'The Fed screwed up': Real estate billionaire Sam Zell just warned that hot inflation isn't going away anytime soon ... - Yahoo Finance | Canada News Media
With headline inflation figures coming down and a strong labor market, some say that the U.S. economy could be on its way back up.
But billionaire investor Sam Zell does not share that optimism.
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“When you spread out free money for years at a time, you create significant drag, and I just don’t see how we are going to avoid a slowdown as that whole process comes to an end,” he says in a recent interview with CNBC.
According to Zell, the problem lies with the U.S. Federal Reserve’s easy money policies.
“I think the Fed screwed up by allowing zero interest rates to go on too long, I think we are just beginning to pay the price for that,” Zell points out. “It would be nice to say that it would be great if the Fed got lucky. I’ve been around for 50 years and I’ve never seen the Fed get lucky.”
To be sure, consumer prices in the U.S. rose 6.5% from a year ago in January 2023 — down from their peak 9.1% increase in June 2022. But inflation remains a big concern for Zell.
“Is the definition of coming down going from 9[%] to 6[%]?” Zell asks. “The point is 6[%] is a serious problem.”
And while some believe it’s time to get ready for disinflation, Zell believes that price levels could stay elevated.
“Preparing for disinflation would be a very optimistic thing to do at this point. It’s going to take a while for the inflation pressures to ease, and I think that’s what we have to look forward to.”
If you share Zell’s view, here’s a look at three assets that can help investors fight inflation.
Real estate
Zell made billions in real estate. And it just so happens that real estate can be a great hedge against inflation.
As the price of raw materials and labor goes up, new properties are more expensive to build. And that drives up the price of existing real estate.
Of course, the Fed has been raising interest rates to tame inflation, and that means mortgage rates have gone up as well. So shouldn’t that be bad for the real estate market?
While it’s true that mortgage payments have been on the rise, real estate has actually demonstrated its resilience in times of rising interest rates according to investment management company Invesco.
“Between 1978 and 2021 there were 10 distinct years where the Federal Funds rate increased,” Invesco says. “Within these 10 identified years, US private real estate outperformed equities and bonds seven times and US public real estate outperformed six times.”
Well-chosen properties can provide more than just price appreciation. Investors also get to earn a steady stream of rental income.
Of course, given the uncertainty ahead, you’d want to rent to high-quality tenants.
Read more: Here’s how much money the average middle-class American household makes — how do you stack up?
Fine art
It’s easy to see why art pieces often fetch new highs at auctions: The supply of the best works of art is limited, and many paintings have already been bought by museums and collectors.
Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.
Artwork is becoming a popular way to diversify because it’s a “real” physical asset with little correlation to the stock market.
According to Deloitte’s Art & Finance Report, 85% of wealth managers in 2021 believed art should be included as part of a wealth management service.
It’s true that investing in fine art by the likes of Banksy and Andy Warhol used to be an option only for the ultra-rich. But with a new investing platform, you can invest in iconic artworks too, just like Jeff Bezos and Peggy Guggenheim.
Wine
People have been consuming wine for thousands of years. While most collect wine for enjoyment rather than investment, bottles of fine wine become rarer and potentially more valuable as time goes by.
Since 2005, Sotheby’s Fine Wine Index has gone up 316%.
As a real asset, fine wine can also provide the diversification you need to protect your portfolio against the volatile effects of inflation and recession.
You can invest in wine by purchasing individual bottles — but you’ll need a place to store them properly. Residential wine cellars often cost tens of thousands of dollars. If not stored at the right temperature or humidity, the bottle could be compromised.
That’s one of the reasons why investing in fine wine used to be an option only for the ultra-rich. But new platforms allow you to invest in investment-grade wine too, just like Bill Koch and LeBron James.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
