Transcript of Omega Advisors CEO and hedge fund billionaire Leon Cooperman’s interview with Larry Kudlow on FOX Business Network’s Kudlow (weekdays, 4pm/ET). During the wide-ranging interview, Cooperman commented on paying the fair share of taxes, the state of the economy, President Biden’s economic policy, debating Sen. Elizabeth Warren, Sen. Bernie Sanders and his thoughts on markets forecasting.”
Q1 2021 hedge fund letters, conferences and more
LARRY KUDLOW, FOX BUSINESS HOST: Speaking of great, by the way, it's a great pleasure.
Our next guest, one of the great investors of our time, by the way, he is a market icon. He's an up-from-the-bottom story. He's a great example for everyone. And I believe, still, in this day and age, that story remains part of the American dream. How about that?
Joining us now, great friend, CEO of Omega Advisors and former CEO of Goldman Sachs Asset Management, Mr. Leon Cooperman.
Lee, welcome. Great to see you. Let me begin with this--
(CROSSTALK)
LEON COOPERMAN, CEO, OMEGA ADVISORS: -- to be with you, Larry.
KUDLOW: No, thank you.
You have recently called yourself a fully invested bear. OK, I want to dig into the investment strategy in a moment.
But, before we do, I just want to ask you right at the top, do you believe the American dream is still alive and well?
COOPERMAN: I think so.
But, before I elaborate on that, let me first thank you for your great public service as director of the National Economic Council. You sacrificed a lot. You did a great job. And the country should be appreciative of your efforts.
KUDLOW: Thank you, Lee. Thank you.
COOPERMAN: So, let me just say that very sincerely.
KUDLOW: Thank you.
COOPERMAN: And it's not the first round of service. That is more the second, third, fourth round.
In terms of the question you're posing, I'm testimony to the American dream. My father came to America at the age of 13 as a plumber's apprentice, no formal education. I went to P.S. 75 in South Bronx, Morris High School in South Bronx, HunterCollege in the West Bronx.
I followed the advice of Horace Greeley.
(LAUGHTER)
COOPERMAN: I got an MBA from Columbia, which changed the trajectory of my life, because that opened the door to Goldman Sachs.
Goldman Sachs probably would not have hired me out of Hunter College. I always like to hire PhDs, poor, hungry and driven.
(LAUGHTER)
COOPERMAN: And I don't care about pedigrees.
KUDLOW: Mm-hmm.
COOPERMAN: I started Goldman with a 6-month-old child, who is 54, no money in the bank, a student loan, and I made a lot of money.
And I'm now -- I have taken the Giving Pledge with Warren Buffett, and I have taken a Jewish Giving Pledge with Mike Leven. And I intend to give away all my money.
And I consider that the American dream. I was lucky enough to be inducted into the Horatio Alger Association.
So, I think the dream is still alive. But it's getting harder and harder to pursue because of some of the policies being filed in Washington. You know more about them than I know, but I would say still alive. But it's getting more difficult.
KUDLOW: All right. Well, I appreciate all that. And congratulations on a great story.
Lee, just a couple of businessy things, OK? I want to go deeper into this American dream, but, first of all, big, big, big, big headline today was AT&T, all right, divesting its media and entertainment companies.
And the question I wanted to ask you, I was actually in the administration when these decisions were made. I'm somewhat familiar with them.
Does this mean that, when you have these big conglomerates, you can't own the content and the pipes at the same time, that that business model just doesn't work? Is that your view? Or is there something else going on here?
COOPERMAN: No, I think what's going on is that AT&T has done a string of very bad acquisitions.
And they bought -- not Dish. They bought DirecTV. And they divested of that for half of what they paid for it. They did a very bad deal with Time Warner.
And I think they're getting back to their roots. I'm not involved, so I'm not really an expert to talk about it. But I would say that they're simplifying themselves. And we're in a market that I guess is forcing them to rationalize their capital.
KUDLOW: I mean, I want them to be superior in 5G development, along with others.
I want to whip China. I want to whip Huawei. And I like AT&T focusing on 5G, rather than a lot of media and entertainment stuff. That was my other thought.
