Sam Zell’s revised version of B.J. Thomas’ 1970 hit is the perfect anthem for the shift into 2007, which should be the year of the great liquidity bust that Elliott Wave International has written about over the last two years. Zell says he holds an “optimistic perspective,” but anyone who studies his message or listen to it closely by clicking here [then on the "Theory of Relativity Square;" the other holiday messages are good too], is forced to consider the reality of a finanical world that is badly "out of whack."
Some may even detect an important contradiction. On the one hand, Zell says growth can "soak up” the capital “freefall,” on the other hand, he says “it’s going to be a long time until returns meet expectations.” What if a few investors decide not to wait? And what if other investors see their fellow investors losing heart and recognize the potentially damaging effect, not just on returns, but to growth itself? It won't be long before the stampede is on, one that is fully described in the May and October issues of The Elliott Wave Financial Forecast. The May-June splash in global equity, commodity and hedge fund markets offered a taste of the potential. This is "the all-the same markets" scenario EWI has been tracking since the dollar's initial low in December 2004. For more see just about every 2006 issue of The Elliott Wave Financial Forecast and The Elliott Wave Theorist. For a synopsis also see the November issue of Futures magazine.
As EWFF noted in December, it’s certainly worth noting that, despite his optimism, Zell is drastically curtailing his real estate exposure. As Douglas Kass noted in Barron’s (“Look Who's Selling,” December 11), “There are some people you just shouldn't trade against. Among them: Sam Zell -- yes, the Sam Zell who recently agreed to sell his Equity Office Properties Trust. Zell accepted cash and the associated tax bill, which supports the view that he thought the price was rich.” Kass also noted that REIT shares now sell at 19.5 times cash flow and at almost 120% of net asset value, “which is ridiculously high by any historic standard.” Over the last 15 years, he adds that the average REIT dividend yield is 1.1% percentage points above the yield on the 10-year Treasury note. Today it is 1.25% below the 10-year yield. As we ponder these numbers against the emerging prospects for the economy and deflation, we can almost hear Sam Zell belting out the finish to the original version of “Raindrops:” “'Cause I'm never gonna stop the rain by complainin'/Nothin's worryin' me.”
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