Tuesday, February 26, 2008

Sam Zell

Sam Zell, real estate investor extraordinaire, was on CNBC's Squawk Box this morning and had some interesting comments about the housing market and the economy in general:

The US economy will avoid recession as the housing market begins to recover this spring, according to billionaire investor Sam Zell.

Speaking on "Squawk Box" this morning, Zell attributed much of the current economic troubles to fear-mongering and politicking by Democratic presidential contenders Hillary Rodham Clinton and Barack Obama.

"Obviously what we have going on is an attempt to create a self-fulfilling prophecy," said Zell, chairman of Equity Investments Group and owner of the Chicago Cubs, Chicago Tribune, Los Angeles Times and other companies. "We have two Democratic candidates who are vying with each other to describe the economic situation worse.

"The reality is that if you live on Wall Street and you're in the credit markets the world couldn't be worse. If you're a farmer and you're getting $25 for your wheat, you're having a great time. If you're a CEO and you've got a balance sheet that's bullet-proof, you're in a great position. This whole thing is way out of control, way out of hand."

Zell said that although he doesn't try to pick bottoms in markets he believes housing has hit its nadir and will turn around this spring as inventory clears out.

Zell closed the sale of Equity Office Properties last year about this time and that proved to be the top of the REIT market to the day (it was also the signal I used to liquidate most of our REIT positions) so Zell has some credibility especially when it comes to real estate. The only thing I disagree with Zell on is his take on Bernanke:

"I think he should be renewed when his term is up. I think one of the positives of the United States is having people in the position of the Federal Reserve (chairman) for long periods of time," Zell said.

"I think Bernanke's reduction in interest rates has been spot-on, because basically we're going to fix the credit markets by creating a big enough spread between the risk-free cost of capital and what's available so that greed overtakes fear and the game begins again."):

Of course, he's right about how we will fix the credit markets. That doesn't make it good policy.

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