’m not sitting here saying that bonds are going to fall, equities are going
to go up, and it’s all going to be smooth.
I don’t think that at all.
I think it’s going to be really frightening at points.
But I think rates are headed higher.
And when you think back to the fact that there’s been a 40-year bull market in bonds, that
means somebody could have invested their whole life for 40 years and been a fixed income
investor and made money quarter after quarter, year after year, decade after
They have never really lost money on bonds as long as they were buy and
Sure, along the way, maybe they did some trading of bonds where they
lost money, but essentially, nobody has lost money in bonds in 40 years.
Well, now we have interest rates heading higher.
We seem to have broke out of the chart of truth.
Will we retest?
Will there be some moments where bonds rally?
But I think interest rates are headed higher, and when people actually start
losing money in bonds, I think that’s going to be a real wake-up call not just for finance, but from an emotional perspective.
If you have made money on something for 40 years in a row, and then all of a sudden,
you wake up, and you’ve lost money, it’s kind of like the turkey at Thanksgiving.
They have 364 great days, but that 365th day is kind of a nightmare.
I think that can happen in bonds.
And as funds flow out of bonds, I think a lot of that’s
going to flow into equities.
And so all of this– again, I’ve kind of walked through this
linearly, but this is really all going on at the same time.
And as we’ve got a period where interest rates are headed higher, I
think around the world, as bonds start to break– not crash, but as they break– and
funds start to flow out of it, as dollars flow–
as funds flow into the dollar and push asset prices up, I really think we get into this
George Soros talked about it in his book, The Alchemy of Finance.
You get into a place where dollar strength begets more dollar
strength, because as the dollar strengthens, it causes all kinds of problems
And as the yen gets into problems, people seek out safe haven back
into the dollar.
Now, gold will, obviously, I think, be a beneficiary of this.
But I don’t think people around the world are going to sell everything
they own and put all their money into gold.
In fact, we don’t need them to put everything into gold.
They can just put a little bit into gold, and gold does really well.
But I think the dollar is going to be the big
beneficiary, and I think, again, as I’ve said many times, all roads go through the
So of course, as always, I have a lot to say about gold.
I think the first thing I want to get across is that my thesis on gold has not
Everybody should own gold.
It should be part of everybody’s portfolio.
And I’ve said for a long time that gold is going to go to at least $5,000.
That hasn’t changed.
Gold is going to go to $5,000, and the reality is it’s probably going to
go a lot higher than that.
But you know, for anybody that’s trying to put me– peg me down
as far as time and price, I’ll say $5,000.
Now, I don’t know if I’m going to necessarily tell you exactly when, but I still
think gold goes to at least $5,000.
The only question is when.
But part of the other thing is that– part of the reason that gold will go that high
is because it will be at least part of the solution
when this horrible system that the central banks have created eventually comes down.
This dollar milkshake theory is not one in which the dollar remains the world reserve
I think we’re going to get to a place where the dollar gets so strong, they’re
going to have to come to some new kind of Plaza Accord or some kind of a system
where they dramatically reduce the dollar.
But it’s not going to be that we reduce the dollar, and people are mad at us.
I think the world’s going to beg us to reduce the
value of the dollar, because the strong dollar, quite honestly, it just breaks the
entire monetary system.
It breaks international markets.
It breaks the emerging markets.
And it actually is, in the long term, not great
for the US market either.
But it doesn’t mean it’s going to happen right now.
So I think over the next couple of years, the dollar goes much, much stronger.
I think initially, that breakout is going to
surprise a lot of people.
I think it’s going to create a lot of chaos, and it will ultimately
be that chaos that makes gold go a lot higher.
I tell people all the time that a lot of the typical gold theory is that dollar gets
inflated away, and gold goes through the world, goes through the roof.
And there is that view.
But there is nothing that is more long-term bullish for gold than a strong dollar.
Before we get into that, let’s talk about a little bit why gold, quote, unquote, hasn’t
worked for the last several years.
Well, the reality is I think gold has worked for the
last several years.
Many of us in the gold world got it wrong as far as timing when it
would work in US dollar terms.
But if you’re not a US dollar investor, and you lived in
Cyprus or Russia or Argentina or Venezuela, gold works just fine.
Gold did what it has always done for 5,000 years.
It’s provided a safe haven when things got bad.
And the reality is that things did not get worse here in the United States over the last
five or six years.
And as a result, gold has not performed as it has in those other
But it doesn’t mean that gold isn’t working.
I think a lot of the pain and a lot of the frustration with those in the gold world that
are feeling the frustration from gold not having done anything are those who bought
gold as a speculation, not as insurance, or it’s those who told themselves they bought
it as insurance, but really bought it as a speculation or a get rich quick scheme.
If you bought gold as a hedge against the rest
of your portfolio and the rest of the world blowing up or all the spinning plates that
the central bankers have going crashing, then gold is still working, because the reality
is the plates have not crashed yet.
There’s no doubt that they will, but they haven’t yet.
And so gold hasn’t needed to do anything.
But gold’s been around for 5,000 years.
It’s always been, at least from a market perspective, a currency and the last currency
of resort, and that’s not going to change over the next 5,000 years either.
So if you’re a gold investor, and you have it in your
portfolio, and you didn’t put all your money in gold, you’re probably just fine.
So now there’s also many people in the gold world who will say that the only reason
gold hasn’t worked for the last five years is manipulation, that the decades long gold
manipulation scheme between the central banks, the governments, and the
commercial banks have worked together to keep the price of gold low.
Now, even if you take that view, the fact is you are still
wrong, because if you– this is not a new theory.
This manipulation theory has been out there for decades.
Anybody who’s spent more than five minutes in the gold world
knows about this theory.
So if you bought gold five or six years ago, four years ago, whatever it is, and you
were wanting it to pay off much quicker, and it didn’t, because you think it’s been
manipulated over that time period, well, the only reason you would have bought it
four or five years ago is not because it wasn’t manipulated.
You knew it was manipulated.
The only reason you bought it then was because you thought that the
manipulation was going to fail.
And the reality is the manipulation hasn’t failed.
If you subscribe to the view that gold has been manipulated
lower, then the manipulation is still working.
And so I think it would help a lot of people in the gold world if we would just admit
that we’ve been wrong for the last five years.
I didn’t think that the monetary authorities could keep the plates spinning
for another five or six years.
I thought it would come down much sooner than that.
I was wrong.
The plates are still spinning, but it doesn’t mean that gold has failed.
It just means we got timing wrong, and I think the fact that if you say the words, “I was
wrong,” it’s very freeing.
It actually takes a lot of pressure off you, and you can actually
then move on to the next step and say, well, why was I wrong?
Why did the gold not go up?
Why are the plates still spinning?
And I think that will help prepare you for the next five or six years.
So now let’s talk a little bit about the dollar milkshake theory and how it applies to
Well, I think it largely depends on where you’re sitting and in what currency
You know, if you’re an international person or entity, and you
are not denominated in dollars– I don’t know if you’re in euros, or you’re yen, or
you’re yuan, or bolivar, or whatever you are– I think you can probably pretty much
back up the truck and buy over the next couple of months.
I think the dollar is going to get a lot, lot stronger.
But if the dollar gets a lot, lot stronger, that means a lot of
these other currencies are getting a lot, lot weaker.
That means gold, in those terms, is probably going to go a lot, lot higher.
It would not surprise me at all if these other currencies of gold rises 15% to 30% over the
next 12 to 18 months.
I think that could easily happen.
So I think determine where you’re at and which currency you’re denominated before
you just say, gold is going up or down.
I think that’s a very important point to make.
Now, I think it gets a little bit more complicated if you’re a dollar investor.
I have said for over two years now that I think eventually,
we’re going to get into a situation where dollars and gold rise together, and
I still firmly believe that.
The strength of the dollar is going to cause such chaos in the
global monetary system that the safe haven that gold has always provided, I think, is
going to become into higher demand.
And there will be a point where they rise together.
Now that said, for those of you that heard me say gold’s going to $5,000 earlier, I
want you to keep those positive feelings that you had when I said that, because I
don’t know that it’s going to happen over the next five or six months.
