Traders Joe Terranova, Steve Weiss and Jon and Pete Najarian are joined by Jenny Harrington, CEO and portfolio manager at Gilman Hill Asset Management, and Leon Cooperman, chairman and CEO of Omega Advisors, to discuss Wednesday’s market action.
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Omega’s Cooperman: The Whole Structure Of The Market Is ‘Broken’
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Is AMC an attractive buy? What about DowDuPont? Lee Cooperman takes viewer questions
The “Halftime Report” traders and Omega Advisors’ Lee Cooperman take viewer questions.
Who knows. I mean basically I think that the whole structure of the market is broken. You know when I came into the let’s put it this way. Whatever success I’ve achieved I think I’ve achieved it because I’ve been very lucky. I have a common sense basically. And I have a strong work ethic. And this whole thing now with all these quantitative trading systems are destroying the structure of the market you know particularly that group that buy strength and sells weakness to everyone I know that’s accumulated wealth whether it’s Warren Buffett Camerlengo Mary the Evil Friends of mine. I think they made their fortunes that by selling strength. That’s what’s happening when they’re trend followers and they really are exaggerating the trends up and down the condition is that normally call for a significant market decline or just simply not present and the market has overdid it last week.
And be stronger than I was in Europe.
Columbia University Business I’m on the board of overseas the down 30 hundred points in a couple of days. It’s crazy. It’s best selling begets selling because of these quantitative trading systems. But basically as I said a moment ago the conditions that normally lead to a big decline aren’t present you know the high yield market sold of 2 percent when the S&P was down 8 percent the overall credit market was relatively flat. So you know I think I sent you a couple of slides to make my points. And we’ll get to him. Basically the things I look at which suggest that the market is OK is not cheap but it’s not expensive you know it’s not an exciting message when I tell you the markets in a zone of fair valuation. Basically it doesn’t excite you but that’s kind of where we’re at.
Is it more expensive relative to where interest rates are likely to go. Is it that the big issue here is that the biggest fear that people that you bring are going to put them up right now.
You talk about light OK because I think all this fixation on interest rates I think is misplaced. Every hope you read Detroit. This is the end of a 10 year government bond justed four minus the CPI and the shaded areas on the chart or past recessions and bear markets. And the message is abundantly clear. Real interest rates for five six seven eight hundred nine basis points prior to the bear market and recession the past. Real interest rates today are zero. The Fed has been extraordinarily accommodative. So you know the market can easily handle the rise in interest rates as long as the slope of the rise is gradual.
I’ll give you some statistics I don’t make it sound like a statistician but they love you because you have all your stuff stored up in your head.
My wife hopefully my kids my grandkids not everybody else but basically the last 50 years has to be multiple average 15 times they went average 15 times the 10 year government with six point six five and a 90 day bill was four point ninety five. Today the multiple mortgage about 16 and a half times earnings so 10 percent above the historical norm. But the 10 year government is about three point one percent versus 665 and treasuries bills are about well over two versus four ninety five. The market allow for a rise in rates. In fact I think the rise in may be more positive than negative.
But you know people are just fixated on something that doesn’t make any sense because they worry that the Fed is going to go too far and maybe some of the economic data that’s come out whether it’s related to housing or autos or some from some of these in the market allows for a rise in rates.
The market allows the pricing structure the market allows for a rise in rates the condition that normally lead to a big decline. What about the recession. OK. There’s no signs of recession the economy if anything is too strong the economy is on fire. I was there. I’m a member of the organization called the ratio Alger Association. And we had a board meeting two weeks ago and the head of the Association made a comment that is 50 years of being in business he has never seen the economy as strong as it is today. That probably in my opinion is probably a problem because it’s going to force the head of the Fed. The economy is very strong. So the recession is not on the horizon a hostile Fed is not on the rise. You looked at a moment ago said interest rates are zero. So that’s not a restraining influence on the economy. So the condition that normally lead to a big decline to storm present the.