Coronavirus & The Lasting Effect On Capitalism And The US Economy (w/ Leon Cooperman & Ed Harrison)

ED HARRISON: I'm Ed Harrison for Real Vision, talking to Lee Cooperman, who is the CEO and

President of Omega Family Office.

Lee, nice to talk to you.

LEON COOPERMAN: Nice to be with you.

Thank you.

ED HARRISON: I was just telling you right before how I was talking about this, because

you spoke to my colleague, Grant Williams, right when you were leaving the hedge fund

business, I guess you could call it, Omega Advisors and turn it into a family office.

I think this is a good opportunity to make a follow on conversation to that, but for

those people who don't know who you are, maybe you can give them a little peek into your

pretty story, history and resume.

LEON COOPERMAN: Well, with all modesty, I'd just say I've lived the American dream.

I was first generation in my family born in America.

First generation to go to college.

Well, my schooling was public school based up until business school, I went to P.S. 75

in the South Bronx, Maurice High School in South Bronx, Hunter College in the West Bronx.

I followed the advice of Harley [?] who said, "Go west, young man."

I went from the East Bronx to the West Bronx.

Then I had a short stint at Columbia Business School, which opened the door to Wall Street

and I started my career in Wall Street in February 1st of 67, with a six-month-old kid

and no money in the bank, and student loan to repay and I've made a lot of money and

happy to say I've taken the Giving Pledge with Warren Buffett, I plan to give it all


It's been the American Dream, have been very lucky.

ED HARRISON: Along the way, you were at Goldman, made partner there for 25 years before.

LEON COOPERMAN: I got my degree on January 31st, 1967.

With a six-month-old kid, had no money in the bank and a student loan to repay so I

couldn't afford to take a vacation.

I went to work at Goldman the next day as an analyst, February 1st, 1967.

I rose to the ranks and became a partner in charge of research, Chairman of the Investment

Policy Committee.

Then I started Goldman Sachs Asset Management two years before I retired.

I retired from Goldman in 1991 to start Omega and I had Omega for about 25 at the end of


I decided to convert to a family office and when I say [?], I've seen 100 times with Godfather,

the scene at the airport where Hyman Roth is being interviewed and right before they

shot him.

He said I'm a retired executive living on a pension.

I'm retired money manager living on an investment income.

The bad news is I have no active income.

All my income is dividends, interest, capital gains and losses.

The good news is I have no pressure.

At age 77, I think that was a worthwhile swap.

I was shocked I did it because I loved the business.

While my friends were very surprised, and my friends asked me how my life is going to

change, I told them at the end of 2018, about two years ago, that I planned to sleep an

hour later in the morning.

I've been a workaholic and I get up at five in the morning, slept into New York City,

to go to work my office in Manhattan.

I sleep an hour later in the morning, number one.

Number two, I'm going to get to the gym three times a week.

I'm a bit of a chunky guy and I think I spent some time getting my health in better shape.

Though I've been very blessed, I'm in good health.

Third thing, I've done the first two.

The virus has interfered with the gain in the gym, as often as I like to get to the


The third thing I said I was going to do, which I haven't done is I have very good [?] sense

but I've never learned the bidding and bridge.

My wife is a very good bridge player.

I sat with [?] learned bidding and bridge.

I've been so damn busy with the stock market, I've not had the chance to do that.

The other thing I said to do would be more long term oriented, tax efficient and since

the bulk of my financial assets are in equities, I would look to diversify a little bit into


ED HARRISON: Interesting.

We should talk about that closer to the end, especially given RAOUL PAL: Hi, I’m Raoul


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LEON COOPERMAN: equities, I would look to diversify a little bit into non-equities.

ED HARRISON: Interesting.

We should talk about that closer to the end, especially given that bonds are giving you

zero, where you're diversifying, what do you think of private markets and stuff like that.


Any questions you have, I'll try to give it my best shot.


I was telling you before, I went to Columbia Business School and you're a Columbia Business

School guy, the reason actually I went to Columbia Business School was because of Ben

Graham and Warren Buffett, value investing.

First of all, why did you end up at Columbia and did you get the value investing bug?

LEON COOPERMAN: Well, I wound up in Columbia probably because of location.

I grew up in Bronx, I was living in Riverdale.

I wanted to get an advanced degree and Columbia was very convenient.

Really, Columbia changed the trajectory of my life because I don't think it's right but

I never probably could have gotten to Goldman Sachs with a degree from Hunter College.

When I got the MBA from Columbia, and I was a good student, I was straight As in Columbia,

I was beta gamma sigma, Wall Street Journal Student Achievement Award and had a very focused


Back in 1966, when I was interviewing, offers were plentiful, very different than the environment


I've been very lucky.

I didn't know much about value investing, I know much about investing.

I studied under Roger Murray, a professor at Columbia, and Cindy Robbins, who gave a

course in portfolio management.

Roger Murray was a conventional professional and I learned a lot from him and taking my

course in security analysis.

I remember back in 1966, I had two resumes when I was interviewing.

The biggest challenge was trying to remember who I was talking to.

