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Billionaire real estate investor warns US faces 'serious problems' unless this happens - YouTube
Channel: Fox Business
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welcome back well the big story of the
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week the federal reserve raising
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interest rates by 50 basis points the
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biggest move in over 20 years fed chief
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jay powell also commenting on the
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possibility of a recession saying that
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he will be able to have a quote-unquote
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soft-ish landing he also killed the idea
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of a 75 basis point hike anytime soon
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watch this
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the labor market is extremely tight and
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inflation is much too high
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against this backdrop today the fomc
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raised its policy interest rate by a
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half percentage point it's a strong
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economy and and nothing about it
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suggests that it's that it's close to or
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vulnerable to a recession 75 basis point
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in an increase is not something the
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committee is actively considering
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all right joining me right now with
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reaction is equity international
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chairman and founder billionaire
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investor real estate investor as well
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sam zell sam it's great to see you
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welcome back good to see you this
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morning great just great to see you
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maria i haven't been with you in a long
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time so it's fun
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okay great so what was your reaction to
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jay powell do you believe they will be
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able to take interest rates all the way
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up but not take this economy into a
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recession sam
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well i i don't know the answer to that
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if i did i'd be rich but uh i think the
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uh i think that
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the fact that the fed has spent so much
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time
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not doing what it should have been doing
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um
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creates a big
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gap uh that i think can be filled
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without much damage in other words i
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think that i don't know 100 basis points
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even 200 basis points over the next year
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uh is not likely to put us into a
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recession it's just probably likely to
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bring us back to where we should be
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whether that's enough to slow the
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inflation rate i think it's a whole
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different question
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uh and one that
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you know will require improvement in uh
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in
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supply chain it'll require
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uh adjusting the mental set i mean in
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most cases
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uh inflation is very much driven by the
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presumption on the part of consumers and
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in decision makers that it's going to
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cost more later therefore
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and we need to cure that
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yeah it's a good point because consumer
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spending has been pretty strong sam as
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you know even if people sort of shifted
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their spending from buying stuff to
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spending on travel and services but at
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the same time wages are up and they're
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getting eaten by inflation running at
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eight and a half percent we're getting
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the consumer price index out next week
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now everybody's talking about that being
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the next major thing to watch
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uh do you see inflation or these high
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consumer prices leveling out anytime
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soon given the fact that we've got this
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supply chain problem
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and a contraction in the first quarter
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well i i don't know the answer i mean i
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would hope that that be the case
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i don't think there's much sign so far
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uh that we're seeing a reduction
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uh in the in the level of inflation i'd
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be surprised uh if the estimate that
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came out next week was less uh than than
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than what we've been dealing with up
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until now
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um we're a long way from you know making
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any serious adjustments and and it
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basically comes down to extreme
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liquidity uh you know the the uh the
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efforts by the government to respond to
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coburg
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uh were too much too often uh
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and
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too dangerous to the overall question of
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maintaining inflation
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controls
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so let's
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so let's talk real estate
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sam because i know that home prices are
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way up even rents are way up assess the
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market for us what are you seeing out
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there i i'm being told that you know
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many people are being locked out of this
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market because prices are up so much
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well i think there's no question that
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prices uh have increased
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uh
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to me it's kind of the most simplistic
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example of supply and demand
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uh since the great recession uh of 20809
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um the the number of new houses and new
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loving new living
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dwellings
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uh whether it be apartments or houses or
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mobile home parks
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uh you know we're we're way behind the
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pace at which we went we grew prior to
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2008.
