Billionaire Sam Zell Warns The Fed Is Too Late, "Recession Likely In Next 12 Months"

When last we checked in with billionaire Sam Zell, the real estate mogul was busy offloading some $5.4 billion in apartments from Equity Residential’s portfolio. The 23,000 units were sold to Barry Sternlicht’s Starwood Capital and as we noted at the time, Zell has traditionally had a very keen nose about such things as "market peaks": the 74 years old is credited with calling the top of the real-estate market in 2007, when he sold another one of his companies, Equity Office Properties Trust, to Blackstone for $23 billion.

Despite his penchant for getting it right, Zell warned last September that when it comes to calling market peaks, “you’ve got to tiptoe [because] if you're wrong on when, that's a problem.”

Well on Wednesday, Zell “tiptoed” into an interview on Bloomberg TV and made a rather decisive prediction about where the economy is headed now that the Fed has waited too long to hike.

“I think this interest rate hike is too late,” Zell said, before suggesting that “this economy is closer to falling over than it is to going up.”

Zell’s conclusion: “I think there’s a high probability that we’re looking at a recession in the next twelve months.”

Note that this is entirely consistent with the notion that if, as a result of the Fed missing its window, NAIRU undershoots, if (or, more appropriately "when") it snaps back, a recession is a virtual certainty if history is any guide. Recall what BNP said last month: "NY Fed Fed President William Dudley recently pointed out that whenever the US unemployment rate has increased by more than 0.3-0.4pp from its low, there has always been a recession. Knowing this, it is perhaps not surprising that the median Fed forecast always shows the unemployment rate levelling off close to its equilibrium. The Fed would presumably be reluctant to forecast that its actions (or lack of them) would cause an undershoot in the unemployment rate, which would more than likely end in a recession."

"The central bank has been too cautious and the economy would already be adjusting if it raised rates six to nine months ago, giving Chair Janet Yellen 'more room if a recession is on the way,'", Zell says.

Again we see the old "hike so we have room to cut after we cause a recession" argument. 

In any event, the interview touches on a number of topics from energy, to the slump in world trade, to real estate. Watch below.