COOPERMAN: Well, you and I know a lot about 5G.
You were very helpful in your attempt to get Ligado on the map. Very disillusioning to me. They have tremendous amount of 5G spectrum. The Department of Defense put a cloud over them because they said their spectrum interfered with the DOD needs, which I think is a complete bogus allegation.
Ajit Pai, former head of the FCC, spent five years studying it. And after five years, they concluded by a bipartisan 5-0 vote to approve the spectrum. And we're falling further and further behind the Chinese. And there's no reason to hold up Ligado's spectrum. It's very valuable, and it should be put to use.
And I think the government, they're just slowing things down. It's making it very difficult. I'm very friendly with Bernie Marcus. He swears to me that he could not start Home Depot today if the regulations that exist today existed when he started Home Depot.
So, we have to reduce regulation and make it a more pro-business environment.
KUDLOW: Yes.
COOPERMAN: I mean, like--
KUDLOW: Everybody, except DOD -- it's like pulling teeth to get spectrum out of DOD.
But pretty much everybody was in favor of the Ligado. And to this day, I don't know why it was. I mean, Ajit Pai, the FCC chair, as you just said, he was in favor of it. I was in favor of it over at the NEC. It really never got up to the presidential level. He didn't -- the president didn't have a strong view on it. It's a very strange story.
But the point is, it would have helped. It would have helped 5G and it would have helped communications. It would have helped everything, it seems to me.
COOPERMAN: It'll work in the end. I'm very optimistic they will get approval.
But the amount of time that has been wasted and the cost to the investor has been enormous. And it is just unnecessary. It's unnecessary. But it is what it is.
Listen, let me -- getting back to taxes, I believe in the progressive income tax structure. I believe rich people should pay more. What we have to coalesce around the question as a nation is, what should the maximum tax rate be on wealthy people? Because that will define the revenue yield to the U.S. government.
And the government has to size its activities to that revenue yield. Now, I'm willing to work six months for the government, six months for myself. I think that's realistic. But, if you live in California, Connecticut, in which I think you have a home, New Jersey, California, you're already well past 50 percent and it becomes confiscatory, and it's counterproductive.
So, it's a real problem.
KUDLOW: You have had a running commentary with Senator Elizabeth Warren, who lately says that you're afraid of her or it's you threaten -- she threatens you.
Are you frightened of Elizabeth Warren? Is that really true? Or is she just making that up, Lee?
COOPERMAN: Not in the slightest.
(LAUGHTER)
COOPERMAN: Let me just give you the background. Not in the slightest.
I basically -- I think it was Aristotle said tolerance and indifference are the last virtues of a society. So, I believe in engagement and I believe in speaking my mind.
So, anyway, about two years ago, I gave a speech at a conference called Delivering Alpha on a competitive network. I said nothing about politics. At that time, she was running very strongly in the polls. So, the moderator at the end of my speech asked me, what do I think the market would do if Elizabeth Warren was elected president?
And I said, go down 20 percent.
(LAUGHTER)
COOPERMAN: Let me tell you, I was probably too optimistic.
(LAUGHTER)
COOPERMAN: The very next day, not knowing anything about me, tweets, Leon, I'm only looking for 2 percent. Give others a shot at the American dream.
And I decided to take a leaf out of Michelle Obama's book, who said, when they go low, we go high. I wrote her a very good letter. The letter I wrote her, frankly I got a comment from a very noted economist, who you can guess that when I give you this background, former president of Harvard University, distinguished economist--
KUDLOW: Yes.
COOPERMAN: -- on the Democratic side of things, calls me up and says, Lee, if you submitted that paper in my class, I would give you an A-plus.
What does she do? No response to any of the five-page content, but says, inside trader, which she libeled me, because I won the case. I was not convicted of insider trading, and owned stock in Navient. And I'm glad I did, because the stock has doubled since she said that, OK?
And she has a thing about student loans, student lenders. So she invites me to appear before her committee, but she showed me she's a politician in the worst sense of the word. She was not looking for truth.
