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- Greg Lippmann of "The Big Short" fame sees a soft landing as unlikely, he told Bloomberg TV.
- His portfolios are focused on resilient assets, such as partially paid collateralized loan obligations.
- "And you just buy the bad at the horrible pricing. It's going to go up."
Greg Lippmann, founding partner at LibreMax Capital, is focused on resilient assets as the chances of a soft landing are slim.
Betting that persistently high interest rates or a hard landing are likely in the future, he told Bloomberg TV on Wednesday that partially paid down collateralized loan obligations are a reasonable investment.
That comes as high interest rates, weakened credit availability, and an office vacancy uptrend have all become mounting pressures on commercial real estate. Last month, office loan delinquency rates hit 5%.
But Lippmann noted that markets react to the difference between expectations and reality, adding that commercial mortgage-backed securities have seen "indiscriminate selling."
So those who invest in the technology and data to sift out the bad bonds from the worst bonds could turn a profit.
"You know, it's our view that the whole sector is priced for horrible, and some of the bonds are going to turn out to be atrocious. But other ones are going to turn out to be medium to bad," he told Bloomberg TV, adding that, "And you just buy the bad at the horrible pricing. It's going to go up."
He gained prominence after predicted the 2008 housing market crash and was portrayed by actor Ryan Gosling in the film version of "The Big Short."
But unlike in the 2008 crash, which was sparked by consumer debt, Lippmann noted that corporations are now more vulnerable.
While government reforms have strengthened consumers' financial health, firms were encouraged to take on more debt due to covenant-lite loans — a form of borrowing with few restrictions, and few lender protections.
The burden of floating-rate debts that are common among firms is only set to get worse, as one more Federal Reserve interest hike is expected for this year.
"In our view, going into the next recession — whenever it may be — on a relative basis consumers are in a better shape relative to corporates than they were in 2008. It's almost the mirror image of that," Lippmann said.
He isn't the only one readjusting investment strategies to meet a more challenging economy. On Tuesday, legendary investor Rob Arnott also laid out expectations of a hard landing, and encouraged investors to drop growth stocks for value equities as inflation is set to rebound.