In fact, I think there’s a good chance that gold goes lower
in the short term.
It might not, and if it goes higher, I will embrace the break-out,
and we’ll be on to probably another five or 10-year bull market in gold.
But I’m just not sure that it’s going to break out yet.
We had another great opportunity this spring to break out, and it didn’t happen.
And I think with the move that the dollar is going to make over the next six to 12 months,
I think it will be very challenging for gold to break out initially with that.
And so I think if you are a US investor or a dollarbased
investor, I’m not saying that you should sell your gold.
The gold theory is still very much intact, but I’m just not convinced
it’s going to break out right now.
So as far as gold and the dollar rising together, I know that seems kind of
But at the end of the day, I really don’t think it is.
They’re both currencies, and they’re both measured against
all the other currencies in the world.
And so I think in the same way that the yen and the euro could rise together, dollars
and gold could rise together against a number of different fiat currencies.
Again, I don’t think that– I’m not even sure that
the dollar bulls have a proper appreciation for
how much damage that the dollar bull market is going to cause.
Again, the design of the monetary system was just not built for
a strong dollar.
And when it gets going and rocking and rolling, it is going to cause all kinds of
And that should be very good for gold.
When markets start melting down, and when chaos starts to happen, and confidence
starts to get lost, and you can feel the panic in the streets, that’s typically
great for gold.
And so whether or not things panic and break down in the United States,
if they panic in Europe, or if they panic in
Africa, or they panic in Asia, that’s a good opportunity to provide a chaos trade, so
to speak, or a safe haven trade.
And I think dollars will benefit from that, but gold
will benefit too.
And again, we don’t need everybody to sell everything they own and go buy gold.
The gold market’s very small on a per capita basis.
We just need the rest of the world to put 1% or 2% of their assets in gold, and
So we don’t need a mass exit out of fiat currency into gold for gold
to do very well.
The other reason that gold and the dollar can rise together is that we talked about
gold being a small market.
Well, if the dollar is rising a lot– and I mentioned other
currencies would be going down a lot– if those investors do start seeking out gold,
if Europeans start buying gold en masse, or the
Asian continent starts buying gold en masse, that can have dramatic implications
for supply of gold.
And so again, we don’t need it to be really big for it to impact.
And that’s another reason why, even though the dollar may be getting a safe haven
trade, that gold can get a safe haven trade as well.
And once we get to a place where the dollar and gold is rising together, I mean then
it’s just really rock and roll time.
I mean that’s just where the gold really starts to go
And then I think in a couple of years from now, whether it’s 2020 or 2021, after
the dollar has caused all this damage, the global authorities will have to get together,
and they will either have to, at that point, weaken the dollar either through QE or
some type of Plaza Accord, or maybe they introduce a whole new monetary system,
whether it’s an SDR or whether it’s a combination of a basket of assets.
I don’t know what it is, but what I know is that the monetary system, as it’s currently
designed, has a dramatic flaw.
And that dramatic flaw is about to be thrown a real
curve ball with the dollar getting stronger.
And that should be good for the US dollar.
It should be good for gold, and it should be good for those who are prepared.
A lot of people say that nobody sees the fact that the dollar has this problem, that
they have all these liabilities, all these unfunded liabilities, that our trading partners
are wanting to move away from the dollar.
I just don’t think that’s the case.
I think a lot of people see that this is a problem.
I think a lot of people want to leave the dollar.
I think there’s a big mistake in saying that this is a small problem that a few
people have discovered and that they’re going to profit wildly when the dollar gets
thrown by the wayside.
I go to meetings all the time.
I talk with investors all around the world all the time.
I can’t remember a meeting in the last couple
of years, where it either wasn’t brought up already or that I didn’t bring it up about
the dollar and its status in the world, that everybody around the table wasn’t familiar
with the issue.
Never once has anybody said, well, what are you talking about, “leaving
Everybody starts nodding their head, and everybody starts putting their
two cents in.
I think a lot of people have talked– or I think a lot of people have thought about this.
I don’t think this is some small issue.
I don’t think anybody’s come up with a real answer, but I don’t think it’s an issue that
nobody knows about and nobody discusses.
Now, even though I don’t think gold has got it wrong over the last five or six years,
and while I don’t think gold has stopped working, per se, I think gold is doing exactly
what it has always done.
Again, I think, as I alluded to earlier, I think we’re the ones that got it wrong.
Now, why did we get it wrong?
Well, I think part of it is that a lot of us, me included,
thought that quantitative easing was going to be dramatically inflationary.
I didn’t think that the world could inject $20 trillion
into the global economy and not inflate fixed assets, gold being one of them.
But you know what?
We got that wrong.
It was inflationary to asset prices.
Real estate went higher.
Equities went higher.
Some commodities went higher, but some commodities
In my opinion, all the low rates and the QE ended up being deflationary
to some assets, just as much as it was inflationary to other assets.
And I think keeping rates at the zero bound is overall
And so the fact that $20 trillion pumped into the economy was going to
create hyperinflation– it didn’t happen.
We got that wrong.
And I think it’s important– I really do think it’s important that we admit that we got that
wrong, because if you just say, “buy gold,” all the time, and you never say that it
could possibly go down, well, then we’re no different than those who say buy equities
all the time, and never buy gold.
I think we’ve got to be very careful that we don’t fall
into the same hypocritical arguments that the traditional Wall Street does.
I have a lot of friends in the gold world.
I have a tremendous amount of respect for them.
Most of them are my friends.
If you’re in the gold world, and you’re not my
friend, I think it’s probably because we didn’t spend too much time together.
But I do think that we can do ourself a lot of good
by kind of taking a step back and really trying to understand why gold didn’t do well
over the last five years.
Just admit that we got the timing wrong.
There’s nothing wrong with that, because just because we
got the last five years wrong, it doesn’t mean that we’re going to get the next five
I mean, in fact, I’m pretty sure we’re going to get the next five years right.
But I think in order– for credibility’s sake or to be
able to take a step back and be objective and
try to really understand why gold didn’t break out in dollar terms over the last five
years, I think it’s important to just acknowledge that we missed something along the
Now, somewhere else where I think you can see it is in equities.
Now, at the beginning of the year, I said I thought that
equities were going to go higher.
I thought they might very well have a 5% or 10% correction
before that happened.
I said I thought it would be nice if we had it.
It would be helpful.
Well, we got it.
So kind of be careful what you wish for.
But if you look at equities, both the S&P and the NASDAQ are both in a wedge
And I think they’re kind of near the bottom of that wedge pattern.
I’m not saying it’s going to be a straight line, and
it’s going to be easy, but I think we’re going to move higher to the top of that wedge pattern,
and I think we’re going to break out of that wedge pattern.
I think equities are going higher.
I think the Fed’s going to continue to raise rates, and I think this
dollar milkshake theory is really going to get
So again, I’m really excited about where markets are headed, not because I think
things are going to be easy.
I actually think they’re going to be hard.
I think they’re going to be scary.
But I think they’re going to be fun, to be honest.
I think they’re going to present a lot of great opportunities.
And I think if you have a plan for how to get through it, I think the opportunities
are actually pretty incredible.
I think one thing to remember is never be closed off to any ideas.
I always consider everybody’s arguments that they send back
I’m happy to think about them.
It doesn’t mean that I’m giving up on my own opinions, but I think one of the
most important things to do over the next couple of years is keep an open mind.
I think we’re going to see things happen that
many people just don’t think can happen.
And I think that for those who kind of stay nimble and have a plan, there’s going to
be an opportunity to make some good profits in the years ahead.
Billionaire real estate investor Jeff Greene built his fortune with a lifetime of hustle and no partners. In this interview with Raoul Pal, Greene explains how he transformed himself from a traveling circus ticket salesman to an investment titan putting on billion-dollar credit default swap trades. What began as a hedge turned into the trade of a lifetime when Greene astutely observed that shorting mortgage backed securities was a no-doubter in his first foray with derivatives. Greene also touches on his unique career path, his market outlook for a handful of asset classes, and the philanthropic endeavors that now dominate his focus. Filmed on January 23, in West Palm Beach, Florida.