I wrote a very conciliatory, very nice, very respectful letter. And she comes back with a lot of baloney. And so I didn't think there was anything to be gained by appearing before a committee where she controls the microphone and tries to embarrass me.
I have nothing to be embarrassed about. I have given away hundreds of millions of dollars to charity. I have taken the Giving Pledge with Warren Buffett, I have taken the Jewish Giving Pledge with Mike Leven. I intend to give away all my money.
My signature event that I always tear up and get emotional over, I'm -- I put $50 million in a fund to send 1,000 kids in Newark, New Jersey, to college, which is life-changing, OK?
And so I'm the last person she would be attacking. And I'm willing to pay more in taxes. But we got to get away from this tax-and-spend and fair share baloney. I get absolutely nuts when fair share. I love quoting the black economist Thomas Sowell, who I think -- I paraphrase -- said, in this day of social justice, what is your fair share where someone else has worked for, OK?
I am willing to give 50 percent to the government, OK? I think, you talk to Bernie Sanders -- I don't think he's a socialist. I think he's a communist. He says 90 percent. Talk to Elizabeth Warren, 70 percent of the wealth tax.
She doesn't care that the vast bulk of countries that have enacted a wealth tax have retracted it. It leads to very uneconomic behavior. It makes no sense. It's crossing a line that doesn't have to be crossed.
There's a lot of things they could be doing to raise more tax revenue. But they don't seem to have the courage. Get rid of carried interest. Get rid of 1031, which gives the real estate people the ability to roll forward. Raise the tax rate.
But we -- we don't need a wealth tax. It just doesn't make any sense whatsoever. It's confiscatory.
KUDLOW: Look, Lee--
(CROSSTALK)
KUDLOW: I'm sorry. Please continue. I didn't mean to cut off.
COOPERMAN: No. No, you didn't cut me off. You go ahead.
KUDLOW: I just want to say that, as I said in my opening, look, I don't understand class warfare, because you can't have a good-paying job without a good solid business.
And you're not going to develop these new businesses or sustain businesses unless investors pony up some cash. In our system, which is a free economy, basically, investors work hand in hand with the work force. There's no class war.
If it works properly, it's integrated. The worker needs the investor. The investor needs the worker. Now, why can't Elizabeth Warren figure that out, or Bernie Sanders, for that matter?
COOPERMAN: They have a political ideology that does not allow that to work.
In her case, I think she's into sound bite governance. But let's not--
(LAUGHTER)
COOPERMAN: I don't want to -- I don't want to hear from her again.
(LAUGHTER)
COOPERMAN: But fear was -- played no role whatsoever, no role whatsoever. I would be happy to appear before her committee if I felt -- in fact, I actually offered a challenge.
Another network said, would you be willing to debate her on our network? I said sure. As long as she wasn't the moderator and didn't control the mic, I absolutely would debate her.
I'm -- I'm for capitalism. I'm for the progressive income tax structure. My -- one of my great fears, which has nothing to do with the stock market in the near term, is that the young people today seem to think socialism is a better system than capitalism, you know?
And I take to quoting Winston Churchill, who basically says, very famously, the main vice of capitalism is the uneven distribution of prosperity. The main vice of socialism is the equal distribution of misery.
(LAUGHTER)
COOPERMAN: But he also said you don't make poor people rich by making rich people poor.
We have got to pay our fair share. The government is racking up enormous amounts of debt. This is going to come back to bite us in the ass one day. And I'm concerned about it.
KUDLOW: You know--
COOPERMAN: When you opened up, you said to me that I describe myself as a fully invested bear.
I do have an eye on the exit. I am heavily invested. I'm heavily invested because all the things that are normally associated with a big market decline or a bear market are not present at the current time.
They're starting -- some of them are starting to appear. What causes bear markets? The bear markets don't come about through immaculate conception. They come about from certain fundamental developments. One is accelerating and problematic inflation. OK, we have accelerating inflation.
Mr. Powell and the Fed seems to think it's transitory. I don't know. I don't think so, by the way. I think they're too optimistic. An oncoming recession. If anything, we're coming out of recession and the economy is growing very smartly.
