Sam Zell: Market Today Feels Like Housing in 2006 [VIDEO]

Some market bears are turning into bulls, with David Rosenberg, Gluskin Sheff & Associates, and Sam Zell, Equity Group Investments. Regarding the economy, says Zell, “We’re seeing a lot of uncertainty” in our businesses. What’s driving the markets, with Mario Gabelli, GAMCO Investors, and Sam Zell, Equity Group Investments. CNBC’s John Harwood reports on President Obama’s 2014 budget; and Sam Zell, Equity Group Investments and Alan Krueger, Council of Economic Advisers, discuss.  Ex-KPMG partner Scott London says over the course of several years he divulged general information to a friend whose business was struggling, reports CNBC’s Kayla Tausche. London’s attorney, Harland Braun of Harland Braun Law Offices, offers insight. Discussing what’s impacting the real estate business, with Sam Zell, Equity Group Investments. “Commercial real estate is in the middle of a major transition,” he explains.

Videos and computer transcripts below:

this market just does not want to quit. even noted bear david rosenberg says he’s optimistic today. david is joining us right now, exclusively, to get more on this market. also with me for the hour, my co-host for the hour, sam zell, ceo of equity group investments. he’s going to — chairman of equity group investments, pardon me. he’s going to talk with me about real estate and this market. sam, really nice to have you on the program for the hour. my pleasure. really nice to have you.david, let me kick it off with you, because you’ve been bearish, and now you say you’re even bullish. well, i didn’t say that i wasnecessarily bullish. what i did say was an acknowledgement, basically, as to what’s driving this market. it’s interesting that all of the discussion is about how this rally has continued after thelousy isms that we’ve had, the lousy jobs number, the lousy nfib report that we got yesterday. and of course, the flip side,because bad news is good news, is that it means the fed isgoing to pump more liquidity in the market for a longer period of time. it’s not odd that japan and the u.s. are the leaders. they’re the only two countries embarking on this gargantuanquantitative easing that is really the linchpin behind what’s happening in the stock market. so it’s not about is somebodybearish or is somebody bullish or whether you’re agnostic, it’sreally about understanding what the principle driver of thismarket is. it’s clearly not the economy it’s clearly not earnings.it’s the mother of all liquidity-driven rallies that i’ve seen in my lifetime, and it’s continuing. and it’s continuing meaning you have to be there, you donate want to fight the fed, is what you’re saying? well, i think that’s a pretty glib comment to say, don’t fight the fed, because you could have fought the fed in 2008 and in 2009 and done quite well. it’s understanding that as long as the economy is not in recession, as long as the fed is pumping liquidity into the system, you’re probably going to have the market, the natural tendency will be to go up rather than down.that much is true, until something breaks. and at some point, either it’s the inflation or the economy starts the to reaccelerate and then we’ll have a different market. but for the time being, i think your assessment is pretty correct. sam, let’s talk about the federal reserve and all this easy money. clearly, with rock-bottom interest rates, you just don’t have any alternatives to stocks. what’s your view on all of this? well, i just think that whawe’re doing is we’re debasing our currencies around the world.the net effect of which, i mean, if you reduce the value of thecurrency, at some point, you’re also going to reduce its buyingpower. and ultimately that translates into a lot of inflation. i don’t know when, obviously, what we’re seeing here is like a giant tsunami of liquidity, but i don’t know that that necessarily means that things are better. and in fact, i think the level of uncertainty may, in fact, reach a point where people are just throwing money, because they don’t know what else to do with it. would you put money into the stock market today? i’m always –investing, sure. — so the answer is, would by increasing my position, no. i just think that this is a very treacherous market and, yes, it’s gone up every day, and yes, you’re not supposed to fight the fed. but you don’t have to necessarily fight the fed, ifyou want to sit on sidelines. i want to get more into real estate later on in this show, because i know you are obviously putting money to work there. but, what’s your take in terms of the u.s. economy right now? you said it doesn’t necessarily mean that anything’s getting better. so from the front lines, where you sit, how do things look? obviously, it depends very much on what businesses you’re talking about. i would tell you that in ourbusinesses, we’re definitely not seeing, you know, overly strongconditions. we’re seeing a lot of uncertainty leading to peoplemaking, you know, deferring decisions. on the other hand, if you want to talk about the apartment business, eqr is doingphenomenal, and i think we’re starting to see the beginning of a serious resurgence in the commercial real estate side. in the commercial real estate. you were looki some, not bubbling up, but some movement in commercial like a year ago when we spoke. that’s still sort of where it was. yeah. there’s