REUTERS/Fred Prouser
There’s little similarity between the current recession and past crises, but the coronavirus will likely drive the biggest economic hit since the 1930s, billionaire businessman Sam Zell said Tuesday.
Where the 2008 financial crisis left some areas untouched, the pandemic is causing unprecedented damage across nations, markets, and demographics. The coronavirus downturn will likely change the way Americans behave and do business like the Great Depression did nearly a century ago, the Equity Group Investments founder said in an interview with Bloomberg TV.Â
“Too many people are anticipating a kind of V-shaped recovery,” Zell said. “We’re all going to be permanently scarred by having lived through this.”
When asked when he sees the US economy rebounding, Zell warned that public apprehension of leaving quarantines could stifle an uptrend for months after initial reopenings. Malls, airports, and hotels could face prolonged weakness as Americans avoid health risks. Just because a business opens doesn’t mean it will meet the demand needed to stay afloat, Zell said.
The businessman is particularly wary of the real estate and construction sectors. He expects several retailers and hotels to be crushed under lofty reopening costs and insufficient revenue. A wave of bankruptcies is necessary to create room for new firms and economic recovery, he said, and major distressed-debt players including Oaktree Capital and PIMCO are raising billions of dollars to capitalize on the trend.Â
Surging defaults should prelude an economic bounce-back, Zell said, but those looking to invest in the short-term will have a harder go of it thanks to the coronavirus’ widespread fallout.
“The fact that there’s a lot more distressed players today will help clear the market, but it also means that there aren’t anywhere near as many opportunities as there were in the past,” Zell said.Â
The vast uncertainties are mirrored in the stock market as well, Zell added. Equity valuations don’t “actually reflect the reality of what’s going on,” he said, as prices reflect an incredibly optimistic outlook for virus containment. April represented as the best month since 1987 for the S&P 500 and the Dow Jones Industrial Average, with the indexes soaring on new optimism for a virus cure and economic reopening.
While several areas have improved their handling of the pandemic, market dynamics reveal more of a sprint for near-term gains than multi-year investing strategies, Zell said.
“It’s a little bit like the game ‘musical chairs.’ Everybody in the market knows the music is playing and while the music is playing, they’ve got to walk around,” Zell said. “But they also know there’s going to be one last chair when the music stops, and therefore their focus is all on ‘how do I make sure I get one of those chairs.'”
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