RAOUL PAL: Jeff, it’s great to be here in Palm Beach and to get you onto Real Vision.
Just chatting off camera, we’ve got a lot of friends in common we didn’t.
You’ve got a fascinating story and I think people would love to hear the story of how
you start your career, how you got into real estate, but even starting before then, you
as a student, going to university.
Talk us through a bit about that.
JEFF GREENE: Well, I don’t know where to begin.
I grew up, I was born in Worcester, Massachusetts, which is a city about 40 miles from Boston.
My dad was a textile machinery dealer, which meant you sold these giant machines that were
longer than this room, they could be 100 feet long, to mills and parts of that also and
they did it very well.
We’re a middle class family in like cute little house with a backyard and my mom was pretty
much a stay at home mom.
Then in the late ’60s, all the textile mills got unionized in New England and they moved
to the south.
My dad lost his livelihood because he didn’t have mills to call and that’s all he’d done.
He had all this money in this business.
He had a warehouse with parts and materials.
My parents picked up and moved to West Palm Beach, actually.
My dad bought a small rubber stamp business.
He never really got on his feet again.
For me, I was just a junior in high school when they moved here, but I was really still
in junior high school and when our financial fortunes went the wrong way.
I had to work my way through college, and I had some financial struggles, which probably
made me hungrier than ever to do well.
RAOUL PAL: How did you pay your way through university?
There’s a bit of a story about that, because you went to Harvard, didn’t you?
JEFF GREENE: Well, I went to college at Johns Hopkins University in Baltimore.
I applied for scholarships, and I got scholarships and student loans.
That paid some of my costs and then also, I had been an exchange student in Israel in
I learned to speak Hebrew fluently.
I taught Hebrew school three days a week.
I had to ride the bus in Baltimore and I had to change three changes.
Three bus rides to go out there to teach Hebrew school on Tuesday and Thursday.
Then I rode out with another Hopkins student on Sunday.
Then I had another job where I checked IDs outside the gym, it was called work study.
It was a government funded program where you get paid a buck 50 an hour when you’re supposed
to be able to do your studying while you check the IDs, which you do.
Then I also, when I came down here to visit my parents, I worked with the Breakers Hotel
here in Palm Beach.
I was a busboy, and then a waiter in the main dining room, and I just slogged along and
made it through college.
I finished Johns Hopkins in two and a half years, not because I was such a genius.
I think it was because it was working so hard.
It wasn’t really a fun college one.
RAOUL PAL: Then after that, where did your career go?
JEFF GREENE: Well, so then what happened is I was down here one summer in West Palm Beach.
I was working at the Breakers, not making any money because who’s here in the summer?
Nobody, so no tips.
I signed out of the local papers, had telephone sales and I went to [indiscernible], it was
to sell circus tickets for the local Riviera Beach Fraternal Order of Police which is a
nonprofit Police Organization and it’s at $2.50 an hour or commission.
Well, minimum wage was a $1.60 in 1972.
$2.50 an hour, you can make 100 bucks a week.
Tuition at Johns Hopkins in those days was 2700 a year so if I work for 12 weeks, I’ll
make 1200 bucks.
Not so bad.
High stress on these tickets.
I’ve noticed that I’m selling more than everyone else, if I feel like I’m selling more than
everyone else in the room so I said to the guy at the end of the day, how much would
I’ve made on commission?
He said $93.
I’ll take commission.
Instead of making $20, I made 93.
Anyway, I ended up doing this all through college.
Wherever I had a break, I then would go on the road and run a telemarketing office for
After I finished at Hopkins, I went on the road to run these telemarketing operations
for fundraising circus from Sarasota, Florida, and I would roll into little towns all around
the country like Bluefield, West Virginia, tangy, you never would have heard of.
[Indiscernible] 20,000, 30,000.
Then I had a Pontiac Grand Am.
I had my clothes on a bar across the backseat, loaded with laundry detergent in the trunk
to go to the laundromat.
I would roll into town, check into the Motel 6 or Days-in or whatever it was.
I set up an office, sell the circus tickets, hire local people.
I did this.
It was a lonely life.
I finished college before I turned 20 so I was just 20 years old, 21, 22 all by myself
like a traveling salesman in these little towns.
Forget having a girlfriend, you couldn’t even have friends because you’re always seeing
You’re always on the move.
I did this and I saved up and I worked so hard.
I saved up $100,000 in the mid-70s.
It was just from working, I worked nonstop.
I lived on nothing.
I saved every penny because I was determined after what I’d been through going through
working my way through college, never to be broke again.
My dad, actually, it’s worse than not losing his livelihood, he actually lost his life.
When I finished Harvard Business School in 1979, in May, my dad didn’t make it to graduation
because he was having heart issues.
He died two months later with a massive heart attack at the age of 51.
I really believe it was because of the stress of not just losing his life, losing his dignity
and his sense of worth.
It puts me in touch today very much and that’s probably one of the reasons I’ve gotten involved
so much in philanthropically, and politically because I’ve really saw firsthand how somebody
can get broken when there are economic reality changes.
Anyway, so I saved up all this money, go back Harvard Business School, I had $100,000 in
Never had bought any real estate because how could I?
I was in a different city every two weeks.
RAOUL PAL: Living out of the car.
JEFF GREENE: Sorry?
RAOUL PAL: Living out of the car.
JEFF GREENE: More or less.
I did have stuff stored.
I’d never had an apartment.
I had stuff stored at my parents’ house, my aunt’s house.
I was living out of my car more.
When people say that you think I wasn’t sleeping in my car, but that was my base.
My Pontiac Grand Am.
Now, a lot of people I knew had invested in real estate.
I got into Harvard Business School.
I didn’t get into the good housing complex, so just field apartments because there was
a waiting list.
A friend of mine from Hopkins said, who would have started off with those first so I said
what do I do?
He said, well, what you can do is why don’t you go buy one of these three-deckers?
It’s like a three family house built in the late 1800s.
You can live in one, rent out the other two and at the end of the time, you think you’re
probably going to sell and get your money back and live rent free and I said that’s
I was set by to discuss– a friend who was broker, also been to the business school and
who I still know actually.
I bought a three-decker, and lived in one and the market was so undervalued in 1977
when I bought this, I could see I was saying, I bought it for $37,000, 7000 down, so that
would happen as I got approved for the housing.
I said, what’ll it make me if I rent all three, how does this investment work and by every
measure I looked at, I was going to end up after my mortgage payment, making $2200 a
year on my separate thousand dollar investment.
If that’s a 30% return, I said I got to get more of these.
While I’m at Harvard Business School, I accumulated 18 properties.
I bought them.
RAOUL PAL: You were just buying them out of the cashflow of each property?
JEFF GREENE: No, I had my hundred thousand.
RAOUL PAL: Out of school.
JEFF GREENE: For the first one I wanted when that was perfect, so I’m saying I can’t be
like dealing with repairs when I’m at Harvard Business School.
Who’s going to do this work?
Then I started getting comfortable doing remodeling and for the time I was done, I was buying
junkie buildings, fixing them up and anyway, that became the beginning of my real estate
As it turns out, the market was so undervalued.
That property I bought for 37,000, I sold three years later for 185,000.
Another property bought for 38,000, right near the Cambridge line, and somewhat sold
it for 3380, 330 to 380.
RAOUL PAL: Is that when interest rates started coming down that suddenly the price of property
Around ’81, ’82?
JEFF GREENE: I think you’re right.
That’s when Reagan was just– RAOUL PAL: Yeah, that’s right.
Reagan just cut in, there’s the Reagan-Thatcher years, interest rate just peaked and just
started to come by– JEFF GREENE: The late ’70s, so yeah, so before whatever it was,
the market just exploded and my 100,000– by the time I finished Harvard Business School,
I had a million dollar net worth.
Then I was off to the races.
It’s interesting because people often– RAOUL PAL: You didn’t use your Harvard education
JEFF GREENE: I always use my Harvard education.
