WHEN: Today, Thursday, October 12, 2023
WHERE: CNBC’s “Financial Advisor Summit – Making the Most of Economic Uncertainty”
Following is the unofficial transcript of a CNBC interview with Omega Advisors CEO & Chairman Leon Cooperman and CNBC’s Becky Quick live during CNBC’s Financial Advisor Summit today, Thursday, October 12.
All references must be sourced to CNBC’s Financial Advisor Summit.
BECKY QUICK: Hey, Ty. Great to see you guys and great to see everybody else. Let’s get right over to Leon Cooperman. He is somebody who has been looking at this market with a very tough eye recently and a lot of things have changed Lee just over the last month since we last spoke. I know you were concerned about the idea of a recession just a month ago. Since then, we’ve seen geopolitical issues, we’ve seen higher interest rates and we’ve seen a lot of concerning things like higher oil prices too. I just wonder how all of these events over the last month have changed your outlook when it comes to the markets.
LEON COOPERMAN: Not very much. I think if you recall about a year ago on your program in the morning, I said that I felt like the Pharaoh. And the Pharaoh had a dream. A dream was interpreted by Joseph. And that dream was in the Bible and he said he would expect his seven lean years following seven fat years. So I’m of the view that we borrow from the future with very profligate fiscal policy. We’re running up debt in this country, which is borrowed from the future and have a very conservative view. You know, and, you know, in 2020, national debt was $20 trillion. And I say in 2017, it was 20 trillion, and currently running around 33 trillion. That’s a growth rate – for the economy. And either it doesn’t matter or it matters. I think it matters and ultimately, we will have a crisis in public sector finance, and the market is not discounting a crisis. But you know, overall, I expect very little from the market.
QUICK: Are we still in the fat years, though, if you’re looking at a year where the markets are still up, granted down over the last month, but still up pretty consistently, considerably year to date. Does that mean we still have a ways to go before we get to the payback situation?
COOPERMAN: Well, I would say the market has been as you know extraordinary bifurcated. If you take out the – and seven, the overall market has done nothing and maybe it’s down a little bit or flat. And I think that we’re also living through a monetary illusion. I was recently honored by being offered the opportunity throughout a ball in the opening pitch at Yankee Stadium on behalf of the Yankees. And I was on the injured list because I have a torn rotator cuff. And I flew my son from Vermont, who threw a perfect pitch, but I had not been to a ball game for 30 years and I was shocked what I saw. I bought a pretzel when I went to public school in the Bronx from an old man named pop. He came around to my public school with a laundry bag and a carriage and he sold pretzels, two for a nickel. It was $13 for a pretzel in Yankee Stadium, it was $8 for a hot dog. It was $6 for a bottle of water. I bought my grandson a hat with the Yankee emblem $56 which offended my sensibilities but you don’t want you can you want to do anything you can for your kids and your grandkids. So I think that if you look at the inflation rate, we’re not really making progress in real terms.
QUICK: I mean the inflation that you’re talking about from two for a nickel to 13 bucks for a pretzel, that may be indicative of what’s going on in Yankee Stadium. Not necessarily everywhere, but I hear your point about—
COOPERMAN: No, I’ll give you another example. In 2017, I bought a car called the Genesis made by Hyundai. I paid $54,000 for it. I looked to trade it into a 2022 no discount the sticker price was $104,000. You know, I think we’re gonna have shrinkinflation in the economy. I mean, people are struggling to keep up with prices. And I think what we’re seeing is a monetary illusion. So I think the bottom line you have to ask yourself a question. Are you willing to pay 20 times earnings for the S&P? I think 20 times is too high relative to the macro environment and relative to interest rates. And I’m one of the few people who don’t think that interest rates are all that high. You know, prior to prior to the great financial crisis, the 10-year bond yield in line with nominal GDP. If inflation is stuck somewhere in a three to 4% and real growth a couple percent, you know, I don’t think the 10-year would be over overvalued at 5% or 5.5%. And so I don’t think interest rates are going down. When you say higher for longer. I don’t think they’re higher to begin with. If interest rates are so crushingly high, why would the stock market be up? And why would people be looking to play the market so aggressively?
QUICK: I hear when—
COOPERMAN: I don’t think interest rates are that high.