Excessive optimism. And I would say this. If I didn't have fundamental views on things, I would have to say the stock market is correcting a lot of that excessive optimism in certain sectors.
The overall market is a bit expensive. It's not crazy expensive, because, basically, the Fed has created an environment where it's hard to say anything's overvalued, you know, because of where interest rates are.
KUDLOW: Lee--
COOPERMAN: If interest rates represent a discount rate -- yes, sir.
KUDLOW: Let me -- just let me take a quick break. I want to have you come back, if you give us just a few more minutes of your time. You have been very generous.
I wanted to go out and tell you that Churchill--
COOPERMAN: My pleasure.
KUDLOW: Churchill once told me, he said, you know, if you're not a socialist in your 20s, you have no heart, but if you're not a capitalist in your 30s, you have no mind.
That's kind of my story too, actually. So, I enjoy the Churchill quotes.
Lee Cooperman, the best of the best.
We're going to be right back with some more. I want to talk about higher interest rates and higher inflation and the outlook for the stock market.
More from the great Leon Cooperman.
Stay on "Kudlow." We will be right back.
(COMMERCIAL BREAK)
KUDLOW: We're back here with the investment icon and CEO Omega Advisors Leon Cooperman, old friend.
Leon, story in the paper today in The Wall Street Journal, how energy and material stocks are leading the way. Those commodity prices have been skyrocketing of late. You have expressed a concern about inflation.
I want to ask you about the inflation master, Jay Powell. Is Jay Powell doing a good job, in your judgment?
COOPERMAN: I think that he's too -- you're breaking up a little bit, Larry, but I believe the sense of the question was about Jay Powell.
I think he's too optimistic on inflation. You and I know that the big cost of inflation is labor costs. Commodity prices are a small part of a corporation's cost structure. We're starting to see wages accelerate. I can't find a business that is not telling me they cannot hire labor.
I gave a talk last week to a charity. One of the women on the phone -- on the call said that she has a business in -- outside of Chicago. Not only cannot she -- she -- that not only could she not find workers, but the guy down the street is offering her workers a $100 sign-up bonus if they leave her and come to him. And they're doing it.
So, I -- a guy that you and I know -- I won't mention his name -- his swim pool is supposed to be opened on Friday. He said the guy didn't show up. And he said, look, I don't have anybody to work with. I can't -- I'm behind. I don't have any workers.
So, I think, when something's in short supply, the price tends to go up, right?
KUDLOW: Yes.
COOPERMAN: So, I think, to me, the long-term issues -- we talked about the cyclical issues, why I'm invested.
We don't have problematic inflation. We don't have a hostile Fed. If anything, we have a too accommodative Fed. We don't have an oncoming recession, OK? A geopolitical event can cause it, and a lot to worry about, China, Iran, Taiwan.
But the biggest plus out there is, the Fed has created an environment that has an absence of alternatives. And financial assets, you could buy a 10-year government bond at 1.5, 1.6, keep it in cash, which is zero, or you could buy a common stock of a growing company.
And so I think stocks win hands down. But I'm looking out, and what worries me is, I understand exactly what's going on, OK? We are borrowing from the future. I believe the numbers you cite at the beginning, prior to the virus hitting, there were 5.5 million unemployed people in the country.
KUDLOW: Right.
COOPERMAN: That ballooned to 23 million.
We're now down to about 9.8, OK? If you lined up 100 economists, 100 economists and asked them, what is the potential real growth of the U.S. economy, I think the response would center around 2 percent real as trend, 1.5 productivity, half of 1 percent labor force growth, 2 percent trend.
If you're a bull, you say 2.5. If you're a bear, you say 1.5. We're growing at close to four times trend this year, yet they're persisting in holding interest rates at zero. OK, we have injected into the economy a trillion dollars of transfer payments in excess of income lost. Plus, we got $1.9 trillion lined up. We got $2 trillion, another $4 trillion.
We're borrowing from the future. Somebody's going to have to pay for the bill, OK? So, that concerns me.