One resume said desired position on financial staff of major multinational corporation,

thinking of Exxon or that [?} on New Jersey, General Foods, somebody like that.

The other resume said desired position in Wall Street research department, doing research

on companies.

I have to remember if I was talking to Goldman, or Morgan Stanley, or whoever, or I was talking

to General Foods, or Exxon.

I want to go into Goldman Sachs, and when people say what makes me success, I say three


One is hard work.

To this day, I still work very hard.

A lot of luck, and intuition.

The luck is understandable and hard work is understandable, so what do you mean by intuition?

I give people two examples, which were very pivotal.

Back in the 1960s, if you finish your major and minor in college in three years, they

allow you to count your first year of medical or dental

school towards your fourth year of college and you get a separate degree.

In the summer of 1963, I worked very hard to get physical chemistry at the University

of Pennsylvania, Chemistry with my major, knocked off my major and I enrolled in the

University of Pennsylvania dental school.

After eight days, I was wondering whether I was making the right decision or was I pushing

myself in a direction that I was not fully committed.

It was very traumatic, because you got to think about it.

I paid tuition for a year, I paid my room and board for a year.

When I bought my instruments for the laboratory, they tell you drill your initials into your

instruments, because things have a way of disappearing in the lab, so they were worthless.

There was $1200 dollars' worth of equipment that I paid for.

I had all my friends and my dad, may he rest in peace, my dad was, [?] my son a dentist.

I had to go back to the Dean of Hunter College and get permission to matriculate back in

and I did that.

Because I had all electives available, my major and minor would complete in three years,

I had all electives.

I took 10 courses in economics and my senior year, I got 10 As, graduate with honors in

Economics, even though my major was Chemistry.

That was intuition making a big decision to go on a different path.

Then secondly, when I was interviewed in 1966, the market was at a high.

I was attractive package now physically, but I was Beta Gamma Sigma, Wall Street Journal

Student Achievement Award, had a six months old kid, and a very focused interest.

I was attract-- I had 16 job offers.

Goldman wasn't the best to offer financially, it was Goldman did not allow their analysts

to handle brokerage business, whereas some of the other firms did.

I remember the fellow that extended the offer, terrific guy from Yankton, South Dakota.

His name was Bob Danforth, real downhome guy.

One of the few times in my life I missed a deadline and he called me up and says, "Lee,

we haven't heard from you, what can we say?"

I said, "Bob, let me explain.

I'm broke.

I have a number of job offers, four of which are higher than Goldman's, but I like everybody

I met there."

I was very familiar at that time with the union club.

I had a book on compound interest tables and the offer was for 12500.

I said to him, "You see, I can make $25,000 in five years, doubling five years at 15%


He said to me, "If you work on keeping those clean, I think you could do it."

I said, "Okay, I'm going to come."

Yeah, I went to a place that was paying me less than somebody else even though I was

broke, because I like the people I met.

When you look back at that decision, how many firms have not changed their name in the last

50 years, Goldman is about the only one.

You could have gone to Kudlow, Whitewell, Good Buddy, Low Bros, all of which disappeared.

I went to a firm that was around and the year I became a partner in 1976, the firm earned

$40 million.

In the year I retired, 1991, they earned 1.8 billion.

I was there for that whole ride.

I've been very lucky.

I've worked on but you can work very hard and not come out as well but I've been very

lucky, been very blessed.

ED HARRISON: How was that transition from being a sell side analyst and researcher to

putting your money where your mouth is basically, as a hedge fund guy.

LEON COOPERMAN: It wasn't that difficult for me, because I was always an investment oriented


Even to this day, at that time I walked around, I had the index cards with my portfolio on


The only thing that has happened is the number of index cards have increased, but I always


Being a portfolio strategist was putting bread on the table, actually the firm paid me for

it but my most enjoyable thing in my career was finding something somebody else didn't

see, making a bet and having Mr. Market prove me right.

For example, I was the world's leading expert at the time, a company called Teledyne run

by one of the most brilliant men I've ever dealt with, Dr. Henry Singleton, who regrettably

passed away from brain cancer.

He was a brilliant guy, and I learned a lot by observing him.

It wasn't a difficult transition and it was a happy transition.

I like doing well, I like making money in the market.

In that case, I can give more away.

I've taken the Giving Pledge with Buffett and I told why nine years ago, that it's a

very meritorious request, but only asking for half isn't asking for enough so I plan

to give away all my money upon my demise.

ED HARRISON: That's amazing.

Let's fast forward all the way to the here and now of sorts.

I'll tell you what's on my mind, is that when I go back two years, I remember specifically

that everyone and his brother was coming out and saying that okay, bond yields, they're


They're at ridiculous levels.

This was the beginning of 2018.

LEON COOPERMAN: Now, they're ridiculously squared.


Jeremy Grantham, in particular, he was saying that said, what I expect to happen now is

I expect a parabolic rise in the market from here.

We haven't gotten there yet.

We don't see the signs of euphoria, but that's what's coming.

LEON COOPERMAN: Who was looking for a parabolic rise?

ED HARRISON: Jeremy Grantham of GMO.

LEON COOPERMAN: I think he's bearish.

