Thursday, February 15, 2007


Sam Zell is selling

Its always a good idea to pay attention to successful people because they obviously know what is going on in their industry. Otherwise they wouldn't be rich. Well Sam Zell is very successful commercial real estate investor and he is selling his company. Why? Who knows? Maybe he is getting older and wants to try other things like buying a newspaper. Or he could believe now is a good time to sell.

I am not priviledged enough to be on Sam Zell's card list but John Maudlin pointed me to the link that has Zell's eCards from 1999 to 2005. All very clever but please listen to 2005, sung to the tune of Rain Drops Keep Falling on My Head but instead of Raindrops, it's capital that is falling on Zell's head and, as the song makes clear, it is the flood of liquidity that is diminishing returns. Very clever and it gives you an idea of the problem that an unrestrained money supply can cause. Too much money pushing up the prices of assets which lowers returns. Not a great enviroment for someone known as the grave dancer.

Zell seems to think it will take several years to work out this flood of capital. By work out I think he means falling prices. I wonder what was his message for 2006?

Diego adds: I was actually at a luncheon in January of 2006 where Sam Zell and a few others spoke and gave predictions on various topics. I have not followed Zell's career or his business dealings but found his real estate assessment interesting.

At the time he believed that the housing market would cool but not collapse or 'bubble burst' as some were predicting. If I recall correctly he suggested that home prices might dip slightly but overall they would remain steady for some time. He seems to have been right. No hurry to sell but also there was no more hurry to buy. People need to stop thinking about real estate fluxuation in terms of months and get back to thinking long term.

Bill C: A long period of stable prices is one possibility. Whether there is a collapse or not depends on the psychology of millions of owners and investors. I imagine the Fed will be doing everything it can to prevent a panic and they did a pretty good job in 2002/2003. It is just impossible to predict if they will succeed this time so the correct play is to sit on the sidelines for a little time and wait for inventories to drop and housing starts to pick up.


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