RAOUL PAL: You leave Harvard, you’ve made a million bucks and I guess you decided real
estate’s the business you want to be in.
JEFF GREENE: I fell into it.
What happened is I decided to move to California.
I had a great aunt and some cousins there so I moved to LA after I finished at the business
school and thought I’d do real estate but the prices in LA were very different than
they were in Boston.
Boston was– it was before the tech booms and the biotech booms and Boston was a little
bit sleepy in the early ’80s.
Even after things had started to appreciate, you could still put down when you buy an apartment
building, you put down 20%, 30% you’d make a nice return on your cashflow 5%, 10%.
I go to LA and you buy a building, it’s okay, here’s what you do.
You put 30% down and you’ll lose cashflow.
Because basically in LA, you are buying the futures because everything was perceived to
be going like that, and I just didn’t get it.
I did some other things.
I bought actually 50% of a clothing manufacturing company, did that for 14 months.
RAOUL PAL: Why?
JEFF GREENE: I just finished Harvard Business School, I had to do something for my career.
I looked at buildings, they all just seemed outrageously expensive, didn’t fit the format.
I was used to cashflow real estate.
I just couldn’t figure it out.
I think, to tell you the truth, I’d taken a class, a business school by small businesses.
The way you find a small business is you do business brokers, go talk to local accountants.
What my cousin had was a textile salesman.
I said, let me go see your accountant.
Well, the only companies the accountant knows is textile and garment companies.
He said, well, I got this guy who has half of– he has a company, he’s just fired his
partner, he’s looking for someone like you to come in and help run the business.
I bought half of this company, and it was very successful 14 months.
I hated every minute of it.
It wasn’t my cup of tea.
I was thrilled and I’m showing up in my– at the time, Brooks Brothers suits and buttoned
down shirts and ties and these guys who were working there, gold chains around their necks
and they were in these spray on printed shirts that just it was aggressive, tough screaming
It wasn’t what I was planning on doing with my newly minted Harvard MBA.
Anyway, I got out, made some money and then I started doing real estate deals and started
I figured out the LA market, started buying properties and had a nice run up till early
’90s when I participated in the crash like most developers and investors.
RAOUL PAL: When you said you figured out LA property markets, does that mean you just
went into the momentum trade and realize it was all about price gains and not about–
JEFF GREENE: Yeah, I realized that you’re not going to make your cashflow in year one,
you’ll get your cash flow in year three or four and that’s how it was priced and just
I started doing things that way and sure enough, you bought one or two so I bought like an
eight-unit building, a seven-unit building.
Then you’re seeing there, as the rents go up and I started saying, now, I get this.
By the time I get to a– that was the starting like in ’82-’83 and by ’91, ’92, ’93, I had
about 100 million dollar real estate portfolio.
I never had investors or partners, but I had a lot of debt.
That’s how I built it.
I probably had debt on at maybe, I don’t know, 65 million, which is 35% equity, had been
refinanced and did grow aggressively, and then the market dropped and all the sudden,
somebody– ’92, ’93, ’94.
By ’94, my $35 million net worth was like minus $15 million.
RAOUL PAL: Did that terrify you?
How did you think about debt from then?
JEFF GREENE: It was tough, because basically, from my papers and snow shoveling jobs, my
whole life in business had been straight up.
The truth is let’s finish Harvard Business School at 24.
I have a million dollars.
I’m thinking I’m a genius.
I’m bored, and people call you, you must be– you’re really boy wonder, you think I’m really
a smart guy here and basically, I had never been– had not been married.
I had girlfriends, but I had been single, all I really had was my career, to tell you
the truth, to hang my hat on.
In 1994, I was just turning 40 years old and basically, everything I had worked for was
all of a sudden that and it was traumatic.
It was a tough few years.
It was a tough few years, because I’m thinking like I could actually very easily be liquidated
out back to zero and have nothing at all to show flow for what I’ve been doing in my whole
I got good education, but what would it have gotten me?
RAOUL PAL: How did that affect you psychologically at the time?
JEFF GREENE: It’s tough.
It’s interesting, I still– RAOUL PAL: You can’t take risk so easily when you’re thinking
JEFF GREENE: It’s interesting.
I’ve always been a fundamental– believe in the fundamentals like the way I invest, where
I do everything and I try to focus on long term and not let noise bother me.
I knew why that market had happened.
I understood it very clearly.
It’s a longer story, but the government empowered savings and loans and then try to allow them
to make crazy loans.
Basically, because what happened and if you will remember back, interest rates started
going up, SNL is having their books, all these fixed rate loans, and they were all in trouble
so the government said, okay, you want to be able to pay 8% for CDs, we’ll let you do
People were buying McDonald’s franchise with the SNL funds and they will make 100% construction
Of course, you’re going to have this crazy froth in the market.
I didn’t really feel I would like that.
Then nothing that I had done, it was the government that did it, and it happened and so when it’s
so good, I plotted through it.
I kept renegotiating with lenders.
Lucky for me, I had one main lender, called Glendale Federal Savings, they were the sixth
largest SNL in the country and believe it or not– RAOUL PAL: They stayed solvent?
JEFF GREENE: Barely.
They had $200 million in capital.
I owed them like 69 or 59, give or take.
RAOUL PAL: Okay, so you were too big to fail.
JEFF GREENE: It’s crazy because they were like, it’s almost a $20 billion SNL, my little
thing was enough to push them over the hump so they kept working with me and I was– look,
I was very persistent.
I’d give them a building, they would cut loans in other buildings.
We just work together and kept restructuring a few times, then eventually by probably ’95-’96,
my net worth was zero again, like all my loans equaled my values.
Then I got lucky and I said, look, I sold one property.
I had a property on Sunset Boulevard, a nice house at a very nice part of LA, 40-unit building.
It probably was worth $4 million.
The loan was for $4 million, but the Getty Museum needed housing for the new faculty.
They were just finishing the new Getty Museum.
They had looked at some other land I had, I called them up and I said, how about this
I sold it for $6 million, so I get 2 million bucks cash.
Now, most people having been through what I was, they would have taken that 2 million.
I said, I’m not going to risk this ever again, but I didn’t.
I went I bought three new buildings immediately.
I bought them from the RTC.
I bought an office building for $30 and cents– RAOUL PAL: I just want to get back a little
How do you– the psychology of doing that.
Taking a loss or getting close to having to realize a big loss is actually quite hard
thing to do.
Trading, investing and I run a hedge fund.
I know what that’s like, how did you distance yourself from that?
Let’s do it again.
You thought you had nothing to lose anyway?
JEFF GREENE: No, no, I just felt that– I really felt that I understood why this had
I felt that this was a crisis that was brought on by the savings loan excesses and that the
RTC and the government had it very badly.
I don’t know if you remember it, the Resolution Trust Corporation.
They just took everything and liquidated and they caused a lot more havoc than would have
otherwise been in the market.
I could see that’s why my properties were dropping in value to those levels, not because
people were leaving LA or didn’t want to live there anymore.
I have a chance now to buy these properties at barely pennies on the dollar.
I snapped up an office building at 30 bucks a foot, that was like eight years old, it
was what it costs $200 a foot to build then.
Then I bought another 65-unit apartment building for 2.7 million.
All townhouses and I’m thinking there’s no way you can lose money on these deals.
Sure enough, they all like tripled in value.
Then I was able to get those stabilizes, or refinanced.
I just started going and buying and honestly, I’d say that my recovery in the late ’90s
was really relationship oriented.
I’ve always been very relationship oriented.
I had one bank that I worked with a lot.
I figured out what they needed, they figured out what they need to do with me, and they
were my lender, and I started buying properties very aggressively at very cheap prices.
RAOUL PAL: All in LA?
JEFF GREENE: All in LA.
I was buying apartment buildings, because what you had was you had in this SNL period,
you had people who had built all these new buildings.
Hundreds and hundreds, if you drive to LA today, you’d still see these late ’80s, they’re
That’s the zoning over two levels of parking.
Wood frame, stucco.