QUICK: I hear what you’re saying about interest rates not being that high, especially relatively speaking historically with what we’ve seen. Do you think Lee that interest rates could go considerably higher from here and you sound pretty sanguine about it? Is that okay, is it still okay to be in the market if that’s the case, or—
COOPERMAN: Well, I’m in the market in things that I like and are mispriced. I find the market as I said before is very bifurcated. And you can find many inexpensive stocks, but I think the S&P is uninteresting to me. And I think I would be very surprised we went above 4600 anytime this year, and I’m not interested in the S&P. I’m interested in individual stocks.
QUICK: Lee, there are a lot of people, financial advisors who are listening who have people coming to them saying what do I do with my money? What advice would you give them to those clients?
COOPERMAN: Well, my advice would be in order of preference, my favorite cheap stocks, short, dated treasuries in the one-to-two-year period and my least favorite would be long term bonds. I don’t think bonds with a long duration make any sense given what’s going on in the world. You know, and I think interest rates will likely go higher when interest rates go higher, bond prices drop. I would not be a buyer of bonds until we got to over 5%.
QUICK: Over 5% you would be a buyer of long term?
COOPERMAN: I would like to look at the alternatives but I don’t think there’s a case much above five and a half percent. But, you know, I’m, I’m typically not a bond buyer. So you have to dilute a little bit about I’m saying about my asset preference. In the long term, you’re much better off in stocks and you can find a lot of attractive stocks. You know, ExxonMobil found planes which I owned, and I have a bunch of energy stocks. I have a bunch of non-energy stocks. I can find plenty of things to do. But I don’t like the domestic economic situation. I don’t like the political situation. We have two political parties that leave a lot to be desired. I think the debt build up in the country is very disturbing. And as I said, I don’t see any major upside in the market. But I don’t see major downside either, short of a recession. And right now I don’t think a recession is in the cards. And the reason it’s not in the cards is because of the very aggressive fiscal policy.
QUICK: In terms of the higher rates that we’ve seen lately, do you think that is related to the nation’s debt that you’ve been referring to? I mean, it’s interest rates—
COOPERMAN: It’s related to the debt and fiscal policy.
QUICK: And that—
COOPERMAN: Fiscal policy is very stimulative.
QUICK: And that means what in terms of where you like to put—
COOPERMAN: That means you avoid a recession?
QUICK: Yeah because it’ll keep coming?
COOPERMAN: Yeah, I think exactly. When I look at what’s going on in the economy, it doesn’t read like recession, employment is relatively high. And we have very stimulative fiscal policy. And what has to happen is the dollar has got to get cracked. The price of oil is gonna go up a lot, or QT is going to ultimately get to the market. But right now, you can’t call for a recession because of very stimulative policies.
QUICK: You think that changes with the election next year or not? Is this something at this point both parties it doesn’t really matter who’s in office?
COOPERMAN: It’s got to change ultimately or the deficit doesn’t make a difference. There are some economists that claim that the deficit doesn’t make a difference. I’m very old fashioned. I’m not an economist. But debt is running about 8% of GDP. And the deficit I should say is running about 8% GDP which is a very high number. And you know, we’re dependent upon others to lend us money at attractive prices. If they get scared over our fiscal policy, that game will change and I think we’re heading towards a fiscal crisis of some kind. I don’t think equity prices discount a crisis. And I’m not an alarmist. I’m a realist. But if it turns out that the deficit doesn’t matter, then this can go on for a lot longer.
QUICK: But you think all of that is going to be held at bay until the economy suffers a recession and you don’t think that’s happening anytime soon?
COOPERMAN: Yep, I would say that I cannot sit here and tell you that we’re in a recession or heading to recession quickly. But I think when we have a recession, everything will kind of unwind.
QUICK: Let’s talk about the things you do like. You mentioned that oil companies are some of the places that you’d have some plays on oil. Oil prices have been higher very recently because of the events that have unfolded in the Middle East after being down more recently because of concerns about demand for just global demand what that will mean for which side plays out, supply or demand. What do you like in the oil patch?