Are you saying two years ago-- ED HARRISON: This was two years ago, in 2018.

He was saying we're going to get the blow-off top.

Almost immediately after that, we had this volmageddon scenario.

LEON COOPERMAN: It wasn't particularly good.

ED HARRISON: From my perspective, that just kept the market churning along, but only now

in the middle of a pandemic have we gotten this blow-off top.

All of the signs of speculative euphoria, to me, are all over the place.

I want to get a sense of when you think of that whole time period, from 2018, to say,

pre- pandemic.

What was going on there?

How are you thinking about the markets in that period?

LEON COOPERMAN: Well, I've often quoted Sir John Templeton, where I said that bull markets

are born in pessimism.

They grow in skepticism.

They mature on optimism, they die on euphoria.

We were just starting to knock on the door of euphoria before the virus hit.

In some respects, we were knocking on the door of euphoria again now.

You've referenced the IPO market, the stock market, every snook who wants to raise a spec

and seemingly raised money.

They even called me and said, "Lee, you have a good reputation.

We'd like to raise spec."

I said, "Listen, I don't want responsibility of managing anybody's money except my own."

If you take the game seriously, it's a lot of pressure.

At age 77, I don't need the pressure.

I would say I see a lot.

Let me, with your permission, I'd like to read you something.

ED HARRISON: Yeah, definitely.

LEON COOPERMAN: About a month and a half ago, a friend of mine asked me what I thought about

the market.

I'm going to read you, I wrote to him six weeks ago.

My view is simple.

The economy has been at some form of life support since 2008.

This should reduce PEs all things being equal, meaning the government's involvement.

We never made it out of QE, and now it's free money for a long time.

No one seems to care about negative massive debt being created.

I do.

Lastly, multiples are a function of growth rates, confidence and interest rates.

Future growth is likely to be less than historical given the need to allocate more of income

to debt service.

I think it's fair to say confidence in the future is less.

That leaves us with rates which are clearly driving the market.

Two observations.

One, if rates belong where they are, your return to the stock market should be well

under 5%.

Second, Central Bank policy towards rates seemed wrong to me.

I have a very conservative view about the market presently, because I'm worried about

who pays for the party when the party is over.

This nation just celebrated its 244th birthday, it took 244 years to go from no national debt

to 21 trillion, that's going up at the rate of $4 trillion or $5 trillion a year, and

the growth rate, far in excess of the growth rate of the economy.

We're pulling it off, because interest rates are zero, but interest rates aren't going

to be zero forever.

If they are, they're going to destroy the whole capital market line, they begin to destroy


It just doesn't make sense to me.

The point I make, if you have negative interest rates, they've zero interest rates in Japan

and Europe for a long time, their price earnings ratios is a five or six multiple points lower

than the United States.

I don't think negative interest rates are all that particularly positive.

I find myself a very conservative view at the present time.

I've made my money being a bull to be honest with you.

The market is very complicated because the Fed is creating a situation, they're pushing

everybody on the risk curve.

When I retired from Goldman in 1998, one of my closest friends who's still a great friend,

a chief economist, I won't mention names.

He was strictly a T-bill guy.

He didn't want to buy anything other than T-bills because he was very risk averse.

The guy personally bought T-bills, I said, "I can't survive on near zero.

I'm going to take duration risk, I'm going to buy T-bonds."

The Interview: Leon G. Cooperman and the American Dream

The T-bond buyer says, "Well, I can't survive on 67 basis points.

I'm going to buy industrial credit."

The industrial credit person says, "Well, 3% doesn't work for me, I'm going to buy high


The high yield buyer says, "Well, I'm going to go into structured credit, CLOs and stuff

like that, because of high yield."

The CLO guy said, "Well, I'm going to get permission to put 25% of my fund in stocks."

Everybody's moving on the risk curve.

One of these days, they're going to come back in off the risk curve.

I don't know the date.

Everybody says, TINA, there's no alternative.

To me, I don't own any bonds.

I own very few, I own bonds and high yield, they're all special situations, and I have

stocks and cash.

Because I definitely believe stocks are better than bonds unequivocally.

The markets very complex.

It's not one market.

I've been on the theme for a while now that we're really looking at three stock markets

when we look at the stock market.

The first stock market, which everybody is enamored with, and I understand all the reasons

why, we'll call it the FANG market.

Those are all the companies that are benefiting from the virus because their demand has been

pulled forward.

Whether it's Amazon, Adobe, Facebook, Microsoft, people like that.

Those stocks, to a degree, are better than gold.

They are selling at very rich valuations, but if you look at interest rates, they're

not expensive.

The trouble with it, I went back, and again, I have notes which I like to use.

I went back, I looked at the Nifty 50 of 1972.

Well, there's a high failure rate.

In 1972, Avon at 65 times earnings was the Nifty 50.

Dow Chemical, 25 times earnings.

Eastman Kodak, 48 times.

General Electric, 26 times.

IBM, 37 times.

Kmart, 34 times.

Polaroid, 90 times.

Revlon, 30 times.

Sears Roebuck, 31 times.

Kresge, Xerox, Xerox with 40 times earnings.