a real desire to solve the problems, and an awful lot of the problems, going all the way back to 2007, haven’t been dealt with. david, let me ask you the same question that i asked sam there.would you put new money to work in the stock market, after whatyou just said? i mean, basically, what you said is really being mimicked, sam is saying the same thing. it is what it is, is the federal reserve. t buwould you want to put money to work in stocks, knowing what we know? maria, when i was on one ofthe cnbc shows last week, when it looked like we werecorrecting, the question was put to me, what would you do in apullback? and the answer is that we would probably be allocating money into the areas that we like, which has been the classic dividend growth, dividend coverage, dividend payout, the real income orientation part of the u.s. stock market. so on a pullback, the answer is yes. in other words, we just hit newhighs. but right now, we’re comfortable being between 45 and 50% exposed to equities and the parts of the market that we like. there are other parts of the tal structure, credit spreads are still look to be fair value right now. there are still other parts ofthe capital structure that look good to us. but in terms of chasing the market right now with the highs, you know, i don’t think thatthis is the operative strategy. it would be actually to move in at a pullback. you know, it’s interesting. do you want to buy the market when the economy is looking shaky and you’re hitting new highs or do you want to really go long the market like you were four years ago, when the economy isn’t looking to — when the economy is not looks that great and you’re at the lows. so i think right now, my sense would be to, you know, still keep your powder dry and we do guess a correction coming, it will be a opportunity. but right now i agree with the other person you’re interview, that it’s steady as she goes. i think that this feels likethe housing market of 2006. everybody can’t, you know, can’tafford to miss it. uh-oh. well, but that’s exactly what happened.houses are going up every day. but wait a second, wait asecond. because in 2006, prices for homes were going up, but for what reason? no real reason. what’s the reason the stockmarket is going up? the federal reserve has created an environment where rates are at rock-bottom earnings and corporate earnings — but — how about the fact that thecorporate balance sheets are so strong, $3 trillion of cash onbalance sheets. what about that? all i know is i never got as an operator of a company win never got recognized for cash in the bank. i only got recognized for increases in earnings. that’s the measure of the stock market, not how much cash the company has. well, i have to say, sam zell telling me that this stockmarket feels like the housing market in 2006 is a scarycomment. why? every single day, it goes up. every day in 2006, the housing market went up. what was the number one headline every day? housing prices going up. what are you talking about every day now? new high on the stock marketevery day. would you expect the kind of fall we saw in housing to occur in the stock market? number one, i’m not that smart to be — i don’t want you to be a predictor. i’m not that smart to be ableto answer that question. but i just think that we are suffering through another irrational exuberance.

and i would say very little. mario gabelli is on the phone with us. mario, are you with us? yes, i am, maria, and i’ll be there in about a minute. we’re just talking about whether or not this rally has lagged. you heard what sam said about the federal reserve, they should have stopped the stimulus yesterday. what do you think? well, you’ve got not only bernanke pumping money into the system to obviously try to reflate, and that is very good for companies that are cash generators, with fixed long-term debt, and there are many companies that are blessed, and there are going to be many, many walls of decline, whether it’s geopolitical or the fed will start reserving, but there’s a lot of exciting ideas and very good ways to make money, maria. does that mean — i don’t think you’ve answered the question, mario. what do you think of the market? sam, i make money by financial engineering, finding s lake you that are going to make money for me and hitchhiking on your ideas. and the housing market has vendors and all of the obvious ones or not obvious ones like wells fargo have room to go. and we like the whole energy area, the american technology, there’s a lot of room to go in companies like national fuel and gas, which will split up. you have companies that have commercial airplanes. boeing is getting back in the air. sam, there’s a lot of wonderful products, and even in your backyard in chicago. so wells fargo, i mean, that’s probably going to be really one of those names that really sets the tone for this market, mario, when they report earnings on friday. you’re comfortable owning the banks here, even with new lation coming and the idea — no, those that run the bank laid out all of the owners of the stock and all of the challenges of a small bank and he clearly makes a good case. i’m talking about surrogates for housing, wells fargo being positioned to benefit from that. and i’m not buying the bank stocks. i’m buying wells fargo, because of the participation it has in housing. if i wanted to buy