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Sam Zell says sell

May 10, 2013: 9:02 AM ET

Legendary investor says stock market is in state of "euphoria," while economy is still in the dumps.

Sam Zell

Sam Zell

FORTUNE -- At least one notable investor thinks we may be in bubble trouble again.

Sam Zell on Thursday at the SALT hedge fund conference in Las Vegas said stocks are due for a fall. The legendary real estate investor thinks the market is out of touch with what is really going on in the economy.

"Right now you are buying at an all-time high," says Zell. "And there are times when stocks hit a high, and then go higher, but that's when you have a good economy."

Despite dropping modestly on Thursday, stocks have been on a tear lately. The Dow Jones industrial average (INDU) is above 15,000 for the first time, and the market is up 14% in 2013, which puts it on pace to have its best year in more than a decade.

MORE: The market 'bubble' you've never heard of

By contrast, Zell said the companies he runs and looks at are still struggling to increase sales. Beyond the weak U.S. economy, Zell said he was worried about problems in the Middle East and recent aggressive efforts by the Bank of Japan to stimulate that country's economy.

"That's not QE," says Zell, referring to the nickname of Federal Reserve's recent bond buying effort, quantitative easing. "I don't know what you call it."

Zell's comments were a break from the mostly upbeat tone at the SALT hedge fund conference being held his week in Las Vegas. Leon Cooperman, who runs hedge fund firm Omega Advisors, says based on corporate earnings, which have also risen dramatically, stocks don't look expensive. Cooperman says the S&P 500 (SPX) should be trading between 1500 and 1700. It's at 1626, so Cooperman says that means stocks are fairly valued, not in a bubble. What's more, Cooperman said, individual investors are just coming back to the stock market after a steady flow out for the past five years. Cooperman said that's not going to stop anytime soon.

MORE: Stocks are too expensive

For his part, Zell says it's not only stocks that may be rising faster than they should. Zell says large investors going around the country buying up individual houses and pushing up prices might end up with a losing bet. Private equity firm Blackstone (BX), for example, has reportedly spent $4 billion to acquire 25,000 homes.

Zell, whose company owns apartment buildings, said taking care of individual houses is harder than it looks. Still, Zell said the stock market is where prices look obviously out of whack.

"The current euphoria in the stock market will be adjusted," says Zell. "And I hope that's all that happens."

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About This Author
Stephen Gandel
Stephen Gandel

Stephen Gandel has covered Wall Street and investing for over 15 years. He joins Fortune from sister publication TIME, where he was a senior business writer and lead blogger for The Curious Capitalist. He has also held positions at Money and Crain's New York Business. Stephen is a four-time winner of the Henry R. Luce Award. His work has also been recognized by the National Association of Real Estate Editors, the New York State Society of CPA and the Association of Area Business Publications. He is a graduate of Washington University, and lives in Brooklyn with his wife and two children.

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