If you take a whole portfolio of the Nifty 50 of today, and say there's a 20% failure

rate, the losses in that thing do a lot to sterilize the successful ones.

I understand that game and my largest position is Google, I have a big position in Microsoft,

I have a decent sized position in Amazon, small position in Facebook, we were in Apple,

we got out far too early, and I'm not good at looking back so I look forward.

That sector, I understand and relatively interest rates, not expensive, but I tend to stick

more and evaluate it.

The second market is ludicrous, and that's the Robinhood market.

That's these 30-year-old kids that are trading in and out of things and I don't want to insult

them, but I have a sense they don't know what they're doing.

A lot of them don't know what they're doing.

About two months ago on TV, I regrettably said that I thought that market would end

in tears.

In the very next day, a young man committed suicide because he lost several thousand dollars

day trading.

Look, Carl Icahn is no fool.

He's a brilliant guy.

He's done a fabulous job in running his own financial affairs.

He sold his mistake in Hertz is 72 cents a share.

Three weeks later, the Robinhood guys take it for five bucks.

He was bankrupt.

American Airlines, enterprise value today is higher than it was pre-COVID virus.

Because of all the debt and equity they've issued.

That's because of the Robinhood crowd.

Then you look what happened with Eastman Kodak, 2 to 60 to 8.

It's crazy.

When you check into why some of these things are moving, it's the Robinhood crowd involved.

I don't pay any attention that markets, it'll end in tears, et cetera.

Stay away from it.

The third market is the rest of the market and there's plenty of value there and you

just got to manage your risk accordingly.

ED HARRISON: Let me drill down on that.

Two questions.

Actually, let me ask the first question first in and of itself in [?], Tesla, where is Tesla

in that split between those three markets?

LEON COOPERMAN: That's in market number one, and maybe it got a foot in the market number


I learned over many years, a stock splits me nothing.

If I gave you five singles for $5 bill, I didn't create any wealth.

When I look at what Apple and Tesla did after their stock splits, because everybody got

enamored, I just scratched my head saying these people don't know what they're doing.

Now, I'm not involved in Tesla, because I'm like a corporate type of guy, and Elon's behavior,

the guy's obviously a genius, but his behavior is such that I'm not comfortable, with his

tweeting and this and that, and the market cap of company is just way beyond anything.

Volkswagen just came out with an electric car, Porsche got one at the upper end, everybody's

going to have an electric car, and we'll see what happens.

I tend not to buy here thereafter.

My average multiple in my portfolio is probably 10, 11 times earnings.


That's good value.

Let me think about, here's how I'm thinking about that bifurcation, let's forget about

the Robinhood stuff.

When you look at the FANGs, and then you look at the rest of the market, basically, what

people are telling you is that the FANGs, they want to go to FANG not just because the

Fed is keeping rates down low and keeping their hand on the scale but also, because

where's the growth going to come from over the next cycle?

If you want growth-- LEON COOPERMAN: No question about it.

As I said, these stocks are viewed as better than gold.

The growth rates seemed to be reasonably assured.

Demand is being pulled forward.

They're a beneficiary of the virus.

In my opinion, the major risk is the government.

The government seems to be unable to deal with successful companies.

They want to break them up.

All the companies that are providing incremental growth and employment, the government wants

to attack.

It makes a lot of sense.

I'm happy.

I have a bunch of that.

Like I mentioned, I got Microsoft, I got Amazon, I got Facebook, I got Google.

They're not expensive, and they're a beneficiary of the environment.

I wouldn't be surprised if somebody proposed an excess profits tax on the beneficiaries

of the virus.

ED HARRISON: I could see that as a one-time, they're saying that these are one-time gains.

Was it port authority under Moses?

Weren't the bridges supposed to stop getting tolls after a certain period of time, but

then it kept on going in perpetuity?

LEON COOPERMAN: I would say that I have a pet view here.

A pet view.

I believe in the progressive income tax structure.

I believe rich people should pay more in taxes.

What we have to do as a nation is coalesce around the question, what should the maximum

tax rate be a wealthy people?

Because that will define the revenue to the government and the government has to size

their activities to that revenue yield.

Now, I have enormous respect for Warren Buffett.

I called him up seven years ago, when he was talking about rich people paying more.

I said, "Warren, what do you got in mind?"

He was, "Well, if you make a million dollars, you're 35%.

If you make over $5 million, you're 40%."

Well, I would submit if you live in California, New York, New Jersey, Connecticut, your tax

rate is well into the 50s already.

I have said publicly I'm willing to work six months a year for the government six months

for myself, that feels fair to me.

It's not because I'm greedy.

That 50% that I'm keeping, I pay certain amount to live on.

The majority, I give away to others less fortunate.

My signature program, frankly, is I send 500 kids largely of color in New York to college.

I pay their tuition.

I put $25 million in the fund called, Cooperman College Scholars, because I think these terrific

kids deserve a break.

I'm big on providing equal opportunity, not equal outcomes.

I want to teach people how to fish, I don't want to give them fish.

ED HARRISON: I did want to keep on the stats, but since we're on this.

What do you think in terms of capital gains?

