Despite the proclamations from any and every Federal Reserve talking-head, Sam Zell appears to be willing to 'peddle some fiction' about the less than awesome reality in America. Having correctly called the top of the last commercial real-estate cycle, Zell is predicting global problems will likely push the U.S. into a recession in the next year...
"I’m not being pessimistic, I’m being realistic,” he said last week at a real-estate conference in New York. The U.S. economy is now “in the ninth inning,” he said.
While the U.S. is humming along fine at the moment, The Wall Street Journal reports that Mr. Zell warned that it isn’t immune to problems in the world economy.
Those problems include low oil prices, falling import demand from emerging economies, volatile financial markets, deflation, possible negative interest rates and currency exchange rate fluctuations, he said.
The Wall Street Journal is careful to play down Zell's dire warning...
This isn’t the first time Mr. Zell has talked about a recession.
In 2012, he warned that corporate enterprises were delaying projects and other capital expenditures, indicating a lack of confidence in the economy. He also said the government’s quantitative-easing economic stimulus program had created an excess flow of capital, where too much capital was chasing after too few opportunities.
“It’s very hard not to assume that we’re on the cusp of going back into a recession,” he said in a 2012 interview with CNBC.
But he was likely correct - why else did The Fed relaunch Op Twist and Qe3 etc.
He is also not alone in his ominous warnings this time, as WSJ reports, some REIT chief executives have also said they are preparing for a downturn—although many believe it is still on the distant horizon.
“We’ve been deleveraging like most of our peers have, and positioning ourselves so that when the recession hits, we have capital to go out and acquire at good prices,” said James Connor, CEO of Duke Realty.
Mr. Connor said he expects a correction at some point, just not likely in the next year. “We’re about 30 months beyond the average length of a recovery,” he said. “Is it going to end tomorrow? Probably not. But, I don’t know if any of us are bullish about 2017 and 2018.”
And Zell is not just jawboning, he is putting his money where his mouth is (and selling)...
In recent months, Mr. Zell has been selling properties in his Equity Residential and Equity Commonwealth portfolios. Over the past 18 months, he sold $3.5 billion of Equity Commonwealth properties, and, in January, he sold a 23,000-unit Equity Residential portfolio for about $5.4 billion. Mr. Zell said the Equity Residential portfolio sale was part of a restructuring aimed at selling properties in suburban markets to focus solely on densely populated ones.
As evidence of global economic problems, Mr. Zell noted that Nigeria slashed its 2016 economic growth projection to 3.2% from 6.3% in 2015. “For an emerging market like that, it’s a disaster, and that’s happening all over the world,” he said. “So, I just don’t think the U.S. can avoid it.”
The U.S. also is deeply “polarized,” which led to the popularity of Donald Trump. He sees Mr. Trump as an “enormous wild card” whose leadership is “full of risk.” All his campaign has said is ‘it’s going to be great’ and to ‘trust me,’ said Mr. Zell.
“If somebody needs a bell ringing to figure out that the real-estate market is pretty frothy right now, then I’m in the business of selling hearing aids,” he said.
Of course, Zell is right, no matter how much the establishment chooses to ignore reality...
"There are no signs of a US recession anytime soon"... apart from these nine charts that is...
The latest reading from last November is higher than all but 3 months (in the last 50 years) when a recession did not immediately proceed.