COOPERMAN: Well, I like a company – I’ve mentioned it previously on your show, Paramount Resources, Canadian oil and gas company. They produce oil at roughly $31 a barrel. So every barrel they take out of the ground, they’re generating a lot of cash, they have no debt. And at the current price of oil, they generate about $4 million of cash in excess of the dividend, in excess of capital, capex. They own about $6 per share in other energy assets that don’t add to earnings. So you could take a $30 stock price of track six, and they can create some instant value. They own 17% of another cheap oil stock called new NuVista, which if they were aggressive and went after NuVista and consolidated, would create a lot of value. So that’s one example. And Devon Energy which could be the next planes. There are a lot. You know, when you’re buying something at three times cash flow, you tend to get lucky in the market. And that’s one example. Cooper Industries, a mortgage company. We like, very cheap. Mirion, MIR, a leader in nuclear technology, very cheap. Generally, I tend to look for companies that are paying me to wait because I think I have to be patient. And I’m over 80 years old and it’s hard to be patient, but I kind of feel like I’m back in the environment when I joined Goldman Sachs. You know, I got my MBA from Columbia Business School on January 31 of 1967. I had a six month old child had no money in the bank, and a student loan to repay. They were not forgiving student loans at the time. And I was broke, and I couldn’t afford a vacation. So I started my career at Goldman Sachs on February 1 of 1967. The Dow was roughly 1,000. In 1982 it was roughly 1,000. I made my money picking stocks and that’s I think the environment we’re in. I’d be very surprised if the S&P 500 broke out to the upside. I just think at 20 times earnings is too expensive, but the market is very bifurcated. So I would advise advisors, USB would address myself to is find somebody that’s a very good stock picker. Find a good hedge fund that can go both ways. Long and short. Stay away from long dated bonds. Stick in one to two year maturities and that is kind of how I would play the market. I would not have high expectations.
QUICK: 67 to 84 is a lot longer than seven lean years. You think it could be that long of a switch –
COOPERMAN: Yeah, I’m not making a seven year forecast. I’m not making a 10 year forecast. But what I’m saying is, you know, I don’t think the markets got much upside in the near term. Things change. You know, we have a lot to worry about. What happened in Middle East is a concern. It’s despicable what the Hamas did. And it’s hard not to imagine a strong response by Israel and that can become broader in nature. So you know, you gotta be very careful. You know, it’s not an easy call. And I think people on your program are not spending enough time talking about our fiscal situation. They’re all focused on inflation. But I think inflation is just one part of the issue. I think that focusing on our fiscal deficit would make a lot of sense. And I don’t know how we cure it. I really don’t. The numbers are so large. I’ve advocated for several years on your program, that as a nation, we have to coalesce around the question, what should the maximum tax rate be on wealthy people? Because that will define the revenue yield to the government and the government has to size themselves to that revenue yield. Now Bernie Sanders, he’s not a socialist, he’s a communist. He says 90% which is ridiculous. Elizabeth Warren who I tangle with through one of your program executives have gotten me into trouble with her. She is 70% plus a wealth tax. And I try to explain to her in a very respectful manner why wealth tax made no sense. Paul Krugman, The New York Times, he’s at 64%. A guy that I like a lot, Thomas Sowell the think tank out in California, says in this era of social justice, what is your fair share for someone else has worked for? I am willing to work six months for the government, six months for myself. The trouble with that is if you live in New York, New Jersey, Connecticut, California, you’re already past 50%. And we’re running a substantial deficit. You can take away all the money from the wealthy people, it’s not – and still not solve our fiscal situation. So I don’t know how we deal with it. The answer is it’s going to have to be higher taxes, less government spending, and we’re more and more that budget is becoming fixed. And what’s going on with instability around the world, it’s hard to see military spending being cut back. So it’s a very big problem that we have to deal with it. I don’t know the answer, to be honest with you. It’s not a pleasant answer.
QUICK: Look, in Washington right now there’s a lot of turmoil. You can’t even get Republicans to agree on who they think the Speaker of the House should be at this point. It’s tough to think of a Simpson Bowles sort of cross the aisle moment where you deal with the budget deficit under scenarios like we’ve seen recently, on both sides of the aisle.
COOPERMAN: I agree with that and I have said repeatedly, we have a government that degenerated into a leadership out of crisis. We don’t have a crisis at the moment, and we have no leadership. When we get into a crisis, God forbid when we get into a crisis, we’ll get leadership. The trouble is financial assets don’t discount the crisis. Bonds don’t discount a crisis and equities don’t discount a crisis. But I believe we’re heading to one. And when we have one, we’ll have lower prices and we’ll have leadership. But I agree with what you’ve said.
QUICK: We’ve got a couple of questions from the audience. Lee, I want to bring a few of them to you. Brian Cummings wrote in a question that is exactly on this topic that you’re just talking about. He’s trying to figure out if there’s an inflection point. He asks, “where do you think the debt to GDP ratio can get before it’s a significant economic problem?” I know, it’s hard to kind of find that time, but is it something where –
COOPERMAN: I’m not enough of an economist to answer that question. Obviously higher than we are currently now. We are, I mean, we’re close to 8% which for peacetime is almost the record, you know. And higher than we are now. But I don’t think a lot higher. You know, it’s higher in Japan, but they’re self financing. They don’t need any external capital. So it’s when our friends want to stop lending us money at these rates is when they’ll change.
