"We have this sense that there's this giant game of musical chairs going on," he told an audience of thousands that had come to hear him Thursday. "Everybody's scared that they're walking around and they've got to keep going because the music's playing."
(Read More: Bear Market Checklist Goes a Perfect 0-for-6)
"They're absolutely panicked because there's not going to be a seat when the music stops. That's not investing, that's speculation."
That music is coming from the Federal Reserve, which creates $85 billion a month that it uses to buy Treasurys and mortgage-backed securities.
The liquidity measures have coincided with a 142 percent surge in stock market prices since the March 2009 lows.
"I'm not a stock market guy per se," Zell said. "I believe that the current euphoria is a misallocation of resources, and I find it very hard to believe that that misallocation of resources won't be adjusted, and hopefully it will be adjusted as opposed to something more severe."
Zell's game, in fact, is real estate, where he has built a hugely successful career.
The chairman of Equity Group Investments, though, said real estate now makes up only about 30 percent of his portfolio, which he said is probably the smallest allocation ever.
(Read More: Canada's Housing Market: The Next Big Short?)
His recent history has been marked with the hugely unsuccessful acquisition of Tribune Media that he said has been offset by other moves, including mobile and manufactured home marks and multifamily properties.
"The multifamily market today is terrific," he said. "I think the savants have all come to the same conclusion, the conventional wisdom, that in effect a recovery in the single-family market is going to diminish the effect of the multifamily market. I think nothing could be further from the truth."
In fact, he's more worried about larger factors that could derail hopes for an economic recovery.
He cited the tumbling interest rates and shortened duration on U.S. debt fostered by Fed intervention, and said things could go terribly wrong.
(Read More: Ready for Market Pullback? You Might Have Missed It)
"Haven't you driven yourself into boxed candy, because how do we get out of that?" he said. "If the interest rate spikes to 2 percent tomorrow it probably won't affect my business too much, but the federal government is broke.
"Yes, they can print more money to pay interest, but that's already a game we're playing that I don't think anybody, including me, understands the implications."