An excessive amount of debt within the system, shares can get caught for years
Billionaire Leon Cooperman told CNBC on Friday that he was concerned about the long-term outlook for the stock market because of “too much debt”.
“I think the overwhelming reality is that the Fed is only creating this free money environment. One has to form judgment about whether this is warranted, how long it will take and what effect this will have on the longer-term outlook,” he said Cooperman said on “Squawk Box.”
“In the longer term, I’ll probably have a different opinion than Wall Street because I’m worried who will pay for the party when the party is over?” added Cooperman, chairman of the Omega Family Office.
He said the shares are reasonably priced right now. But, “I went back and checked. Whenever you picked the S&P 500 when it was selling at 22x or more, your five-year return has been close to zero,” he added. “So I wouldn’t be surprised if the market average is very little.”
In August, Cooperman also raised concerns about the long-term market outlook after Wall Street recovered from the coronvavirus lows caused by the pandemic in late March. “We pulled a lot of demand forward. I would expect future returns to be relatively nondescript for a long time,” he then told CNBC.
Cooperman said Friday he recognized the need for near zero percent interest rates and exceptional monetary stimulus to help a US economy troubled by the pandemic. However, he said that such political decisions are not without consequences. “There is just too much debt in the system and I think eventually there will be a problem,” he said.
Currently, however, Cooperman believes that the near-term outlook for the stock market is “favorable” due to Fed policy and the impending clarity of the outcome of the presidential contest between Democrat Joe Biden and President Donald Trump. He also said that Congress may pass another pandemic stimulus package, adding that positive developments on a Covid-19 vaccine should provide tailwind for stocks.
“I expect something will happen in the next 12 or 18 months to change this Goldilocks environment and it will force the hand of the Fed,” he said. “The dollar could hit new lows and inflation pick up.”
Cooperman, a distinguished philanthropist and son of a plumber from the Bronx, said on polling day on CNBC that he cast his vote for Biden in the presidential race and said he “voted for my values, not my paperback.” As early as August, he said he was undecided and referred to the uncertainty about Biden’s policies and concerns about Trump’s divisive behavior.
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