Leon Cooperman Discusses David Tepper’s Warning

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Discussing David Tepper’s cautious remarks on the market, with legendary stock picker Leon Cooperman, Chairman & CEO of Omega Advisors.

Leon Cooperman ‘reasonably fully invested’


my first reaction is opinions are like noses, everybody has one, though i think david’s opinion should be listened to and respected. he’s a very capable fellow. my mistakes can be paraded up fifth avenue five abreast, i want to say that before i now say what i want to say. i was on squawk box around the turn of the year, and i said that my opinion, the entire debate about the market centers around what is the right multiple for the earnings we’re seeing, because earnings are growing very modestly than the leverages and the multiple. i said i thought the proper multiple was about 16 times. you take 16 times 1 $117 earnings estimate — sorry if i sound like a statistician, which i’m not — 16 times $117 is 1,872. the market ended 1,848, a fair evaluation. by coincidence, i seem to be traveling in david’s wake or a similar zone, david followed me on 20 minutes later, and i think he said he thought the proper multiple for the market was 18 to 19, which got me nervous, because that was a much bigger upside than i would have anticipated. clearly, he’s changed his view and he’s entitled to change his view. i’m guessing his view change has to do with the ecb being slow in changing and concerns. i believe the ecb will do what they have to do and the conditions that would lead to a bear market are just not present and that the market’s in its own fair evaluation. sure, you should have cash most all of the times except the major bear market bottoms but the market is fairly valued. it’s not priced to perfection but not undervalued either. where’s your cash position right now? are you holding more cash than you had in the past, or not? not really, because we have about 15%, 20% of our portfolio in structured credit. my structured credit team is doing a fabulous job. they’re doing better than i am in the equity market. they’re up about 6% today. they’re adding to our portfolio returns. we’re paying our brokers 70 basis points a year for money, and we’re ending 1% a month in structured credit. we don’t have much cash. we’re reasonably fully invested but we have a lot of borrowing capacity, because we have no leverage. what i hear you saying is you don’t necessarily agree with tepper with — well, time to have some cash. if you think the market is fairly valued or fully valued, you ought to have cash. he didn’t give me a number, a downside, an upside. i’ll make the cardinal mistake, give you an upside and downside. i don’t believe it will go below 1,700 and i don’t think we get above 2,000. at the end of the day, as i said around the turn of the year, i think we could have a high single digit return for the year. very strongly believe that the conditions that lead to a bear market are not present. generally conditions that lead to a bear market — maybe i’ll even quote john templeton, very famous man, he said bull markets are born in despair and end in euphoria. i don’t see any signs of euphoria in the market. 25% of all stocks yield more than bonds, which is attractive condition. recessions cause bear markets. the bear markets discount recession. there’s no sign of recession. economic data is looking better. what’s the 10 year telling

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economists are marking upeconomic growth.the 10 year’s going down inyield.okay?it’s not discounting recession.the lower interest rates andgrowing economy have to bepositive.let’s step back.this is a point i’ve been makingthree years whenever i’m on theprogram.what are your alternatives infinancial assets today?you could keep your money incash and that’s somewherebetween zero and 50 basispoints.you could put your money in u.s.government bonds, that’s 2.45,2.50.i think two, three years fromnow you’ll be looking at 10-yeargovernment bond, 4%, 5%.historically, it’s yielded inline with nominal gdp.nominal gdp is the summation ofreal growth and inflation.two to three inflation, two tothree real, four to six nominal,four, five, six percent 10-yeargovernment, capital loss builtin, and the government.the high yield, forget about it.high yield down, i think, 5.4%,record tightness.there’s very little that’sattractive in high yield.and you’re left with the stocks.like i said, 25% of stocks areyielding more than bonds.the multiple at 16 is in linewith historical norms.low relative to inflation andinterest rates.i think stocks are your best betin financial assets.i’m going to change my mind onthe one of four conditions.condition number one is we startto see evidence of recessionaryconditions in the economy.if anything, everything we’reseeing is reverse of that.the second thing will change mymind is if we had a quick 10%,15% rise where the market gotinto a zone of overvaluation,clearly that’s not happening.certainly not happening today.okay?the third thing that will changemy mind, if i saw growth, say,1% or less, because i thinkcorporate profits arethreatened.the last thing i say, if theanimal spirits took hold andgrowth was to start and itlooked like 4% or more, and thefed comes into play, then ithink the multiple risk isgreater on the downside.i don’t think the conditions fora bear market are present at thecurrent dime — time, and again,i have enormous respect fordavid.i know him, we’re in the samecommunity.he didn’t give me any numbers to

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you came into 2014, what was the consensus view? the consensus view was basically be long u.s. stocks, be long japanese stocks, be short the yen, be short gold, be short bonds, and everything has worked in reverse. i think that the market needs evidence on two factors that will give us a strong fourth quarter and strong close to the year. number one, we have to see the fed get out of buying paper, so tapering will end in october. and we have to see what impact, if any, that has on the economy. the second thing is investors need to see evidence of the economic outlook for 2015. and i’m reasonably confident if at the end of this year we’re going into 2015, and the economy looks decent — mm-hmm. — and the fed’s ending tapering, does not upset the economy, the market ought to have a good fourth quarter, and reprice 2015 earnings in the fourth quarter of 2014. i don’t — i would be — i would not at all be surprised if the market sloshed around until the fourth quarter until we get evidence of those two factors. if the evidence is favorable as we expect, i’d expect the market to have a favorable close to the

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