They all look the same.
Basically, these buildings, what happened is moms and pops would have them or people
would not own them.
They were shell shocked because they went through rents– because they have a building.
They may be got it in say, and I’m just guessing they built it maybe in, I don’t know, 1987,
That’s when the big build– now, this RTC gets the building next door and cuts the rents
by 40% so now, you cut your rents by 40%.
By the time you get to ’96, you’re just so happy to have tenants.
No one’s raising rents, rents are way below market.
You go into buildings, you just buy them, we clean them up a little bit.
Change the entire rent roll to market and then refinance and buy more and so I got this
going again through great broker relationships, lending relationships, and I got up to 8000
units by 2005.
RAOUL PAL: 8000 units?
JEFF GREENE: Yeah, and over a billion dollars’ worth of real estate.
RAOUL PAL: All in LA.
JEFF GREENE: All in LA.
RAOUL PAL: Talk me through the next phase then.
2005, you’ve now got half of LA, it sounds like.
JEFF GREENE: It was a great run.
I’m freaking out, and my debt was probably I’m guessing 500 million.
I’ve said I’ve gone from minus 15 million to positive 500 million net worth, but I know
that stuff can happen and even things that you have nothing to do with like the SNL crisis.
I’m thinking what had happened was the value’s gotten so high because after the dot-com bust,
interest rates were cut to the lowest since World War II.
As a result, cap rates on apartment buildings got very low and I’m thinking like, this may
not be sustainable.
What can I do?
As this is happening in like ’04, ’05, I’d go and I’d sell five or six buildings, get
some cash, then I think, yeah, I’d do an exchange and buy more buildings.
I’m thinking there’s got to be some hedge because I’m reading about all this stuff on
RAOUL PAL: Which year are we talking about now?
JEFF GREENE: This is ’06.
There’s got to be some way rather than just selling buildings and paying and getting nervous
then buying new ones.
There’s got to be some way to get a hedge so if the value of the buildings drop, I won’t
lose as much money.
I go to talk to Goldman Sachs, JP Morgan, they said, well, you can short the SNL stock
because if the market collapses, those will drop.
Then I think, well, if you do that, what happens if the one that you short gets taken over
Then I went to see a very old friend of mine, John Paulson, who was a very close friend.
I called him up, and I said any ideas on this, he said, come see me and work on something
you may like, so I went to his office and he showed me how– he said, I’m shorting subprime.
What does that mean?
Well, I’m using derivatives.
What’s a derivative?
Well, you use credit deposit?
What’s a credit deposit?
Then he shows me some slides.
I get the idea.
Housing prices are not going to go up, are going to drop and people won’t be able to
pay the mortgages and the bonds will default, but these are very complicated instruments.
I didn’t really know exactly how you get from giving your money to this up to putting your
money up to you make a profit because the way these bonds work, they were very complex.
I remember saying, I said JP, can I do this on my own because now, we’re friends and I
may be– and he said, no, you won’t be able to because you have to sign this.
It’s an institutional trade.
His fund wasn’t ready for several months, anyway.
This is like in March or April of ’06.
I went back to LA and went to Berlin.
Then I called up all my bankers, and they told me, absolutely not, you can’t do this.
I hustled SIP, and I’ve pushed them in then I got approved to do this trade.
Initially, I went short $650 million worth of subprime mortgage backed securities with
JP Morgan and Merrill Lynch.
RAOUL PAL: You then sit it out for a bit, because nothing happens.
It gets marks against everybody.
JEFF GREENE: Yeah, a little bit.
It went down a little bit, and then I went to JP, sent me his fund, finally said, I’d
like to go in your fund now.
I told him, I’d done every email, I told him my I’d done some trades, and he got upset
that I’d done the trades.
RAOUL PAL: Without him?
JEFF GREENE: Yeah, but I still wanted to go to his fund.
We’re still friends now.
I think it was I should have probably told him I was doing it when I did it.
I’d say, I just did it.
I figured he’s running up, at the time, he had $5 or $6 billion in a matter I think,
he’s got a big business and I’m just doing a relatively small amount of this in the overall
scheme of things but, and I’d said I should have told him and I couldn’t, I think it caused
a problem between us for a while, but nevertheless, I ended up doing that.
The fund dropped in the summer a little bit and then so I was down.
Then it went up and then it went down again the next January for some reason.
RAOUL PAL: Have the housing prices have a tipping over at this point?
JEFF GREENE: Housing prices with– all the fundamentals of housing were going like this,
the punt’s going like that by January, it made no sense.
I said I want to do more of this.
I caught up and I was able to do another 400 million of the short and so I had 1,000,000,050
on at that point.
I was going to do more truthfully but by the time I got approved for more at one of the
two banks, it already started to deteriorate, the prices already dropped against.
I had this in them.
Then I just gradually started closing out that trade in, I’d say, 2008 and it was a
very profitable trade.
It turns it wasn’t a hedge at all.
That’s the craziest thing and I knew when I went and started, the more time I spent
on this trade, it’s faster I realized that this is not a hedge because apartment buildings
values were a function of rents and interest rates, lower interest rates provide low cap
rates and high and stable rent markets, people want to buy buildings with stable rental markets,
but I looked at it, I knew it was an incredible trade because I’m thinking this doesn’t make
There’s no way that these bonds are getting repaid.
That’s why I stepped right up and I did over a billion dollars in this stuff.
RAOUL PAL: That was a hell of an initiation to the world of derivatives.
JEFF GREENE: Yeah, pretty lucky.
It could have gone wrong.
RAOUL PAL: It could have gone wrong.
There again, in the end, they’re not very expensive trade.
The good thing is they were relatively cheap to put on but the punt was so ridiculous if
you get them right.
JEFF GREENE: Yeah.
Well, I think I had to put up I think to 5% which made sense because basically I was doing
it 1.3 over.
Here’s the problem.
The problem with this trade is I was very lonely doing this trade.
I’d never been on– I’m going up against the biggest banks on Wall Street effectively.
I don’t know anything about the stuff.
I’m thinking about– am I missing something?
Just seems all seemed too good to be true.
I would talk to my smart friends, like my close friends from Harvard Business School
and some other friends who are on Wall Street.
I’d say, what do you think of this?
They would go talk to their advisors.
Interestingly enough, a lot of very smart people would come back and said, the problem
is just really stupid that you’re basically agreeing to pay the spread for 30 years on
If no one pays off the loans, you’ll pay for 30, but that’s completely nonsensical, because
even normal loans get refinanced and as an average duration of any bond, any pool of
In this case, I focused every– I don’t know if you have seen how these loans business
is like, so basically, there was one type of loan, it was called a 2/28 loan.
I would try to find bonds at 80% of this.
What that meant was for two years, the rate’s fixed at some very low rate, maybe it might
have been at, in those days, at 6% for a subprime loan, and then in month 25, it can go up to
300 basis points, then 100 basis points every six months till it peaks at 600 basis point
It means after three and a half years, it’s a good chance that these loans are going up
6% to 12%.
On top of that, a number of the loans of the pools that I shorted went from interest only
Imagine you have a 6% interest rate loan, three and a half years later, you’re amortizing
it at 12%.
Of course, nobody can afford.
The only way out is if housing prices keep getting higher and you can refinance, but
when I did this trade, only 11% of buyers in California could qualify for the median
priced home loan, means 89% couldn’t qualify.
Who is going to possibly push prizes for a lift?
That’s exactly what happened.
RAOUL PAL: You get through the housing crisis pretty well, and the value of your real estate
portfolio didn’t really suffer?
I guess single family homes got really killed in that.
JEFF GREENE: Yeah, everything dropped, I’d say, but apartment rents dropped 15%, 20%
in LA and the value’s the same.
The thing about LA, it’s a very supply constrained market.
Even in the worst crash, it never really that bad.
It was bad in the early ’90s.
There was such an enormous overbuilding, there wasn’t any overbuilding going into 2000 into
There was no overbuilding at all of apartment buildings.
It was a very tight market.
Of course, people, the economy get bad so rents dropped a little bit.