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so uh for i don't know 20 years we built
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a million houses a year and i think in
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209 or 210 we built 250 000
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and we still aren't back to the million
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or we're just now getting to that
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million so we've in effect created a big
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hole
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and when you create those kind of holes
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uh you know you end up with prices going
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up because there's more demand than
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supply there was also a period where
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uh
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all kinds of people thought that
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millennials weren't going to buy homes
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and
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uh and i never understood that and
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you know and you know and i just didn't
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understand that
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anybody would assume that
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the number of household formations would
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go down i mean the answer is you don't
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build enough houses you don't create
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enough zoning uh you you you in effect
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uh have nimby kind of uh mentality and
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the result is that uh you know as the
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scarcity pushes up the price
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yeah right and that's where we are right
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now right we did not have enough
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building the supply is scarce and so
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would you are there any comparisons to
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the 2007
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upset in housing that uh you obviously
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lived through so well um
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or is the supply problem now
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making this moment different than the
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blow up that we saw in 2007 and eight
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well i mean i i do not think that uh
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this is a repeat of 2007 or 2008
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uh but i think you need to take into
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consideration one
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that the amount of land being zoned
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for multi-family
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is way down
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the number of single-family houses built
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is not catching up and making up for the
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past uh you know periods where we didn't
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uh
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keep up the pace
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uh
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homebuilders are having trouble uh
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finding people uh to work uh on you know
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carpenters and all kinds of tradesmen
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who are building these houses so you
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know all that kind of comes together uh
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again going back to supply and demand
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we're not producing the supply and
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therefore
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and the demand remains constant and the
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result is that prices go up
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yeah
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how long can they stay up i mean you
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have a such a diversified portfolio
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talking about health care logistics
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transportation
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the agribusiness along with real estate
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but you see firsthand about that
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shortage of labor the truck drivers that
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are in such uh need uh wages going up
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and still getting eaten by inflation
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tell me what levels things out then
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well i think that i mean what we're
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seeing in in the various businesses
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we're involved in uh is a lot of wage
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pressure uh we actually own a trucking
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company and
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and the difference between two years ago
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and today
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uh is the fact that
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you know we probably uh you know have
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overcome by raising pride by raising
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salaries and improving working
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conditions we've overcome the shortage
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of drivers
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uh now there's a shortage of containers
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and uh and other things that nature in
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the same manner
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you know we own a big hospital chain and
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and we're getting pummeled by uh you
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know the the cost of employees and
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particularly nurses
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uh where we just don't have enough
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people
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to fulfill the demand
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and
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and obviously when there's a shortage of
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supply prices go up and i think that's
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what we're dealing with
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yeah how much higher can they go sam do
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you think that this moderates or do you
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think prices are still on their way up
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well i i you know i'm hopeful that uh
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raising interest rates
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not only will make it uh will adjust the
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impact of what's going on
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but also kind of send a signal that
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interest rates will continue to go up uh
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until you know
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things improve
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um
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i i you know i'm not optimistic that
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we're going to see some kind of a
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reduction
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uh i think we have a better chance of
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slowing the upside than reversing what's
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occurred so far
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so what has been the impact of five
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percent mortgage rates in your view sam
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i mean look uh we have to we have to
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mention
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that rates were all the way up to 16.6
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percent back in 1981
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but when you consider the move to five
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percent that happens fast what has been
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the impact
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well i mean remember interest rates uh
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and you know are interesting points of
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reference but you know the real
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controlling factor is what's the monthly
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payment
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and the monthly payment uh you know a
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year ago uh was based on two and a half
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percent
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and uh
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and now today it's five uh and i think
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that
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that's you know eliminating a lot of
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potential buyers in the market uh i
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think it's uh putting a lot of
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additional pressure on those people that
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do buy
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and
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and that clearly is going to have
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somewhat of an impact on housing prices
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and
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and and i think it's very possible that
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uh you know we may be seeing the crest
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of uh of housing uh appreciation
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the the crest of housing appreciation so
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it has put people into it
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yeah that doesn't necessarily mean it's
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going to go down
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uh but i think that uh you know it
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the the
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in interest rates and as quickly as it
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has happened has certainly had an impact
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and on in a slowing
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uh of of the demand and and the pressure
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on pricing i also think in selective
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markets uh you have big differences you
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know uh between some markets where
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already you've seen you know where where
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houses went above the asking price
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uh six months ago are now in effect back
