Bloomberg: Sam Zell: This is the Weimar Republic

Sam Zell of Equity Group Investments on how to weather the economic storm, whether he’ll be making purchases any time soon, and the financial conditions across the US.
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Transcript

Let’s start with the Fed and Jay Powell. He sort of set a message we may have to keep the rates higher, longer. What did you make it? Whereas the Fed headed. Do you think where should it be headed, given what we’re seeing in inflation right now?

To be honest with you, I don’t know. And it’s very obvious needs you today. Yeah, we’re in this mess because the Fed didn’t do their job over the last three years. I mean, you know, we think about we added 7 trillion to our debt in three years.

This is this is you know, this is the Weimar Republic. And if the United States is careful, they’re going to find themselves in the limelight in public. Well, what about that point specific? Because the bite administration, their budget came out and nobody believes that budget is actually going to get implemented.

But it’s least directional where they think you’re going. They were going up to something. One hundred and ten percent of GDP in debt higher than what we had in World War 2. They’re ending like 17 trillion dollars, the debt over time. At what point does this become not a problem, but a crisis?

I said when people don’t want to buy our debt, when we’re faced with the prospect of losing the U.S. dollar as a currency, as an international currency, and if we lose, the U.S. dollar is reserve currency. We’re look at the 20 to 25 percent

Reduction in our standard of living. If that was included in the definition of the US debt, maybe you’d get some attention. But the reality is that the Bush administration and Powell have gotten away with not doing anything other than continuing to inflate the bubble.

And I think it’s very, very dangerous. Whatever else you think, it looks like we’re coming close to the end of free money and we’re revisited pushing money into the system across the board. Certain Jay Powell is tightening the screws. You complained about free money. You thought it was a bad thing for investors.

Terrible thing. If it’s ending, what do you get to do? What does that allow Sam Zell to do? It might do before. First of all, your assumption that it’s ending is a little naive. I mean, we look at the real estate arena where municipalities are, you know, deferring

The ability to foreclose or get people out of our house or get people out of an apartment. And every time that the strategy leads to a decision, there’s a deferral and we’ll wait another three months or wait another six months. And so we’re we’re talking about ending

Free money, but we’re not ending free money and or we’re ending it at a much slower pace than it ought to be to be called for. So I’m not that I’m not sure that the assumption that free money is over. And I think we’ve got some serious problems.

I mean, not the classic problems that we’ve always had, which is if you keep feeding on free money, they get you shit. And then they say, well, where’s my free money? And, you know, look what’s happening in the housing market. In a matter of 60 days, the monthly payment is doubled.

These are extraordinary times, and I’m not sure we have the leadership either in power or Biden to basically deal with that. And as he gets tougher and tougher, for example, to borrow against real estate, you see a lot of pressure not just in the housing market, but commercial real

Estate as well. And we saw some big news this week with Brookfield and PIMCO and Blackstone essentially walking away. It looked to me that the big mortgages. What does that tell us? I mean, that’s that’s pretty that’s pretty remarkable. Why? You know, it’s it’s been both pretty remarkable. It’s pretty dangerous.

You know, the rule of law is based on everybody, quote, unquote, being responsible for their obligations. If the biggest lender in the country, Blackstone, can walk away from their obligations. Who else can and not, you know, I know I’m a little

Guy and I have to start. And the question is, what do I do? And I pick up the newspaper when I see Blackstone, Brookfield and PIMCO are walking away. Why should I feel bad about walking away? So let’s come back to equity group

Investments for a second. Given where we are right now, I know you only do something like three or four deals a year, something like that, right? Yeah, depending on the year. Yeah. OK. Is this you’re going to be different? I mean, given what you’re seeing is that creating opportunities for equity group investments,

It will eventually. Not yet. The buyers and sellers haven’t agreed yet as to what the prices, the salaries are still looking for, the number that was on the table, you know, six months ago when interest rates were zero. Now, interest rates are. 3 to 5.

And he hasn’t adjusted his price. The buyer, on the other hand, is looking at his cost of capital doubling, his availability of capital diminishing, and he’s saying, wow, under these set of circumstances, I to get a much better deal than I previously got. So if I can put it that way.

That’s a form of correction. There’s a correction in the marketplace market. Last, a buyer and the seller are indications given to a lower. It’s a form of no correction. Well, that was my question. Is it in the process of correcting how long will it take? Well, I think that I think correction is

The right word, but I think the correction is going to take a lot longer than everybody expects. I mean, it is certainly now mental state in America. OK, we’ve finished this version. Now let’s step start the next version. And there’s never, ever an adjustment

For what it takes to make that transition to cross that bridge. Sam, you’ve been an investor in energy and oil in the past. Where are you in that sector now? And specifically, given what we’re seeing out of the federal government and others really changing the investment

Equation when it comes to renewables? Is that more attractive now, given the government’s participation in things like the inflation reduction at. I’d like to think you’re right and I’d like to think that that’s exactly what’s happening. I don’t think that’s right.

I don’t think that’s what’s happening. I don’t I’m I’m wondering when two thousand thirty five comes and you can’t build any more carbon cars in California. What are they going to do? I don’t know, but I know for sure we’re not going to complete the transition

From carbon to non carbon or to renewables. It just can’t be done within this period of time. And I think that the question becomes, you know, how much can society sustain it? How much change can we actually pay for? How how far can we go and say, OK, we’re going to move to

Renewables? Well, clearly, I’m in favor of mom and apple pie and not renewables and all those wonderful things. But the reality is, first and foremost, I have this right. What’s feasible? And I think that, you know, 90 percent of what’s being done is infeasible. So, Sam, let’s put you in charge of the

Economy. You can have the White House and the Fed all put together. What would you do to address the debt problem? The deficit problem? The growth problem? What is the thing you would do that we’re not doing now? Accepting reality.

Accepting the fact that, you know, we’ve got a major transition, it’s going to have to happen. We we can’t sustain a carbon controlled economy for obvious reasons. So we have to we have to say, OK, how do we get from here to there? And the way to get there is not spending

Money or or following Obama’s ideas of dropping piles of money on things that don’t make sense. So I think we’re going to slow down the process. We’ve got to face up to the reality. We got to say this is take.

Twenty five, thirty years we can have the best of intentions, and I really believe we can have the best of intentions, but it still requires time, effort and commitment. And that and, you know, like everything else, we’re always looking for quick, simple answers.

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