Taps Coogan – June 15th, 2022

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Sam Zell, real-estate mogul and Chairman of Equity Group Investments, recently spoke with CNBC to offer his advice to the Fed in the runup to today’s highly anticipated policy meeting. That advice: raise rates by a full percentage point.

As to the cause of the inflation, Mr. Zell is very clear that he sees excessive stimulus as the overwhelming cause.

 

Some excerpts from Sam Zell:

“If I were running the Fed today, I would raise interest rates a full point (1%). I think that the credibility of the Fed has been significantly damaged. The Fed is supposed to be independent of politics. How many times do we have to play this same game where the Fed keeps falling behind reality? We have over stimulated the economy by a big factor. We have to take the punch bowl away… I think there is more than enough room in the economy to absorb a couple-hundred point basis increase in the risk free rate…”

“The Fed controls demand… I’ve been around for a long time. A piece of legislation used to include… $100 million or $200 million, and then all of a sudden it became trillions and all of a sudden we couldn’t get the money out fast enough. I think the whole country owes Joe Manchin a big thank you for stopping what would have really been a catastrophic result…”

“The cost of financing is up 80% and.. it looks like its going to be up more than 80% because rates are going to go up… I would envision that at least for the near term, and the near term is the next six months, I would think that real-estate transactions would be lower… and people will defer”

“The Carter years were all about trying to blame someone else instead of blaming themselves and in the same fashion, Joe Biden owns this inflation. If he hadn’t provided and encouraged the massive amounts of liquidity that was added to the system under the guise of Covid, we wouldn’t have this problem today.” 

While I can’t help but agree with much of what Mr. Zell has to say, the notion that the economy can withstand a more-than-doubling in funding costs, and another 2% on mortgages, is wishful thinking. 

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