Short term, long term capital gains.

Because I think that the debate basically is that if you're rich, you can actually derive

your income from multiple sources.

You're not getting an income from work right now, you're getting it from your investments.

LEON COOPERMAN: How did you get investments?

By working hard and saving money.

Do we want to penalize thrift?

Do we want to penalize people that have a rational lifestyle?

Look, we're in a very-- ED HARRISON: I think that's where Buffet is


What's your view on that, the concept that we need to equalize those tax rates?

LEON COOPERMAN: Well, probably most of capital gains are the result of inflation so you're

really just taxing inflation.

I don't know.

You got to ask an economist that question.

I would argue for greater efficiency in government.

The government is taxing spend and this becomes counterproductive.

The guy that understood what's going on is Mike Bloomberg.

Two or three years ago, they proposed in New York, this may be longer, I tend to lose sight

of time, they proposed a billionaire's tax and he correctly rejected it.

He said, "Look, you lose one billionaire, there'll be more revenues than you get from

everybody else."

Cuomo says people are leaving New York because of the weather.

That's complete bullshit.

People are leaving New York and Connecticut and New Jersey, because the taxation is driving

them away.

California is now going to a 16% state income tax.

Biden wants to raise the federal bracket back to I guess 39.7, or whatever it is.

You take 39.7, take 16 state, it becomes a burden.

I'm sympathetic, I think rich people should pay more but like I said before, what is the

right number?

Somehow, it rings true to me, if I work six months for the government, six months for

myself, not unreasonable.

I think there's a lot of things that can be done.

The private equity-- ED HARRISON: Carried interest.

LEON COOPERMAN: Carried interest.

Nine years ago on TV, I said they should eliminate it.

I said if they're serious about tackling the budget deficit, they should do two things,

eliminate carried interest, and eliminate the Department of Education.

We don't need a federal department at the cabinet level that has $100 billion budget

to tell states how to educate the children.

This is not segregation.

That's long past.

The states know what they got to do to educate their children.

They have to become more efficient.

The ability of the real estate people to roll over real estate sales tax free by rolling

into the real estate, that should be eliminated.

There are a lot of things they could be doing.

I'm definitely against the wealth tax, that makes no sense.

Those countries that have adopted it have largely dropped it.

It's going to lead to a lot of illicit activity, the price of gold will soar if they're going

to have a wealth taxes, people will stop buying gold and hide it.

You don't want that.

That's my view, and that comes from a person who's willing to give away his money.

It's not a selfish thing.

It's just a common sense thing.

ED HARRISON: We definitely want to get into that at the end, because I want to talk about

the future.

I also want to talk about the here and now as compared to the past.

I'm looking for signals because we were just talking about the FANGs versus the rest of

the market.

You mentioned something about the Nifty 50, I was talking about the Nifty 50, I was thinking

about the internet bubble.

Xerox trading at 70 times.

If I have Apple today trading at 40 times, 45 times earnings, how does that compare in

terms of the concept of a parabolic blow-off top to the Nifty 50 in the early 1970s?

LEON COOPERMAN: A big difference.

In the Nifty 50 in the early 1970s, the 10-year US government bond was 6.5% for the year.

The 10-year US government bond, which is a key component discount rate, is 65 basis points.

You can come up with any number you want to come up with.

My argument is if interest rates belong where they are, that's a negative signal for the

economy and that has an implication of what you should expect to earn in the equity market.

I can't argue that the Nifty 50 today is overvalued, what I can argue is, if you took today's Nifty

50 and in all honesty, I can't even name a half of them.

I know the big leading ones but the other ones--

ED HARRISON: Salesforce is an example.


ED HARRISON: Oracle, Netflix.

LEON COOPERMAN: If you took the 50 today, and you said you had a failure rate similar

to what you had in 1972, the expected return from that portfolio can be relatively unattractive.

As I mentioned, these were Nifty 50s I mentioned before.

Avon, I don't know, it's a $3 stock now.

Eastman Kodak went bankrupt.

It was a 48 multiple stock in 1972.

IBM, see the market to others.

That was 37 times attorneys in 1972.

Kmart went bankrupt, 34 times earnings.

Sears Roebuck went bankrupt, 31 times earnings.

Xerox lost the market to the Japanese was 41 times


If you have a similar situation with 20% of today's Nifty 50s, don't turn out to be so


Your overall portfolio return is not going to be that attractive.

ED HARRISON: You're about to say something?

LEON COOPERMAN: Well, now and then, market number three, where I tend to traffic, I used

an example a company called Mr. Cooper, symbol is COOP.

I take no credit for discovering it.

My good friend, Sam Martini, did an excellent amount of work.

Everything he did was doable and knowable by other people in the street, but they're


This company, a month ago, reported earnings of $500 million in cash in the quarter, which

was equal to 50% in their market capitalization, in one quarter.

They're going to earn this year, maybe $7 because of all this refinancing activity.

They're going to end this year with cash of about $10 to $12 a share and a $24 book value.

It's not in the Nifty 50 category so it's overlooked.

