Omega Advisors’ CEO Leon Cooperman thinks the U.S. economy and financial markets are headed toward a financial crisis, though he shrewdly declined to put a date on the precise moment of collapse.
“My guess is that Nvidia is two years away from blowing up,” Cooperman, the former chairman of Goldman Sachs Asset Management, told attendees at John Mauldin’s Strategic Investment Conference this morning. On several occasions when Cooperman cited Nvidia as a source of potential trouble, his tone suggested that he viewed it as the kind of stock associated with behavioral manias, not as one that he had meticulously analyzed and discovered specific flaws.
Cooperman, who is regarded as a sober observer of financial markets, compared today’s equity market environment to the Nifty Fifty period of the early 1970s. It’s “a bifurcated market,” he observed in an interview with David Bahnsen of the Bahnsen Group.
Investors who don’t own the Magnificent 7 stocks have benefited much from this market, Cooperman said. He also added that the Magnificent 7 had become the “Fab 4” as several stocks, including Tesla and Apple, have underperformed in 2024. As far as his own portfolio was concerned, the 81-year-old asset manager said 15% of it was in energy and his tech holdings included Microsoft and Google. In 2018, Cooperman converted Omega from the hedge fund firm he started in 1992 to a family office.
“When a leadership change takes place,” market dislocations are likely to be “very corrective,” Cooperman said, adding the implications could be long lasting. Cisco Systems, the darling of the 1990s tech bubble, is “lower than it was 24 years ago.”
The next bear market, in Cooperman’s view, is still “down the road. We’re not there yet.” When it arrives, Cooperman suspects the market decline will be somewhere in the “25% to 30% range.”
For now, the stock market is expensive relative to interest rates and he admitted he couldn’t explain why the 10-year Treasury bond yield was at its current level. “It should be higher,” he said.
Bahnsen asked if perhaps the markets, being forward looking, were expecting economic growth to revert to the 1% or 2% rates of the previous decade. Cooperman conceded it was possible, adding he expected the S&P 500 “to go nowhere” in the foreseeable future.
“We’re overdue for a market slide,” Cooperman continued. “What will it take?” He suggested that a recession or a problem at Nvidia, like a missed earnings number, could cause a bear market.
Both he and Bahnsen agreed the federal budget deficits of $1.5 trillion or more were unsustainable and were fueling inflation. Cooperman said “income disparity was a huge problem.”
From the $54,000 he paid for a Hyundai in 2017 to the $13 cost of a pretzel at a Yankee game, Cooperman suggested that the cost of living was rough on ordinary Americans and a cause of national discontent.
The boom in private credit could make the next recession worse, in Cooperman’s view. While he expects executives at established institutions, such as JPMorgan Chase’s Jamie Dimon, to stand behind their private loans when the economy gets into trouble, many of the private credit sponsors “will walk away.”
Cooperman also lamented the upcoming presidential election. “One guy is bad and the other is worse,” he said, declining to identify which was which.
“I’m negative on Trump,” Cooperman said. He considered Trump’s economic policies to be superior to President Biden’s, but he took issue with the former president’s conduct, such as denigrating military officers like the late Sen. John McCain and the husband of Nikki Haley, the former South Carolina governor. “You can’t do that,” Cooperman said.
The biggest problem society faces is what tax rate to levy on very wealthy people. Sen. Bernie Sanders has suggested it could be 90%, and Cooperman called him “a communist, not a socialist.” He also cited proposals from Sen. Elizabeth Warren for a 70% top rate and Nobel laureate economist Paul Krugman’s call for 64% rate.
His own suggestion was a 50% maximum rate, but he acknowledged that the problem with this was that so many ultra-wealthy individuals lived in states with very high income tax rates of their own. Consequently, their total tax bills could be significantly higher.