It was no big deal, then they came back immediately.
RAOUL PAL: Then after that housing crisis, and that was the financial crisis, what opportunities
did you see?
Because a guy like you sounds like you would have been looking for opportunities in there.
JEFF GREENE: Well, it’s interesting.
What happened was I’d never been married.
I met my wife in the summer of ’06.
’06 had a pretty good, spring, summer when I did subprime short in April, I met my wife
That’s a pretty good period and I’d never been married.
RAOUL PAL: Mike Tyson’s party, is it?
JEFF GREENE: Mike was actually on a boat I owned in Sag Harbor for his 40th birthday.
I’m like a guy who likes to really figure things out and really plan things out, that
are going to happen, I don’t know, like depend on random circumstances.
I don’t go to Vegas and place bets on things.
I’m really pretty mathematical serious.
Meanwhile, how do I met my wife?
I’m having a crazy party for Mike’s 40th birthday.
Friends of mine go get a DJ.
DJ says, can I bring a few hot chicks?
Walked in with the DJ.
It ended up that’s the mother of my three children, go figure it out.
You know the plans you have, they sometimes are funny.
Anyway, so what happened is, so I met my wife that summer, summer ’06, and then we ended
up getting married in September of ’07, and she’d been living on the East Coast and in
truth, I knew I was cashing out the subprime debt anyway and I was thinking, you know what,
I’m going to have 100– I could save 100 million dollars in state income tax if I live in Florida
The point is I was only in LA three or four months a year, because I was on my boat a
lot, traveling, so it wasn’t like I was– had kids in school.
I was only there part time, so I said, and I was already in Florida a month and a half
a year because I had my boat or something and I went, let’s spend a couple more months
in Florida, one month in LA and I’ll save 100 million dollars and I’m not doing anything
illegal, everybody gets that’s the law.
We end up moving to Florida, getting a place in Miami and this is in early ’08.
At that point, everything was a mess.
RAOUL PAL: Miami got murdered in that.
JEFF GREENE: Interesting enough, well, you couldn’t get anything in Miami because what
happened is I’d be driving around and I’m giving up, I’ve got like, I’m a real estate
guy, who truthfully never had any money.
You don’t go from zero to eight to a billion dollars with a real estate with no investors,
and no partners and have cash in the bank.
You do that by you refinance a building, 15 minutes later, that build money is due to
buy another building.
It’s like literally you got enough money to pay for lunch but not much else.
I’m cash poor, asset rich my whole life because I was always moving around.
Now all of a sudden, I’m sitting with either a million dollars of cash and the real estate
market has collapsed and everything’s– I’m thinking like, wow, this could really be a
lot of fun for me, instead of being like all my peers, struggling, I’m just the guy with
What a great reversal that was.
RAOUL PAL: Somebody told me once very early my career, he said, listen, there’s one piece
He who has cashed in the recession is king, and it’s so true because then you’ve got the
opportunity that nobody else has got.
JEFF GREENE: Anyone else– it’s not saying that like I didn’t need to make more money.
It’s really more that also, it’s just so much more relaxing years I have in liquidity.
Just in general, even forgetting opportunity, just not having– it’s nice to build a business
and grow, and not have partners or investors to worry about, but it’s stressful constantly
trying to move things around and depending on loans and refis.
It was certainly like I saw in Miami, I’m there and I’m driving around like some– I’m
a deal junkie and I’m a serial entrepreneur, I’m looking around and I see all these big
buildings with all these low lights on and I see all these empty lots next to the big
I think, how do I get some of these and nothing’s available because it’s early ’08, and they’re
in the bank portfolios, nobody’s sure what’s happening.
Then, but we moved here in December of ’09 to Palm Beach.
By the time we moved here, it was just the time I’d say like 2010 when the property started
getting sorted out, the lender started getting control of them and they were starting to
I started buying here very aggressively.
I bought this hotel.
I bought the note here and foreclosed on it.
This hotel, I think it cost the former owner, it was over 100 million dollars, I bought
the note for 41 million from UBS and all kinds of fractured condos and land and it was really,
there’s a lot of opportunities in this market.
Originally, I was coming here just thinking, okay, I’m living here in Palm Beach, I’ll
do a few things to make some money.
I thought they’ve really great values.
I didn’t really necessarily think it was a great place to do deals, that it was a good
place to do deals.
Then the more time I spent here, realize this is just a great place to live, a great place
to invest, a great place to develop.
I was able to snap up all these great opportunities.
RAOUL PAL: Then the whole hedge fund industry moves here.
The whole of Greenwich turns up here, and that’s going to help you, the hotel, and of
the neo taxes and the big move here.
JEFF GREENE: I don’t think it’s as big as people think.
As soon as you talk to people in business, first of all, hedge fund people, how many
do they employ?
First of all, the kinds of hedge funds that come here, the little ones are on office,
they have a satellite office.
RAOUL PAL: Yeah, because people like Paul come here and it’s just him, he stays in his
office and he didn’t bring any employees then.
JEFF GREENE: No, of course not, because everyone says us, from these big business developments
had said, we’ve got all these hedge funds to move.
People and hedge funds, first of all, if you have a hedge fund in New York City, you’ve
got mature, serious people, have wives and parents living there and kids in school and
They’re not just going to, hey, guys, let’s all moved to Palm Beach, okay, we’ll all just
RAOUL PAL: It’s only the founders and the owners who come down here.
JEFF GREENE: Of course.
It’s hard to come here because they still have to keep their presence because people,
it’s not that that people don’t like, it’s a great quality of life but people have commitments,
not everybody don’t just going to pick up and moved and uproot themselves.
You really haven’t seen that.
On top of that, those aren’t the kinds of companies that employ large numbers of people
like LA, you got like Snapchat, they open an office, and they employ– they have 200
people, rent 100,000 a year in one office.
Google, when those kinds of companies come into New York where I’m building a building
and about two blocks away, Google’s building a saying jobs terminal, you’re talking about
6500 jobs and I read the average pay is over $100,000.
That’s what moves as an economy here.
We haven’t really seen that.
RAOUL PAL: Talk to me about the New York real estate market, because I’ve been talking to
a few people.
Just the Real Vision offices are in New York and I’m there every two weeks, and there has
been one of the largest buildups of New York real estate, I think in history, has gone
in the last four years.
What do you about all of that?
What’s in your radar?
JEFF GREENE: I wish I had another deal I do.
I’ve just finished a 25-story building.
It’s when I started doing this, it seemed like a great idea.
The problem with real estate developers is one developer has a successful building.
It does really well and then there’s no regulation how many others can do it.
Then 15 other developers are hired to do the same building and everyone thinks, well, I’ve
got a better architect, I’ve got a better view.
I’m a smarter developer.
Then you end up with 20 buildings, and there really were enough buyers for just the first
I think in New York, that’s what have happened.
For me, look, I don’t use construction loans.
I don’t have investors.
I don’t have EB-5 money.
I don’t have limited partners.
I try to just do enough, that kind of development that I can afford to pay for with my own cashflow
and I’ll make it through this cycle.
I think it could be a long cycle.
The good thing about the building I’m building, lucky for me, is it’s in an area called Hudson
Square, which is a little– not Hudson Yards, but Hudson Square, which is a tiny pocket,
just below the West Village, above Tribeca, between Soho and the river so it’s really
a five-minute walk to West Village, Tribeca, Soho or the river and that was great because
you’re in the middle of everything.
What’s even greater is ABC Disney just in that is building right now.
The whole operation one block from my building on the same street, it’ll be ready in a few
years and then Google’s building St. John’s Terminal two blocks away.
We’re going to have 15,000 new jobs within two blocks.
That’s very lucky.
I think that I have to figure out how I’m going to make it till when we’re done in about
six months till three years from now when the neighborhood really comes into it, but
New York’s– you know what, you can’t bet against New York because isn’t even as bad
as it is.
Just those two projects in my neighborhood are going to have 15,000 jobs and I realized
the ABC people were working up in the Upper West Side, but those buildings solve a steam
bottom and they’re going to rebuild them into something.