financials, i would buy the money managers, t. rowe price is an extraordinarily cheap stock, extremely well managed, great balance sheet, and those are probably better proxies for the general market and you still want to own those. so there are a lot of ways to make money and sometimes you don’t have to go after the — you know, and i don’t ignore the citi banks, but i’m not an expert on that and i’ll let sam talking about that. he loves to deal with banks and their money. well, i don’t know. i just think — i don’t disagree with some of the thoughts you’re making. there’s always opportunities in every market and every set of situations, because everything — nothing moves the same way. overall, though, what we have is a giant liquidity-driven bubble. and i don’t know whether that bubble turns into a problem. it will turn into a problem, sam. you know that and i know it. and you’re talking about short-term dynamics versus three years from now, somebody’s going to have to pay for all the problems washington’s enacting, both politically and tax wise and structurally, on the american system. they’re huffing america, competing agai giants. i don’t agree with that at all. but yet we just saw an election that went the other way. no comment. no comment from mario. mario, we’ve got to have you in studio next time. i’ll be there to give — i’m coming over to give sam a kiss in about one minute. come on over. we want to get that kiss on camera. see you in a little while, mario. you know, it’s interesting, because you said we had an election and it went the other way. do you think people are not focused on the economic issues in that regard? or are you just — read the country wrong? i think that both sides, the democrats and the republicans, basically didn’t tell the truth. and the net effect of which, the truth is much worse than either one of them portrayed. it’s on a question of degree. but in the end, we’ve got a fiscal giant problem, and you saw the budget today. where is the debt reduction in the budget? there isn’t any.

welcome back. international accounting firm kpmg dealing with the aftermath of reflations a former partner leaked confidential information used by a friend to trade stocks. the former partner making some statements now. kayla tausche is here now with the very latest. over to you, kayla. still more details emerging in that insider trading scandal involving a senior audit partner at kpmg and his casual golf buddy. ainstatement, scott london says over the course of several years, he divulged general information to a friend who he says his business was struggling. his friend, still unknown, would ask about his clients and say, whether or not he should buy their stocks. london says, never once did i provide documents to him, and the information i provided was in the form of a suggestion. according to the l.a. times, london’s returns were pretty paltry. a few nice dinners, a rolex watch, and $25,000 cash. part of which was handed over at a starbucks and photographed by the fbi. what now for the other parties involved? the statement from london does carry some helpful admissions that no one at kpmg was involved or aware that what he was done and that nothing he did impacted the audits of his two clients, sketchers and herbalife. maria, we’ll send i back over to you. thank you so much, kayla tausche with the latest there. kpmg partner scotland says he was just trying to help a friend with money troubles, but that help was likely illegal. joining me now is scott london’s attorney, harland braun. he is with us live along with my co-host for the hour, sam zell. sir, thanks for joining us. thank you for having me. so talk to us about the defense that you are putting to for mr. london at this point. how are you defending him? basically, mr. london is recognizing his responsibility to try to undo the damage that he’s done and he’s cooperating fully with the government and the fbi and the s.e.c. that’s all he can do right now. so he did not know his friend was trading on the information that he was passing along? he knew he was trading on the information, yes. it started off as a casua relationship, but it developed into a more serious and unfortunate relationship. i think he’s been quoted as saying, he didn’t, kind of, understand what was going on. is that really a realistic assessment? no, no, he understood what was going on andderstood that he was violating his ethical and legal duties. he just can’t understand why he did it. and it’s hard to understand why he did it. it makes no sense. so in other words, he knows that he — he knew what he was doing, but he didn’t know why he was doing it? i mean, is that, is that a real defense? yeah. that is not a defense. it’s just that’s the truth. he’s looking back on the years that he did it. it made no sense from a dollars and cents point of view. it made no sense in terms of his ethics. and he is trying to figure out, it does not justify it in the slightest. is this like an insanity defense? no, not at all. it’s just a — he knows he did the wrong thing, he knew it was wrong when he was doing it, but he has a continuing obligation to his firm and his clients and he’s trying to do the best that he can to undo the damage. well, when he accepted those gifts, the rolex watch and dinners or $1,000 or $2,000 there, did he understand that was basically payment for information? yes, he