Billionaire investor and Chairman of Equity Group Investments Sam Zell hasn’t gone through the same “rethinking” on the possibility of a recession that many others on Wall Street have. In an interview with CNBC posted on their YouTube channel, Zell says he believes that a slowdown is unavoidable, given the years the Fed spent pouring cheap and easy money into the economy. In spite of recent data that shows a strong economy, a solid labor market, and inflation beginning to come down, Zell countered with “is the definition of coming down going from 9 to 6,” adding that 6 is still a problem.
“…the Fed screwed up,” Zell maintained, by allowing such low interest rates for so long and now we’re only just starting to pay the price. While the Fed could still get lucky and manage a soft landing, Zell wasn’t optimistic about their chances, as he’s “been around for 50 years and I’ve never seen the Fed get lucky.” In order to prepare his portfolios for what he views is an inevitable slowdown, Zell told CNBC to be ready for higher interest rates and therefore higher costs, while at the same time preparing for persistently high inflation. A year and a half ago, Zell says he told his companies to prepare for elevated inflation and changed several of their policies in order to be ready for inflation rather than responding to it. And he’s not ready to prepare for disinflation yet; “it’s going to take a while to ease,” he said. Meanwhile, the stock market—which has a long track record of being overly optimistic—was too slow to factor in the impact of higher interest rates and now it’s being too quick to flip into excitement and optimism, Zell contends.
When asked about real estate, which Zell is well-known for, he again pointed to higher interest rates having a greater impact than expected. Mortgage rates went up very high, very quickly, and as a result the real estate industry will have to contend with the after effects of unrealistically low rates for so long, Zell told CNBC.