The shift to the left. It's very clear that Mr. Biden is a big government guy, OK? There's tremendous growth in debt. It took 245 years to go from no national debt to $20 trillion, and before three years are over, we will be $28 trillion, OK?
Inflation. Inflation, I think, is likely to be worse than Mr. Powell thinks. But I would say this. The most important comment I'm going to make today is, inflation is a friend of common stocks, because the inflation in a company's cost gets incorporated in the selling prices, which lifts the nominal level of revenues and earnings.
Inflation becomes a problem for the market when the Central Bank starts to move to curb inflation, because a curb in inflation is tantamount to curbing growth. But we have a Central Bank that wants more inflation. Every Fed governor has spoken up and saying they're happy the inflation is picking up.
And as long as they have that posture, and they're right, and MMT works, the market is basically OK. But I'm dubious. I also--
KUDLOW: So, short-term. Short-term inflation is the friend of the market.
COOPERMAN: Short-term.
KUDLOW: But when -- look, don't you think Powell -- regardless of what all these Fed guys say -- they're always talking seven days a week.
Isn't Powell going to have to change his message pretty soon, earlier than anybody thinks?
COOPERMAN: I would think so. I would think so.
I think, in the next 12 months, we're facing more inflation, higher interest rates, and more taxes, not a good prescription for common stocks.
I also would say we have to recognize that the economy has been on some form of life support since 2008. And that should adversely affect price/earnings ratios. So, we have a 23 multiple in the market against historical 15. I think maybe 18 is the right multiple; 18 times the S&P earnings is 4000. We're 4200.
So, I think the market is a bit overvalued. And I am concerned about who pays for the bill when the party is over. We're all benefiting from it.
I also would make a point, historically, from my strategy days back at Goldman Sachs. I tended to notice that the stock market peaked in line with the peak rate of change in corporate profits. And I think profits will have their peak change for the quarter end of June.
KUDLOW: Oh.
COOPERMAN: And I also think the market structure is broken. The market structure is broken.
KUDLOW: The quarter end of June. That's not too far away. That's an important point, Lee.
COOPERMAN: Yes, that's the peak rate of change.
KUDLOW: That's really -- that's the important point.
COOPERMAN: Yes. Yes.
KUDLOW: All right.
Is it going to end badly? Does it have to end badly, Lee Cooperman, is my last question.
COOPERMAN: I'm inclined to think it will end badly because of all the excesses, but it doesn't have to end badly. He has to be right that the inflation is transitory.
Again, I get back to what I said at the beginning. If we don't have a recession, you're not likely to have a significant bear market. And if -- you know, if interest rates belong at 1.6 percent, basically, you're not supposed to make double-digit returns in the stock market. I believe in the capital market line. What you earn in the bond market should have relevance to what you earn in the stock market.
So, if 1.6 is right, you probably should earn 5 percent in the stock market. You don't make double-digit returns. So, I'm inclined to think it ends badly, but it's not guaranteed.
The one thing that's great about this business is, nobody knows anything for sure.
(LAUGHTER)
COOPERMAN: Warren Buffett says it well. He says, forecasts of the future tell you more about the forecaster than they tell you about the future.
We do our best. And my guess is that--
KUDLOW: Lee--
COOPERMAN: -- when the next bear market hits--
KUDLOW: We will get through it.
COOPERMAN: Yes.
KUDLOW: Lee, I think, first of all--
COOPERMAN: Yes. Well, of course.
KUDLOW: -- thank you for your time. You're very generous.
I have known you a long time. Actually, you and I have interviewed each other from time to time in different forums. And it's been a great delight.
COOPERMAN: Absolutely.
KUDLOW: I think the most important thing you said today, honestly, the American dream is still alive and well. It may be a little tougher, but it's still alive and well.
COOPERMAN: I hope so. It should be.
KUDLOW: And you are the illustrator of that, Lee Cooperman.
Thank you, my friend. Thank you ever so much.
COOPERMAN: Thank you very much for your gracious comments. Thank you, Larry.
KUDLOW: So long.
COOPERMAN: Thank you.
Stay well. Stay safe. Stay healthy.
KUDLOW: Thank you.