did understand it and that’s what’s so unfortunate. what started off as casual developed into a dollars and cents relationship, which itself made no sense in terms of his income. what are you hoping to accomplish? well, what mr. london is hoping to accomplish is to do as much — to undo as much damage as he can and to accept responsibility for what he did. that’s all he can do at this point. and what more can you tell us about the meeting with the s.e.c. and prosecutors from the local u.s. attorney’s office last week. how are they responding to this? well, they were relieved, because what they were concerned about, that they had the tip of an iceberg. and they were able to satisfy him, it was just this one person over a particular period of time, and they were, at that point, gave us permission to notify the accounting firm about the investigation. so they were relieved. wow. so what happens next? he’s basically been fired from the firm and he’s awaiting government action and he’s going to have to accept responsibility and whatever punishment a judge gives him. so are you hoping and is he hoping that the fact that he is admitting it, look, i knew what i was doing, i don’t know why i did it, he’s been out there, he was quoted in the journal today, you’re coming on and talking to us. are you hoping that this is lessening the blow for him, perhaps, you could do a deal with prosecutors to settle these allegations on the table at this point, that perhaps, because he’s been forthcoming, you think that will better his chances of a better deal. is that the point here? not really, because if you think about the alternative, is to keep your mouth shut, let it develop into a bigger scandal, and let it be worse shape. i think this is minimizing the damage. it’s not helping him tremendously, but it’s also consistent with his own conscious. ands he allowed to have, you know, dealings or conversations with anye else at the firm? i mean, he was there, what, 30 years? he’s got friends there, right? is he talking to them? no, he’s not talking to anyone at the firm right now, at the request of the firm, and he’s not talking to anyone right now with their requests. so he’s still basically obeying any instructions he’s getting from the firm. he’s been giving them the benefit of the doubt. and are you aware of anybody else at the firm, leaking information like this? no, there was no one else. and he basically told the government that, basically under a system where if he lied, it would be prosecuted. he’s also been willing to take a polygraph as to whether or not there is anyone else at the firm. there is no one else at the firm. what is the best case scenario for mr. london at this point? it’s pretty grim. his life is ruined, he’s 50 years old, he’s lost his career, probably lose his license, he’s been disgraced, hee to do some jail time. that’s the best-case scenario. it’s a very grim reminder of anyone who wants to leak any insider information. terrible. sir, thank you very much for joining us on this. we appreciate your time today and you’re right, it’s a very, a grim situation. mr. braun, thanks very much.

welcome back. with me once again cnbc exclusive sam zel. teats talk about real estate here. tell me where you’re seeing opportunities. you say we’ve seen somewhat of a bottom in some of the prk. but single family home versus commercial real estate, characterize them for us. well, i think the thing is they’re really very separate. if you look at the single family market, we’ve seen increases in pricing in the last, whatever it is, six or seven months. but from a supply and demand point of view, those prices, i believe are going up because there’s a big chunk of the supply that’s not in the market. houses that are either unforeclosed or unresolved or whatever. i also think that the fact that we have a significant number of investors who are buying houses as, quote, a future investment opportunity, i think that’s going to be a questionable overall. even if they rent them out. i just don’t think that the logistics of that produce real positives. what about the commercial side of things? i think it’s getting more interesting. we have to understand that we, on the commercial side, are in the middle of a very major transition. there’s a lot of issues we don’t know the answer to. basilly we built no office space since 2007, and yet we’ve also seen no increase in rate and relatively small increase in occupancy. why? well, because useages are changing. the law firm that previously right-handed 100,000 square feet are renewing leases at 80. they need less space, or they’re unwilling to take on more liabilities. so that’s changing. this whole e-commerce scenario is having a dramatic impact on the retail real estate business. on one end, you got the simon cowman spectacular mall that’s a regional asset. and on the other hand, you have the strip shopping center, and everyt between is suffering. and i think we are in early stages of significantly more e-commerce. i think the whole jcpenney thing is as much as function of mr. johnson as it is a junction of e-commerce taking away the commodity side of the department store business. so should he have been fired? i’m not a person to answer that other than to say, if you were running a business and it’s down 25%, you shouldn’t be kept in play. something’s got to give. great to have you on the program.