Sam Zell’s investment plays for 2019 are somewhat out of the ordinary for the property billionaire investor who initially made his fortune from commercial real estate and then diversified his portfolio into energy, manufacturing, and logistic transport.
But today Sam Zell’s investment plays are erring on the side of safe-haven assets namely gold
Sam Zell, the longtime bull who took to the stage and famously advocated being a risk taker is now for the first time ever doing the opposite and buying gold.
“For the first time in my life, I bought gold because it is a good hedge” said Sam Zell, the founder of Equity Group Investments in a Bloomberg TV interview.
“For the first time in my life, I bought gold because it is a good hedge”
Sam Zell’s investment plans include the shiny precious metal gold not only because gold is a good hedge in today’s geopolitical economic climate. There is another less known reason why Sam Zell, with a net fortune of $5.1 billion and who is number 324 on the Forbes billionaire list property investor is stockpiling the precious metal.
Supply for the precious metal is becoming tight meanwhile investors’ demand is growing which means the price will rise based on the laws of economics.
“Supply is shrinking and that is going to have a positive impact on the price” said Sam Zell.
“The amount of capital being put into new gold mines is mostly nonexistent,” Zell said. “All of the money is being used to buy up rivals,” added Sam Zell
So one of Sam Zell’s investment plays include gold. Many investors have been frustrated with the performance of precious metals during the past few years.
“Supply is shrinking and that is going to have a positive impact on the price”
SAM ZELL (on supply of precious metal)
Furthermore, despite December’s sell-off in risk assets, the performance of precious metals seemed somewhat lacking. Investors have learned since the 2008 financial crisis that being on the wrong side of the Fed’s liquidity cannon is futile.
So in a central bank driven market where gold is viewed by the monetary authorities as a rival to their fiat debt money an obvious question comes to mind. Will the Fed continue to suppress the price of precious metals in the derivatives market in 2019? I believe the answer to the above question is yes.
Also, investors/traders need to keep in mind that stocks and bonds are in or approaching bear market territory and at some point bond yields will rise to a level which will make the opportunity cost of holding gold too high.
“Macroeconomic woes could be another reason why one of Sam Zell’s investment plays is gold”
Put another way, Sam Zell’s investment plays into gold might not pay off if the 10-year treasury yield rises above 4%
In this scenario, capital flows would gravitate from gold into treasuries. Investors might think why park capital into gold and earn zero yields when treasuries pay 4%, bearing in mind that the US Government does not have a history of defaulting on its debts unlike say Argentina. So until USD hegemony remains intact and the dollar is the world’s reserve currency treasuries will be perceived as paper gold with the added benefit of paying investors yields.
But Sam Zell’s investment plays into gold is a hedge against the greatest potential geopolitical shift of the century where king dollar is toppled from its hegemony throne, losses its gravitas to a rising star in the East, China.
Macroeconomic woes could be another reason why one of Sam Zell’s investment plays is gold
Gold tends to perform well during periods of inflation. Rising prices, inflation is yet to be a major concern for investors, according to the Global Risk Report 2019. But there is no reason to discount the view that stagflation could rear its head going forward. Stagflation is a troubling combination of high inflation, declining consumer demand and high unemployment (or decline workforce participation rate).
Workforce participation rates are falling, there is lackluster consumer demand and many of the household necessities, accommodation, health care costs, education tuitions fees have all soared. Many grocery staples are expected to increase in cost this year too.
“We are pretty comfortable that the price of oil is not going down”
– Sam Zell
Sam Zell’s investment plays for 2019 also include buying US energy assets such as oil and gas refining companies. “We are pretty comfortable that the price of oil is not going down” said Sam Zell who has been buying Standard Oil and Gass.
Sam Zell’s investment plays for 2019 is US energy because he believes the sector is underinvested. Moreover, the sector is likely to benefit from the current administration’s strategy for US energy independence.
“Generally speaking I don’t think we have been investing enough in oil either,” said Sam Zell.
“The likelihood of the price of oil becoming a problem in the next few years is relatively high” added Sam Zell.
“What about investing in pipelines that get the shale out is that a good investment are you investing in that”? asked the interviewer. “If you control the government, yes..”, said Sam Zell nodding.
“We just bought a refinery in Decotta that refinery gets to buy crude at a significant discount because the people in British Columbia turned down the pipeline to carry that crude to the ocean,” said Sam Zell.
“So to an extent, these are the political problems… I would rather make a prediction on supply and demand”, added Sam Zell.
So Sam Zell’s investment plays for 2019 are in tune with the current geopolitical economic climate. They consist of safe-haven assets, precious metals gold, and US strategic industries namely energy. But it might also be worth noting that Sam Zell is not the only investor who has turned bearish, recently David Tepper urged investors to move to cash too.