Bloomberg ‹GO› hosted by Stephanie Ruhle and David Westin. Guests include quity Group Investments Founder Sam Zell, JPMorgan Asset Management Global CIO Bob Michele and Altegris CEO and CIO Jack Rivkin. (Source: Bloomberg)

Sam Zell

Sam Zell: “Interest Rate Hike Is Probably 6 Or 8 Months Too Late”

Full transcript

Credit: Bloomberg <GO>’s Stephanie Ruhle and David Westin.

[drizzle]STEPHANIE RUHLE: I’m a little nervous, I’m a little anxious. I’m very excited. I’m Stephanie Ruhle.

DAVID WESTIN: And I’m David Westin, this is why Stephanie’s so excited.

RUHLE: Little bit.

WESTIN: Not because of me.

RUHLE: I’m excited because David’s here.

WESTIN: No, no, no, no.

RUHLE: Yes, yes.

WESTIN: It’s because of Sam Zell. As she already said, he’s a legendary investor. He knows it all. He knows real estate, he knows oil, he knows markets, he knows (INAUDIBLE) so we’re really delighted you’re with us, Sam. Thank you for being here.

Sam Zell: My pleasure.

RUHLE: We are 5 hours and 56 minutes away from the Fed announcement. And what is it? Clearly we are expecting them to have a rate hike. Sam let’s talk about the rate hike for a minute. Let’s assume we get it. Even if we do, we are moving inches. Given where interest rates are, even with the hike, how concerned are you about asset bubbles?

Sam Zell: Well, I think that the interest rate hike is maybe going to begin the process of reducing the asset bubbles. But look at the screen this morning. Futures are way up. Futures are way up because interest rates are going up. That’s indicative of the way the market has responded for the last six months.

RUHLE: Perversely.

Sam Zell: Yes, exactly. And I think that this interest rate hike is probably 6 or 8 months too late. I think that the economy is closer to falling over than it is to going up.

RUHLE: Hold on a second. If it’s 6 to 8 months too late and we’re closer to falling over, what exactly does that mean? How bad is it?

Sam Zell: Well, I think that there’s a high probability that we’re looking at a recession in the next 12 months. I think that the strong dollar is having enormous production on US production and US businesses. And they’re being competitively disadvantaged by an extraordinarily strong dollar. To some extent it’s a function of the fact that we’re better than other places. Not necessarily good but better than other places. But those places are now competing with us with devalued currencies. That is making it very difficult for the US to compete internationally.

WESTIN: So take it into your view of the US economy. Because you’re invested in a lot of different places, you monitor things. When you say there may well be a recession in the next, I think you said 12 months?

Sam Zell: Yep, within the next 12 months.

WESTIN: What are the things that are indicating that specifically to you? Where do you see evidence of that?

RUHLE: And what’s going to get hit?

Sam Zell: World trade is slowing. Currencies continue to be manipulated. You’re looking at the beginnings of layoffs in multinational companies. We’re still looking all over the world for demand. And tell me where the demand is? That’s ultimately what’s going to rectify and move us toward growth.

And it’s very hard to find any place in the world maybe other than South Sub-Sahara Africa where there is better growth but no scale. So when you look at those factors it’s hard to see where you know strength is going to come from. And I think weakness is going to be pervasive.

RUHLE: But it’s hard to see any of those outcomes being different had Janet Yellen raised rates six months ago.

Sam Zell: Except that if she’d raised rates six months ago we would have begun adjusting to that. And I think that she would then have more room if in fact a recession is on the way.

RUHLE: OK, then help us understand.  Granted, you’re not in Janet Yellen’s head, if you see a recession on the horizon, we’ve heard that from the likes of Carl Icahn, what is Janet Yellen looking at? And do you think she’s just not doing a good job then?

Sam Zell: I don’t have an opinion of how Janet Yellen is doing. I think the Fed as a whole is very conservative and very cautious. And I think that–

RUHLE: Too conservative? Too cautious?

Sam Zell: If I think she should have raised interest rates six months ago–

RUHLE: Fair point.

Sam Zell: I already answered the question.

RUHLE: Fair point.

Sam Zell: I think the Fed is very concerned. And I think to some extent they should be concerned. Because they’ve got to be looking at the same numbers I am. And those numbers are not robust from where I sit. The improvement in employment is impressive but the improvement in employment is very much at the low end of the scale. And I think that’s another factor in this whole evolution.

WESTIN: Far be it for me to argue Janet Yellen’s side of this, but she would point to unemployment rates. Also some wage pressure, we’ve some seen wage increase. Not huge, but noticeable wage increase. Consumer spending pretty good right? So nothing is shooting the lights out. But I think she’s looking at sort of steady progress in terms of the US economy. Put aside China, put aside Europe.

Sam Zell: Well, but the answer is you can’t put aside China. You can’t put aside Europe. If China’s numbers turn out not to be as accurate as we think, China could go into a recession. That’s about as deflationary a scenario as you could possibly come up with. And one that would for sure impact growth and affect Janet Yellen’s decision.

So I don’t think the Fed’s position is easy. I think that zero interest rates are a very negative thing. And I think that they’ve contributed to the fact that we’ve had such an anemic growth since the big recession.

RUHLE: All right, let’s say you’re right and by the end of next year we do fall into recession. What tools does the Fed or the US government have to help us out of it?

Sam Zell: Uh–

RUHLE: Because that’s many peoples fear, she’s got no tools left.

Sam Zell: Yeah, well, I mean the answer is, that’s many peoples fear because they can’t come up with any answers either. In other words you can’t lower interest rates although you’re seeing negative interest rates in Europe. So you may see something like that.

RUHLE: OK, then help us invest out of that. If that’s what you believe, and Janet Yellen doesn’t have any tools left, we see you selling some assets. Holding on to that, are you keeping dry powder because you believe assets will get cheaper next year and you want to buy them?

Sam Zell: I think there’s very little doubt in my opinion that assets will get cheaper. And I think that again with zero interest rates the penalty for holding cash is not very significant. So you have the kind of flexibility in a zero interest rate environment that you wouldn’t otherwise have if the cost of holding cash was

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