Rocket Mortgage, which has captured everybody's imagination, sells at 6 times book value,

Mr. Cooper is trading at 20, and their book value at end of this year $24, half of which

is in cash.

That's where I tend to look, and I could take that luxury as a family office.

Because in the real world, if every stock you own is on a new high list, you're a momentum


There's risk associated with that.

If every stock you own is on a new low list, you're out of business.

These hedge funds, which have quarterly liquidity, at times can't take the long view, because

they're worried about underperforming and people coming in and redeeming their money.

I'm a family office, I can just fire myself.

ED HARRISON: There are two ways I want to go with this.

Remind me at the end to go back to your stock selection, because I think that's interesting.

I know that you had something with energy transfer equity, as well.

I want to talk to some of your picks, but when you mentioned the momentum, immediately,

it made me think of market structure.

I spoke to a gentleman who-- you talked about the American dream.

To me, he's a perfect example the American dream.

I had a conversation with him an interview with him like with you back in February.

Thomas Peterffy.


I know Tom.

Market structure has been destroyed.

I wrote a letter two and a half years ago to Jay Clayton at the SEC, asking him to reinstate

the Uptick Rule.

I explained to him when I came to Wall Street 50 years ago, commissions were 25, 30, 40,

50 cents a share, and the Volcker Rule didn't exist.

The brokerage firms had the economic incentive to stabilize markets because they had some

[?] to add a spread between what they paid and what the market price was because the

commission structure, that's gone, so they can't stabilize legally and otherwise.

Secondly, 80% of the volume 50 years ago was done by the New York Stock Exchange.

Today, 80% of the volume was off board so a specialist on that is relevant, stabilizes.

Thirdly, in 1938, they institute the Uptick Rule, which required you to have an uptick

to short a stock and worked effectively I think for 70 odd years.

In 2007, for some unexplained reason, the SEC eliminated the Uptick Rule, which gave

rise to all these quantitative traders who know nothing about value, they know everything

about price.

They buy strength, they sell weakness, exaggerates the moves in the market, so market structure

is destroyed.

This is why in the fourth quarter of 2018, with no economic justification, you had the

worst quarter since the Great Depression in the stock market.

Then when people woke up and saw it wasn't an economic event, the stock market surged.

All these quantitative systems extend the market, the upside was going up and extend

the market, the downside was going down.

These programs, these algorithms they programmed, eight months ago, you heard the word China,

and they sell it by depending upon the news in China.

Now, nobody cares about China, everybody's focused on the virus and the solution.

In my opinion, the market will probably peak within 24 hours of solution to the virus,

and I'm optimistic that we will find a vaccine, we will cure the virus.

ED HARRISON: Thomas Peterffy, what he was saying, the whole problem with this whole

market structure thing, you're talking about the Uptick Rule in particular, is a flash


The way that I understood what he was saying is, look, you could have a crash that's 25%,

30%, and it's so traumatic that the market doesn't recover back to where it was before.

With the Fed, having expended all of its firepower, it's done--

LEON COOPERMAN: I don't think the Fed has done that.

It's interesting six months ago, that was a prevalent view, the Fed was out of ammunition.

They come up with every acronym possible including free money, helicopter money, whatever.

We got things we can do.

Economy is getting better.

The virus is important, the economy is getting better.

ED HARRISON: Is that a positive to for the Fed to intervene?

Because when I read what you say about some of your concerns going forward, when you look

at your fears for the market going forward, one of them is interventionism?

LEON COOPERMAN: Well, it's not a fear, I think the government is doing what they have to

do but I think the practical fact, in my opinion, is to the extent that the government is called

upon to moderate the downside, they have every right to moderate the upside.

If the market is dependent upon government life support, it should have an effect on

price earnings ratios, it's simple as that.

The government introduced QE in 2008, we never got out of QE.

Now, we have this artificially low interest rates, and they're penalizing savers.

ED HARRISON: When you say they're penalizing savers, early in the conversation, I was thinking

when you were talking about that.

My mom who's 90 now, she was investing in CDs.

She had a huge amount in CDs, 6%.

LEON COOPERMAN: She probably got a free television when she opened up an account at the bank,



Then suddenly, the 2008 crisis comes, the Fed lowers interest rates to zero.

This is when you were talking about people moving from one market to the next.

She was forced out of the CD market, because there's nothing there.

She's forced to take on more risk at her age, even though she doesn't want to.

LEON COOPERMAN: They're forcing everybody to move out of the risk curve.

The person that bought T-bills says, "I can't survive on 10 basis points, I'll take duration

risk, and I'll buy T-bonds.

The T-bond buyers says, "67 basis points doesn't work for me, I'm going to buy industrial credits."

The industrial credit person says, "I can't survive on 3%, I'm going to buy high yield."

High yield is 6%.

The high yield guy says, "I can't survive on 6%, I'm going to buy structured credit,

CLOs, which are much higher."

The CLO person says, "Well, I'm going to put 25% of my fund in equities, because equities

make more sense than bonds."

This is what's happening.

Everybody's moving on the risk curve and one day, there'd be a fundamental development

that people will want to come in on the risk curve.

I think there's another problem with the interest rate policy.