New York is like it’s the greatest city in the world.
It’s our biggest city.
If you want to do certain things, you want the talent and the resource.
You want the infrastructure, that’s where you’re going to go.
Eventually, we’ll figure out a way to get past this cycle, I’m sure and all this real
estate, they will just– RAOUL PAL: How are you thinking of the real estate market overall
I know you’re mainly focused here in Florida, I guess, for most of your investments and
some in New York, what are you thinking now?
What’s your senses?
Because you had amazing timing in 2006-’07.
JEFF GREENE: Look, I think there’s different kinds of real estate obviously.
Right now, I’m building a 300,000 industrial building here in West Palm Beach.
I feel very positive about that, because the movement is clearly towards more industrial
because everybody’s ordering on their computers and getting it delivered by Walmart or Amazon
so there’s tremendous demand for industrial space.
It depends on the category, I would say that the values of things like apartment buildings
that are in the three to four cap rates, and based on rents which have already gone up
for the most part a lot, seem pretty high.
It feels like we’re in an asset bubble in almost every category to be honest with you
and I think stocks are at an all-time high, bonds low, interest rates are low.
Those are all close to a high.
Real estate’s close to a high, and it’s interesting, everyone just seems to be very optimistic.
I just had lunch with someone today from Merrill Lynch, he was telling me how he thinks all
the smart people, they were just going to be fine because rates are low.
When everybody thinks things are going to be fine, that means everybody’s already in
and you’re not going to be so fine.
RAOUL PAL: That’s one of the things that struck me about Nome Goldsman, who we talked about
Nome, he’s had to say he’s had had a sense of some of this.
His whole, he went over the hedge fund business and a lot of real estate and he ends up buying
fast food, businesses and frozen food.
He bought a huge chain of Burger King.
He built the largest frozen foods business in Europe, just looking for that anticyclical,
It feels like it’s the time to be cautious when nobody else is.
JEFF GREENE: Yeah, but interesting enough, look, the other side of this, everybody’s
been saying that now for a long time.
RAOUL PAL: Yeah.
It’s been going on.
JEFF GREENE: People are sitting on a lot of liquidity, stay in the loop of liquidity,
though is coming from this– you’ve had a rigged economy for 10 years, where basically
with artificial– you have the central bank balance sheets adding, I don’t know what,
$15 trillion globally to their balance sheets, and you have rates held artificially at zero
for almost for a decade and now, again, very low and negative in Europe.
It obviously cause distortions in the market now.
I think everyone’s used to the distortions and figures the distortions will keep on going,
so everything will be just fine.
I don’t know if that’s going to– RAOUL PAL: What about the community here?
There’s a lot of hedge fund managers, a lot of people, entrepreneurs who’ve made a lot
of wealth, is their sense starting to shift?
Because some people I know are sensing shift and others are saying, no, still full on,
aggressive risk taking mode.
What do you think the mood is here?
JEFF GREENE: Everybody talks, everybody says you got to be cautious, but I think everybody
is also thinking I can’t– cash is trash.
We got to buy things.
Look, one of my biggest holdings is Apple.
It’s sitting at 1.3 trillion market cap, I get it.
It’s no longer a device company.
It’s now a platform that everyone’s on.
It’s now the telephone company when I was a kid, everybody has to have one and we’ll
keep getting them and buying these services.
The question is, what’s the value of that?
Is the value, is it more than 1.3 trillion?
If it’s less than 1.3 trillion, stabilize them, we’re all going to lose money in today’s
I don’t really, obviously, if you could show me that earnings are going to keep growing
from today’s levels at that company and they’re going to be making– I guess they’re going
to have to make 100 billion dollars a year to trade at 13 times earnings, which is what
you’d want to be at some point, maybe not today.
It’s a lot of money to make, even a global company with the monopolistic platform like
Who knows where these things are going?
That’s been real estate to me.
It definitely feels that a lot of good news are already out there.
Rents have gone up a lot.
Unemployment rate’s very low.
Just to be– I guess the question is how real is this global economy and how much of is
That’s the question.
If it’s real, and it can get a snide, you can do, we can rig things, but then the rig
timing can lead to real– RAOUL PAL: Well, the question is does rigging last?
What fragility is it building?
It’s like you talked about the SNL crisis.
That was a rigged situation where the SNLs were just because of the government irresponsible
of what they’re doing.
We’re seeing the central bank’s irresponsible with how money’s being thrown around the economy.
JEFF GREENE: Well, yeah, so no.
Look, if that’s the issue, like who knows?
The reality is, I can tell you this, up until two or three years ago, if we had employees
who in any way, were a substandard, giving us a hard time you’d said, bye-bye.
There’s another one waiting right now, starting about two years ago probably when Trump became
president, not because of Trump, I’m saying but at that time in the cycle, the way labor
market changed dramatically, all of a sudden, carpenters who are making 35 an hour are making
50 an hour and you can’t even get them.
All of a sudden, in hotel, workers that were making 10 an hour, make 15 an hour and wage
didn’t go up 3%, they went up 20%, 30%, 40%.
Pilots, I have a plane and my pilot salaries went up 30%, 40%, just like that.
What’s happened is all that liquidity has now led to increased wages.
Now if that’s just starting to happen, maybe we are more mid-cycle and then maybe we’re
not late cycle because it– RAOUL PAL: If it filters through that is, because people
can raise prices in the hotel or whatever.
JEFF GREENE: It is filtering through because everyone’s making more money and Donald Trump,
lucky for him, gets to take credit for it.
Whoever the president at the time, he’s the custodian of the economy.
That’s what seems to be happening.
Now, I can’t tell you like it does– what’s the consumer debt levels, I don’t know that
they’re necessarily overextended.
A lot of people are refinancing their homes no with lower rates, their 401ks were on all-time
high, they’re going to spend money, it’s going to keep this economy moving.
What is an economy anyway?
An economy is it’s a perception and so that’s why people are so confused, because you look
at the reality of all this funding money voodoo stuff going on, and you think, is it real,
but then you think at the end of the day, if everybody believes it’s real and they’re
out spending money, it becomes real.
RAOUL PAL: Outside of Apple and real estate, what do you invest in?
Do you have gold, do you think about gold?
JEFF GREENE: I don’t really, I don’t own gold.
Because we have a lot of real estate, which is a hard asset, we have a nice art collection,
which is a hard asset.
I’ve other, Alibaba is a big possession of mine, Google’s a big position of mine.
I tend to lay down to one of those tech stocks.
I have to own the banks and others, too.
I have a lot of liquidity right now to me, honestly.
A big chunk of money sitting in a lot of them in these bank prefers that I know are going
to get taken out because they’re about to roll into very high spread preferreds.
I’m sitting on a lot of money making 1.7% to 2%.
I’m happy with it.
I’m thinking like you know what, when things that move– I often look at a time in the
cycle, I’d say is morally, if you had to make one bet, it’s two choices.
Things are going to be 20% higher than today or 20% lower than today a year from now, two
years from now.
I think most smart people would say the better chance, they’ll be 20% lower because of where
I’m happy to sit in market, plenty of liquidity.
Look, everyone’s different.
If I were 25 years old, maybe I’d filter.
I’m 65 years old, I’m not assuming and if I have any trouble, I’d be worried but I’ve
already had that.
I’m basically just being cautious and I’m ready to have the liquidity available.
If there’s great opportunities, fine, if not, then I can live fine on my assets and make
RAOUL PAL: Talk to me about your other interests, the institute you set up.
JEFF GREENE: That was set up because five or six years ago, I could see that a country
that was solving its inner world, that was solving its problems only with monetary policy,
was going to leave behind a lot of people and I could see it happening.
You could see that those were the assets– RAOUL PAL: Is this when you were involved
in politics as well at the time, or?
JEFF GREENE: No, I’ve been involved in politics a few times, I actually have lost.
It’s funny, people say that you learn a lot more from your mistakes than in your successes
so I must be an expert on politics then because I’ve lost three, three out of three.
Obviously, I must really be smart in that space.
