Leon Cooperman: Bull market cycles don’t end because of valuation


Mario Gabelli, chairman and CEO of Gabelli Funds, and Lee Cooperman, chairman of Omega Family Office, join CNBC’s “Fast Money Halftime Report” to discuss how the markets are trading amid trade tensions with China.

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Trade war would be negative for the world: Omega’s Leon Cooperman

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Investing Legends Gabelli & Cooperman Answer Your Questions

Investing legends Mario Gabelli & Leon Cooperman answer viewer questions.

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Make two observations. One observation being that bull market cycles don't end at fair valuation. They ended overvaluation. So you know I think there's still more room for the market to run and secondly the qualitative factors that exist at a market top don't exist today. Generally speaking at the top when the stock market smells an oncoming recession I think we have a slowdown but we don't have a recession a hostile fed. We have the furthest thing from a hostile fed. Interest rates adjusted for inflation are basically zero in real terms. And that normally is not what you see in a market top valuation. Broadly speaking it's not speculative. So I would say the conditions that normally call for an important top don't exist and valuations are reasonable so I think the market's OK. I don't I'm not crazy about the S&P but I like a lot of individual stock.

OK. And we'll get to those. So how do you Mario look at what's going on with the trade. Fight war whatever you want to call it or is it noise or is it nervous time for investors. I've asked that question a couple of times this week and I'm going to ask it of you. Normally you have a deficit of about 400 billion dollars in trade with China. You have unfairness. It's time that somebody arms wrestle the issue. So you know we grew up in a period like the 1930s where smooth holly created an extremely hostile economic conditions. We all remember Riccardo comparative trade. So we'd like to get a resolution of this but we'd like to do it in a better and a fair way so we can live with that the companies we follow you know higher costs they've figured out how to pass it through. So the earnings are adjusting but I go back to Lee's comment. The 10 year bond is the multiple that we're looking at. So if I have a 2.5 for our 2.5 percent on the 10 year US today are the multiples in the stocks today sustainable five years for us. So if I'm looking at an analysis of buying a business by buying the public company I can't agree that I have that visibility five years from now. Not withstanding that I think the short term movements in the market is short term. It provides a margin of safety better than it was two weeks ago.

So neither one of you sound all that concerned about what's going on on the trade front.

The trade is negative is negative for the world basically a trade war is negative. Now we have. Well we don't know me. Last night the president said that it will be resolved tomorrow. The whole thing could change. I call it creative tension. I would say that if we don't resolve it it's negative for the world. Negative for everybody.

Tariffs are going to go more. Tariffs may go into effect. I think it's a bigger disappear as early as they would put on if they put on the tariffs to talking about.

You and a couple of tenths of percent to inflation you'd take away maybe half a percent from GDP and you would probably clip the S&P 500 earnings by five bucks. So it's a negative and five bucks times 70 is 100 points the S&P corrected a hundred points already. It's not a positive there's no question about it. I think Mario referenced it. It's something that we have to do and hopefully we can resolve in a favorable way. But I wouldn't run money you know on a day to day basis and try to make you know I don't know if you realize this but 80 percent of daily trading volume has nothing to do with fundamental investing today. So all these algo is in high frequency traders you know and program traders are running the market. Fundamental investment decisions are made by 20 percent of the volume.

What if I make the hour you say and you've said the last few times you've been here that stocks are in a I think your exact words are a zone of fair value right. Yeah that's right. Now what if I say Well earnings aren't anything to write home about league earnings expectations have come way down. The stock market has I think higher.

I don't think that's correct. First of all the market has zoomed higher in part we should look back what happened the fourth quarter last year that shouldn't have happened. Because the hedge fund liquidation tax loss selling you know you saw a big and a loss of liquidity in the high yield market. You saw a big sell off. So the the rise this year was capturing what happened last year but there's no question if interest rates belong to 40 or 250 and the Fed funds rate belongs to you don't make 15 or 20 percent the stock market you make 5 6 7 percent and you know that's kind of you take away last year's loss from this year's gain. You know you're running a little bit ahead of that and that's what the market is kind of a.

Do nothing for a while but I think we're both in the same camp of you know if revenue is going to grow in a global US basis 4 percent maybe a little higher because the emerging markets are less developed and you keep margins constant which I don't think you can do any on a course of gross margin but espionage they won't rise as much profits will match that. And then with the interest rates at these levels you can support this multiple. So the question is Will interest rates stay here at five or 10 years from now.