That is your grandmother worked, I'm sure very hard, for her career to accumulate what

she has.

When she wants to retire, I'm sure she's retired, if she's 90 years old.

ED HARRISON: It was my mom, she's the one who's 90.

LEON COOPERMAN: Basically, when people like your mom go to the financial planner and say,

"Look, I worked my whole life.

I got a million, 2 million dollars, what can I earn in this money when I retire?"

They tell her virtually nothing, she can't retire, which basically makes it more difficult

for young people to enter the labor force.

In addition, you turn upside down all these state and local government pension plans,

corporate pension plans, they can't earn the indicated returns to provide the retirement

benefits that they're obligated to provide.

I think it's very complicated.

I think it's pulled forward demand.

I have an exhibit here.

Whenever you bought into the S&P when it was above 22 times earnings, the one-year return,

the three-year return, the five-year returns have been very uninspiring.

I think what's going to happen in the next five years is profits will rise by a modest

amount, interest rates will rise, and the market will go nowhere.

That's my central view.

Now, I'm not making a long term forecast, we got to first get through this election

and make sure we avoid constitutional crisis.

ED HARRISON: Oh, yeah, we'll get to that.

What do you do as an investor when in that an environment?

Where are you investing?

How have you changed your investments when you're getting zero on your T- bills, and

you have that outlook for equities, public equities?

LEON COOPERMAN: Well, I try to find the things that are mispriced in the market.

Again, I'm a professional, I'm in a different position in the public, but I would say to

me, it'd be a portfolio of good quality stocks and cash.

I would have a minimal participation in the bonds.

If you were sophisticated enough to understand high yield credits, I think there's opportunities

in the high yield market.

I bought a couple, 7.5% bonds yesterday at 85 cents in the dollar.

8% to 9% yield to maturity.

I'm happy with that.

The only negative for me is I'm a full taxpayer, and you're paying way hefty income in the

form of taxes.

I'd rather be in the capital gains, the common stock selection.

I've been very fortunate.

I have a lot of everything.

I have cash.

I have bonds.

I have stocks.

My bonds are all high yield bonds.

I don't own any US government bonds other than my cash on T-bills, it's too difficult.

ED HARRISON: I was going to ask you earlier because you talked about Mr. Cooper, a mortgage

servicing company that's printing money, if you could give some other places where you

think people could put their money, and why?

LEON COOPERMAN: Going on assumption I own them.

ED HARRISON: I've seen some of these before.

You talked about energy transfer equity.

LEON COOPERMAN: Energy transfer is a bit of a turnaround, the stock yields 19% and I can

tell you for a fact that when stocks don't yield 19% forever, either the dividend gets

cut or the stocks go up.

In this case, I anticipate the dividend will hopefully be cut, but the stock will go up.

I think the assets are worth twice what the stock is trading for.

That's one we own.

Another one I own, which is very controversial.

I've been wrong.

Because I'm losing money, is AMC Networks.

70% controlled by the Dolan family.

They just launched a Dutch self-tender to buy back 10 million shares, $250 million dollars'

worth of stock, which is roughly 10 million shares, which is about 20% of the company.

I pay attention when a large owner is buying back stock and so that's one that I own.

A theme in the annuity business, Ashlyn which we think is a takeover candidate, Pharaoh,


We have a very big decision of Fiserv, the credit card company, doing extremely well,

very cheap for what it represents.

You mentioned Mr. Cooper.

One that I don't quite understand.

Navient yields like 7%, sells at three times earnings, and they provide student loans,

but both of which are guaranteed by the US government.

They don't have huge credit risk, they're under the credit risk of the US government.

There's plenty of things to do.

I just don't want to be fully invested.

I would say this, if I had to make a choice, being all in or all out, I would be all in

in the third market I talked about.

ED HARRISON: You didn't mention gold or silver or other alternative?

LEON COOPERMAN: I bought gold for the first time in my life a week ago.

I understand the case for gold.

We're on the way to some banana republic situation.

Nobody's worrying about the debt that's being created.

I'm focused on who pays for the party when the party is over?

As I mentioned before, it took 244 years to go from zero national debt to 21 trillion,

that's going up at $4 trillion, maybe $5 trillion this year.

What about next year?

We're getting away with it because interest rates are near zero.

Government is financing themselves very low, but that's not a permanent situation.

If interest rates are going to be zero permanently, basically, it says a lot about future economic

growth and future returns in the equity market.

ED HARRISON: Yeah, like Japan as an example.

LEON COOPERMAN: Japan or even Europe now.

ED HARRISON: When you said Banana Republic, honestly, the first thing that comes to mind

is the thing that you said before about a constitutional crisis.

I know that you, in the past, you thought Donald Trump has been a Reaganesque type of

figure, but it sounds-- LEON COOPERMAN: No.

Let me just correct that.

I've said this on TV a year and a half ago, I should repeat it again.

I did not vote for Trump.

I did not vote for Clinton.

I wrote in Mitt Romney.

Trump is worse than I feared.

However, what I fear more is socialism.

Because I take the quote from Winston Churchill who said, "The main vise of capitalism is

the uneven distribution of prosperity.