QUICK: Lee, Marianne Campbell writes in. She wants to know what do you like in stocks? And I realize you’ve talked about some of the things you like, but you’ve also in the past been involved in Alphabet and some of the other big tech stocks as well. Are there any of those big technology stocks you still like?
COOPERMAN: Yeah, I own Microsoft, and I own Google. And not interested in selling them. I own Apollo Global Management. I’ll give a shout out to the CEO who has spoken out what’s going on in the Middle East. Very, very big fan of Mark Rowan. And I own Citibank, which is a laggard, I own Elevance and Cigna in the health care area, which was selling in the 10 to 12 times earnings zone. I own I mentioned Mirion. But you know, and I have about 20% in energy and I have a lot of individual stocks – Cooper, Rexnord, etc. You know, I’m a stock jockey. I have a team of two guys working with me. We try to find things that are out of favor.
QUICK: You mentioned that 20% of your holdings are in energy. And yesterday, Exxon Mobil announced a huge deal. The biggest deal it’s done this century, about a $60 billion deal to buy Pioneer Resources, which is a huge bet on what’s going on in the Permian Basin. Do you think that kicks off a chase for other companies to make big purchases when it comes to the Permian Basin?
COOPERMAN: I think there will be consolidation. I’m happy to say own planes. We intend to stick with Exxon. But I would be very surprised if energy prices got away on the upside. Now the Saudis have about 4 million barrels of production shut in. So there’s plenty of supply. And if we had intelligent energy policies in the United States, we’d have less pressure. You know, I think the Republicans will bring in an intelligent energy policy. We don’t have an intelligent energy policy currently. I do think that normally when there’s a deal like Exxon Mobil, and planes, there’ll be other deals that follow on and we think Devon could be a candidate. We own some of the pipeline companies like Enterprise Products, Energy Transfer, which have high yields, are paying me to be patient in a position to buy back stock, good management, large insider ownership, etc. So you know, those are criteria. I’m generally with new investments, I’m looking for things that are paying me to wait and if their stocks are cheap, they have the financial resources to buy back stock. I don’t want to own things that don’t pay me to wait. And if their stock is not cheap – and if their stock is cheap, and they are willing to buy it back, if they have the financial resources. We’re going through a crazy period. You know, I was somewhat of an expert on stock repurchase because I had the good fortune of spending 25 years, twice a year visiting Dr. Henry Singleton, the founder of Teledyne, the smartest guy I ever dealt with. He kind of coined stock repurchase. He did 8 self tenders and retired 90% of his stock when nobody understood stock repurchase. I look at Nvidia stock has gone from 150 to almost 500 and they announced a $25 billion repurchase program. They’re obviously very bullish on their business, but I don’t know. Stocks have a memory. I don’t think that they should be buying back stock that’s tripled. Things change. I tell a story in a very favorable way where earlier in my career, I was a chairman of the audit committee of one of the great corporations in America, Automatic Data Processing. And the CEO at a board meeting, asked for approval to buy back $2 billion worth of stock. And he’s a very good CEO, a very sharp guy. And I raised my hand and I said at the board meeting, “what do you think you’re accomplishing by buying back your stock at 35 times earnings?” And his response was “Lee, I understand your opinion, but next year will be cheap. And as far as I’m looking, I see 15% growth.” Well at the very next board meeting he was very great towards me and he said, “we owe Lee a debt of gratitude. I’ve never seen such an abrupt change of business conditions.” This was a company that had 50 years of 15% quarterly earnings growth every year for 50 years. And they said they had never seen such an abrupt change in business. They had two down quarters in a row. The stock got clipped big time. I called him and said “now’s the time to buy.” Now I didn’t know much about Nvidia, they’re obviously very bullish on their business. But things change. You know, the one thing about capitalism that is so terrific is every economic expansion, sows the seeds for the next recession and the next recession sows the seeds for the next economic recovery. And I would say if I was Nvidia, I would return the $2 billion in the form of dividends, not repurchase just to keep it on your balance sheet for a while. But we’re in an unusual period where everybody is optimistic. Not everybody, but most people are optimistic.
QUICK: Well we like hearing a dose of reality from you, Lee and we appreciate all of your time this morning again, Lee Cooperman from Omega Family Office. Great to see you, Lee.
COOPERMAN: Nice to be with you and good luck to everybody. Stay safe and stay healthy.