I think that you could just see because I could see that wages– I could see as owning
businesses that wages were not going up at all.
All of this with assets, saw our value’s going up, because with low interest rates, real
estate prices go up, stock prices go up, bond prices go up, those were the assets who’re
getting richer, those with labor were not getting richer, were struggling.
I said, this is unsustainable.
On top of that, with what was happening with technology and AI and machine learning and
how that was driving people out of the worst workforce and would cause some big disruptions.
We started a nonprofit and we’ve had some really stimulating conferences, in which we
brought together some very smart people with Ray Kurzweil, a Tom Friedman, and Larry Summers
and Tony Blair, and David Cameron’s been here and they’ve all come right to this hotel and
we’ve had some talk in the old education.
The list goes on, super smart people convening together to really talk about the future of
Again, as I said earlier in this interview, I have a personal experience with what can
happen to somebody when their work life changes because of my dad.
I’m very sensitive to that.
I have friends, honestly, who were highly educated, who have been marginalized and lost
their jobs and never gotten jobs again.
If you lose your job and you’re in your 60s, you really got to go get retrained to become
Of course, you can’t do that.
I really think that we are going to have a lot of disruptions and we have a lot of work
We talked about that.
We talked about education.
I don’t know if you know that we started a school in West Palm Beach.
We basically were– I have three young boys and we were frustrated with the private and
public school options so we started the Green School.
If you ever hear and want to see it, we have to take you by, it’s up to just under 130
kids, pre-K to eighth grade.
That school really embodies what I’m talking about and that we want our children to develop
a love of learning because we realized that kids today were going to going to graduate
15 years now or five years from now may have five, six, seven,10 career changes and they
may have to constantly learn and relearn, they can’t hate learning, they have to love
learning because they may have to learn new skill sets throughout their lives.
We’ve also have a focus on getting kids digitally influenced.
They start doing coding in kindergarten like kid coding exercises all the way to building
robots in the fifth and sixth grade.
We have enough emphasis teaching the whole child so we have met mindfulness and yoga
and dance and art.
We’ve really tried to create– and it’s a nonprofit school.
My wife and I funded it 100% ourselves.
We give financial aid so kids pay what they can’t afford what the computer says they can’t
afford to pay.
It’s 30%, 40% get financial aid and it’s been very fulfilling for us, as you can probably
see from our [indiscernible].
RAOUL PAL: Yeah.
How do you think we’re going to resolve this rich/poor divide?
Because it is not getting better.
Yes, there’s some marginal wage growth, late cycle wage growth that we talked about, but
at a structural level, we’ve still got a huge problem.
The Fed injecting more liquidity and stock prices exploding higher and your Apple shares
JEFF GREENE: Apple’s doubled in the last year.
RAOUL PAL: Yeah, doesn’t help the average guy.
How do you see that resolving?
You’re getting all these people together, they’re talking about it.
Are they talking about it?
Is somebody thinking, because you’ve got Trump on one side, you got Bernie Sanders on the
That’s how split this is becoming.
Someone’s got to find a solution somewhere.
Because if not– JEFF GREENE: We know that the Bernie Sanders socialism doesn’t work.
As they say, certainly in socialism, the poor will be richer, but you’re not going to make
the poor richer by making the rich poorer.
Basically, to me, I think the first thing is education.
That’s like the absolute no brainer.
Right now in this country, 14% of Americans are illiterate.
Now, if you’re illiterate, it’s not an issue.
It’s not about an income gap.
It’s about a possibility of you moving forward, it’s virtually impossible.
We’ve really failed in our education in this country.
I think that’s the first thing.
I think that– because you can’t even be as happy if you’re not educated.
Even if we created a society that people talk about where you have this, you have unlimited
resources, people only have to work 20 hours a week because you figure out a way to make
your food more efficiently and your housing, your 3D printing houses don’t need people
to do stuff.
If you’re not educated, how are you going to spend your life?
You can only have opiates, so you’re going to do drugs and drink?
I think being educated gives you the opportunity and I’m like to do better but to enjoy and
to thrive in your life.
I think that there are great examples of successful educational improvements in American.
States like Massachusetts and New Jersey actually has gone from 35 to three in the country in
public education by doing a few simple things.
Two years of pre-K for every child, because like in a lot of the states in the country,
these kids don’t even get any preschool education at all hardly.
Then they show up at kindergarten and they have a multi-million word vocabulary deficit.
You start behind, you stay behind, and I think we’re really failing our children in this
That’s the first order of visit.
If I was president of states, that would be my number one priority.
Get our kids educated competitively, because if they’re educated then at least we can compete
with whatever there is in the world.
Then how do you deal with solving the issue of jobs where we want people to feel good
about their upward mobility?
A lot of that, to me is a function of where we are in our cycle.
People don’t talk about this much, but my grandparents, like most people my age came
from Eastern Europe or another country.
Most definitely they were poor, everyone was poor.
Nobody came with any money.
They came with a shirt on their back and a dream.
The only dream my grandparents has probably that my parents will be able to have on their
table, nothing more than that.
There’s more than they had when they were in Eastern Europe and maybe a place to sleep
that was safe and clean.
Then what did my parents want for their kids?
They wanted their kids to be able to have every opportunity to follow the other Americans
who’ve been in for generations.
They fought hard and worked hard so we can go to good schools, and we had great public
schools as kids and great, great colleges.
What do we want for our kids and as it goes forward what?
The level expectation keeps getting higher and higher, and no one talks about that, but
from my grandparents’ generation to my kids’ generation, their level of expectation is
much, much greater for the kids.
Meanwhile, what’s happened is when my grandparents, after two world wars, we destroyed the industrial
complex of our competitors.
We were this global superpower with unlimited numbers of jobs and opportunities when people’s
expectations were here.
Now, we’re in a very globally competitive economy where we have to fight with much hungrier
countries around the world and their explanations are here.
You say, well, how do you fulfill their expectations?
It’s a lot harder.
I think the first thing is get our kids educated so they can be competitive globally.
Then just try to figure this all out, but it’s going to be a tough challenge.
I think it’s something– it’s the issue of our time.
The issue of our time.
RAOUL PAL: Yeah, I think it is.
I think politics remain pretty volatile until we figure out some of this stuff.
I think that seems to be a part of our future that we’re dealing with and it’s across all
the Western world and a lot of it is transition of the baby boomers, your typical, the baby
boomer, generation of the baby boomers.
That generation and the impossibility for the younger people to better afford even the
JEFF GREENE: I really believe we’ll figure it out.
Whenever I get pessimistic, I always think of our friend, Warren Buffett.
Warren Buffett, we’ve got to know, he’s members of the Giving Pledge, and we’re sitting around
a table with them in recent June and, or in late May, we’re talking and somebody said,
Warren, has it ever been this bad?
The antagonism and the divisiveness, and he said, these are two things that I have lived
through for 15 presidents, 14 I invested with.
He said, seven Republicans, seven Democrats, and there’s no place in America.
The whole world wants to come here.
Don’t bet against America.
Then he said something else, he said, I’m 88 years old, three of my lifetimes, which
is 264 years, in three of my lifetimes ago, there was nothing here.
It was dirt roads, and Indians and cowboys driving around and riding around the horses.
Look at what this system has done here.
Look what we’ve built.
In the same, you could say the same for the European countries and the whole Western world,
and so in the end of the day.
RAOUL PAL: It’ll figure itself out.
JEFF GREENE: Yeah, the ship will start to drift a little bit, but we always ride it
and I think we’ll figure out these issues and this system works.
If we just stay with our system, there’ll always be people like me who are aggressive
entrepreneurs, are trying to create and build things.
There’ll be other people who are more mellow and just want to make a living.
There’ll be other people who are creative and artists, and they’ll be like you who are
trying to build your journalism, your media business.
I think we’ll get through this just fine.
That’s my view.
I don’t know.
RAOUL PAL: Jeff, that’s a perfect way to end.
Thank you ever so much for giving an optimistic ending amongst all that.
JEFF GREENE: I really believe it.
RAOUL PAL: Thank you.