The main vise of socialism is the equal distribution of misery."

Now, Trump has done a good job of painting Biden as a socialist.

I'm looking forward to the debates.

I want to see what Biden has to say about law and order and capitalism, socialism, et


The fear is that Bernie Sanders, who is a communist-- he's not a socialist, he's a communist.

There's a difference.

AOC, communist, basically.

I don't say that in a nasty way, that's their political views.

I think we've made America great is a commitment to capitalism.

I take the quote from Winston Churchill again, he said the main vise, he says, "You don't

make poor people rich when making rich people poor."

What is this envy of rich people?

Elizabeth Warren is so vindictive towards wealthy people.

How do you get to be wealthy in America?

You develop a product or a service somebody needs and they will pay you for it.

Is the world better off or worse off because of Bill Gates, Jeff Bezos?

ED HARRISON: As you say that, I'm thinking to myself--

LEON COOPERMAN: Let me finish it the thought, how do you get to be rich?

Bill Gates developed something the world needed.

The world's much better off with Bill Gates.

He's taken all this wealth and he's giving it back to society.

What is this like penis envy?

What is this envy of wealthy people?

Most wealthy people I know, Ken Lango, Bernie Marcus gives more back to society than they

spend in themselves.

I know the Home Depot story pretty well because I'm friend with Bernie Marcus.

The man was fired [?]. He was out of job, had three kids.

He had a big mortgage in his house.

He calls up Ken Lango in tears, bemoaning his situation and Lango said, "What the hell

are you crying about?

I'll raise you the money.

You'll open up your superstore."

He gets I think 50 families-- I forget the number 40 families, 50 families to put up

$2 million each and they opened up his first store.

Today, Home Depot's got probably a market cap of $250 billion, I'm guessing, and they

have 3000 millionaires in the company, you got millionaires as a result of that stock.

Bernie and Ken have given away untold millions to society.

That's the American dream.

That's the American dream, and these left wingers are pissing all over that dream.

It's wrong.

It's wrong.

I look at myself.

As I said before, I don't brag about myself, I can say myself the luckiest guy alive.

I basically, first generation born in America, public school education.

I get into Wall Street.

I hit it big, and I'm giving it away.

That's what it's all about.

ED HARRISON: Going back to what you were saying about capitalism, I know that when you're

making the distinction between capitalism, socialism and communism, you're talking about

the means of production versus the redistribution of wealth.

That's why you consider that you want to see where Biden is, but right now you think you

have two bad choices, you told me earlier.

LEON COOPERMAN: Well, I bemoan you.

I don't want to get in trouble, I'll piss everybody off, but basically, in a nation

of 330 million people, we're left to these two choices.

It's sad.

It's sad, because his economic ideas are nothing unreasonable.

His department is disgraceful the way he treats people.

Mitt Romney is not a jackass.

These are all things he said.

Rex Tillerson is not dumb as a rock.

John McCain was in fact, a true war hero.

John Dingell, hopefully for him, even though he had different political views for me is

looking down, not looking up.

He treats people with great disrespect.

They have different views of him.

That's not presidential.

I signed off on him during a campaign in 2016 when he mocked in New York Times reporter

that had cerebral palsy.

You learn when you're five years old, you don't make fun of handicapped people.

He didn't learn that lesson.

I look at the turnover.

His staff, unbelievable.

Man says something.

There you look at Biden.

Biden has got to speak up for himself.

I'm disappointed of both political parties.

I'm surprised that more Republicans have not spoken out against Trump's antics, and I'm

disappointed that more Democrats have not spoken out about the violence that's occurring

in a lot of these democratic states.

They're both to be criticized.

I'm looking for a good centrist.

I love my country.

ED HARRISON: If you had to vote today, how would you go?

LEON COOPERMAN: I can't give you an answer because I'm waiting for the debates.

I want Biden to give me a reason to vote for him.

I want to strongly, strongly come out and condemn the violence.

I want to strongly acknowledge that he's a centrist, that AOC and Bernie Sanders are

not going to have it.

They may have his ear, but they're not going to have his compliance.

I believe in the end of the day, capitalism is what made America great.

ED HARRISON: Where do we go from here, both in terms of our economy, that is the US and

also in terms of investments?

If you had to put your predictive hat on, what does it look like two, three years down

the line?

LEON COOPERMAN: I expect the market to provide very little in the way of returns over the

next few years.

I think that the economy will slowly recover, interest rates will slowly rise and price

earnings ratios will decline.

I went back to whenever you bought into the S&P when the multiple was above 22 times,

the returns on a five year basis were slightly above zero.

You'll get your dividend return.

There's precedent for this.

I joined Goldman Sachs on February 1st of 1967.

The Dow was 1000.

In 1982, the Dow was 1000 and I made my money picking stocks and that's all I have to do.

I don't think there'll be a big tailwind to the stock market.

There's a lot of things going on in the world that we have to worry about.

ED HARRISON: Thank you very much.

It's been a pleasure.

Maybe we can do it again sometime soon.

LEON COOPERMAN: Sounds good.

Thank you very much.

You stay well.

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ED HARRISON: Thank you.

You too.