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to a kind of a normal uh
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give and take uh in other markets
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they're still appreciating
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yeah sam let me just say we're getting
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some breaking economic data this we've
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got the first quarter labor costs up
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11.6 percent much higher than the uh
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estimate which was 9.9 percent on labor
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costs sam i mean you you're living it
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with the businesses that you're invested
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in right in terms of the wage increases
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what's your reaction to this data
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well i think that our experience would
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have suggested that 11 was much more
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likely than nine
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i don't i'm not a i'm not an economist
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and i don't know how they can conclude
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these estimates all i can tell you is
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that across the board in every business
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we're involved in
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we are
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facing you know significant wage
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pressure
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yeah i mean and significant wage
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pressure is just it's just one pressure
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on the co on the part of corporations
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which is why you know people like
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stephanie pomboy who's been on this
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program and as a regular should be back
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tomorrow um you know are saying look the
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fed is out of control and missed the
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mark and we're probably going to see a
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big sell-off uh the market is way too
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optimistic about this what do you think
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uh i'm not quite that uh sanguine i'm
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i'm i i definitely agree with her that
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the fed you know has uh missed its
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opportunity to be the disciplinarian
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that it should be
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uh the
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we have to
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we have to dramatically reduce the
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liquidity available in the market
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uh you know i mean we gotta we gotta
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sell all those bonds that we've been
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buying every month
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and we gotta push interest rates up i i
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don't think
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that interest rates going up another 100
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basis points in the next 12 months is
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going to throw us into a recession
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i think it's much more likely if they
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don't go up 100 basis points in the next
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12 months
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that we'll have serious problems we need
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to reduce liquidity
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we need to stop that sloshing around of
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all that extra capital and
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that might mean a reduction in consumer
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demand
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uh
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initially
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unless interest rates go up faster or
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more
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uh than what i'm suggesting
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i don't think that that's the case
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so i moderated a panel yesterday at the
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milken institute global conference in
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los angeles and i your name came up when
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i was talking to barry sternlicht uh
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starwood capitals chairman and ceo
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he talked about what he's expecting from
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this market uh despite the fed saying
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we're going to have a soft-ish landing
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watch this
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is the box is going to get worse from
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where it is right now yeah
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how much worse it's going to get worse i
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mean the fed will raise rates it is
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going to freak people out markets will
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continue to adjust we favor europe over
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the u.s because rates won't move as far
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as they will in the u.s i mean they're
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not going to they can't afford they were
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never growing that quickly either so
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they can't afford to pay three or four
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percent on paper and obviously you know
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german boons have moved to like 50 bips
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or something from negative that's like a
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hurricane that's like a catastrophe over
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there
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so what about the global story sam
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what's your take on europe right now
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bank of england this morning raised
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rates and they said they're expecting a
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contraction in the uk economy in 2023
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yeah i think that uh i mean i'm not
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necessarily in agreement with barry on
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his views but i think you know the
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problem exists in europe and the problem
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exists in america and the problem exists
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in japan
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uh you know the world is is overrun with
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liquidity and and overrun with a lack of
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discipline
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and
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and things like ukraine etc and food
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security are only making things worse
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uh but i think the first and most
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important thing is to reduce the
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liquidity
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yeah and you know unfortunately the
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federal reserve was buying securities
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like three seconds before they started
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raising interest rates i don't know why
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they're moving the you know the runoff
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back a month as well
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why so slow in unwinding this this
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balance sheet you think and is it the
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right move right
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and and i think that uh you know we we
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would like to think that the fed is
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independent
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uh maybe the fed was independent a long
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time ago
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it certainly doesn't seem to be as
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independent today
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and he's just like
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the fed
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delayed action when trump was
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beating them up uh i think the same
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scenario exists today where the fed is
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trying to mix
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you know some kind of a formula that
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will avoid uh you know getting them in
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political trouble and that shouldn't be
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a criteria of what they're doing
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yeah it's a great point and of course i
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think that's one of the reasons he said
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transients for so long inflation is
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transient transient transient we kept
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hearing and that was right before he was
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supposed to be confirmed
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yeah well i mean
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you know i looked up when i heard the
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word transitory inflation i actually
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looked it up to see what it meant uh and
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of course there was such a thing as
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transitory inflation before uh a few
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weeks before he was confirmed so i
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thought it was a joke and i think it's a
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good joke now
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well i'm glad you brought up food
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security and ukraine another major issue
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um sam it's been wonderful talking with
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you please come back soon thank you sir
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thank you very much maria pleasure to
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see you all right
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