"There Are No Stabilizers Left" - Cooperman Warns That Next Market Crash Will Make Traders "Heads Spin"

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by Tyler Durden
Friday, Apr 30, 2021 - 02:55 PM

During an appearance on CNBC Friday morning, hedge fund titan Leon Cooperman insisted that he believes staying long is the only option for equity investors so long as the Fed keeps interest rates on hold...but that once the market has "a reason" to sell, traders can expect a tumultuous wave of selling on par with the declines seen in March 2020.

Cooperman, who started speaking just as the latest personal income data revealed that one-third of income during the period came from the government, declared that "I don't see the condition for a big market decline presently - however, and this is the big 'however' - we should recognize that we're pulling demand forward and the long term outlook isn't particularly favorable in my view."

What does that mean, exactly? Cooperman explains:

If investors "spoke to 100 economists today and asked them what their view is of the potential real growth of the US economy, the response would be centered around 2% real, and they would get there by saying well I think productivity growth is at 1.5%, labor-force growth is .5% and that's real growth - 2%. A bear might say 1.5% a bull might say 2.5% but it would be centered around 2%."

"We're growing this year 4-5x potential, yet the Fed is insisting on keeping interest rates near zero. That doesn't make any sense to me. That's just pushing people out on the risk curve."

He added that he expects the market will be lower one year from today.

In summary, while Fed Chairman Jay Powell insisted yesterday that the Fed isn't even thinking about raising interest rates yet, Cooperman, like Jeffrey Gundlach before him, remains skeptical. And while Cooperman understands that there's nothing to be gained by 'fighting the Fed' - that stocks will likely continue to climb as confidence in the Fed's backstop remains high - at some point, the market's frothy valuations will - to borrow a phrase he once used to describe the GameStop trading frenzy - "end in tears".

Ironically, however, Cooperman said that some of the most highly valued megacap stocks actually deserve their lofty prices. Asked specifically about his holdings in Amazon, Microsoft and Google parent Alphabet, Cooperman emphatically replied that he would be "staying pat" after this week's blockbuster earnings. He added that "they're real substantive companies generating substantial cash, I don't look at them as overvalued...what's overvalued is fixed income...I don't understand why anybody would buy a bond."

Shifting to a tangent about contemporary market structure, Cooperman lamented that while he doesn't see the conditions for a major decline, "when the market has a reason to go down, it's going to go down so fast that your head is going to spin...because there's no stabilizers left. 50 years ago, commissions were 25 cents a share, and the Volcker Rule didn't exist...brokerages had incentive to step in."

Circling back to the start of the interview, Cooperman - asked to comment about Sen. Elizabeth Warren's latest jab, delivered on CNBC earlier this week - commented that Warren "proved to me she was a politician in the worst sense of the word...I do believe in progressive income tax structure, I do believe rich people should pay more. The wealth tax makes no sense to me for lots of reasons...and all the countries where it has been introduced - I think 14 out of 17 - it has been eliminated. There are other ways to go about what she is trying to accomplish. Raise the marginal tax rate. Eliminate tax loopholes. Eliminate the tax code item 1031 which enables real-estate people to roll forward gains...there are all types of things we can do.

"And in the end, it's probably unconstitutional," Cooperman added.

While Warren has accused Cooperman of not contributing his fair share, Cooperman responded by musing: "What is your fair share of what someone else has worked for? I'm willing to work 6 months a year for the government and 6 months for myself. That seems reasonable to me. Beyond that it becomes confiscatory."

Shifting his attention to President Biden's sweeping "infrastructure" package, Cooperman lamented that American is abandoning capitalism in favor of quasi-socialism.

With all this in mind, one would think Cooperman opposed the progressive Democrats' economic vision. But to our surprise, Cooperman - who once praised President Trump and his economic plan including the historic tax cuts he signed into law - admitted that he voted for Biden last year. So if a national wealth tax does become a reality in the coming years, he will have nobody but himself to blame.