Leon Cooperman (Trades, Portfolio) is the founder and CEO of Omega Advisors, a former hedge fund that he converted into a family office in 2018. At age 77, Cooperman has seen it all - he started his career at Goldman Sachs (GS, Financial), where he spent 25 years before founding Omega. In a recent interview with Bloomberg, Cooperman talked about his view on current central bank policy.
The disconnect between the stock market and the real economy
Cooperman believes that the U.S. Federal Reserve has created a speculative bubble in financial markets, which does not at all dovetail with the conditions of the real underlying economy:
"I have to admit I am uncomfortable at the present time - not because of the virus, but because of the amount of debt that's been created. It took us [the United States of America] 224 years to go from zero national debt to $21 trillion and we're probably going to end this year with $27 trillion. That is a growth rate in debt far in excess of what the economy is growing at, and I think the debt's going to be an issue going forward."
Cooperman pointed to indicators like the trading volume in call options for Apple (AAPL, Financial), which has been exploding ever since management announced a four-for-one stock split. Since the announcement, the stock is up 17%. A similar phenomenon can be observed with Tesla (TSLA, Financial), which also announced a stock split recently (up 49% since the announcement) and has seen its share price rise significantly. Of course, a stock split does not add any real value to a company - it is the equivalent of exchanging a $100 bill for five $20s. But for whatever reason, investors and traders continue to be attracted to these tech stocks.
Cooperman went on to say that unlike Europe and Japan, where ultra-low interest rates have not resulted in strong stock market rallies, the U.S. market has gotten significant support from its central bank. He believes that low interest rates are indicative of a very weak real economy and that speculative trading (enabled by zero commission brokerages) has created some serious bubbles in popular stocks. Historically, this kind of excessive optimism has inevitably led to disappointment, and Cooperman seems to be betting that this time will be no different.
Disclosure: The author owns no stocks mentioned.
Read more here:
- Peter Lynch: The Value of a Long-Term View
- Understanding the Midstream Energy Sector Today
- Joel Greenblatt: The State of Value Investing Today
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