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Leon Cooperman: 11 Reasons to Be Skeptical of Stock Rally Amid Virus Chaos

Leon Cooperman: 11 Reasons to Be Skeptical of Stock Rally Amid Virus Chaos
Leon Cooperman (Omega Advisors)

By    |   Monday, 11 May 2020 08:16 AM

Billionaire hedge fund manager Leon Cooperman recently offered nearly a dozen reasons why he is worried about the long-term effects of the coronavirus on the economic and financial worlds.

The Omega Advisors founder highlighted a number of negative consequences including stricter regulations, higher taxes, and slimmer corporate profits, ZeroHedge reported.

  1. The unprecedented recent government stimulus and protections may have permanently increased the role government plays in the market, potentially increasing its regulatory oversight.
  2. The U.S. is shifting to the left on the political spectrum, a trend that will likely result in higher taxes.
  3. Low interest rates are a sign of an unhealthy economy, not a bullish stock market indicator.
  4. U.S. debt is growing much faster then the economy, so a higher percentage of our national income will need to be devoted to debt servicing.
  5. U.S. demand will likely be slow to recover given Americans will need some form of vaccination and/or proof of immunity to gain access to sporting events, concerts and other gatherings.
  6. Businesses will need to shoulder substantial compliance costs to ensure worker safety.
  7. Companies will need to issue a substantial amount of equity to replace lost capital.
  8. Stock buybacks, and the support they provided to EPS, are mostly over.
  9. U.S. profit margins were at a historic high in January, and they have historically reverted to their long-term mean over time.
  10. Credit is cheaper than stocks, with high-yield bonds (excluding the energy sector) yielding 7.25%, or about 14 times earnings.
  11. If Warren Buffett, the “greatest investor in my generation” can’t find stocks to buy on the dip, “who am I to be bold?”

Cooperman has been quite outspoken amid the virus outbreak.

Cooperman last month predicted that the coronavirus crisis will “likely” change capitalism forever and that taxes will need to be raised soon.

“When the government is called upon to protect you on the downside, they have every right to regulate you on the upside,” Cooperman told CNBC.

“So capitalism is changed,” the chairman and CEO of the Omega Family Office said, explaining that the country is shifting to the left and that taxes will have to go up regardless of who wins the presidential election in November.

“Quickly if Biden wins, slowly if Trump wins, but taxes have to go up. So things like carried interest, capital gains taxes, the ability to roll over real estate sales tax-free, all that stuff is going to have to be eliminated. For the good, by the way,” the billionaire said.

In October, Cooperman told Politico that while he believes in progressive taxation.

The Bronx, New York native founded Omega in 1991 after 25 years at Goldman Sachs Group Inc. The fund faced a tough patch when the Securities and Exchange Commission accused Cooperman and the firm of insider trading relating to Atlas Pipeline Partners in 2010. The firm settled in May 2017. After the settlement, Cooperman lambasted U.S. regulators as “abusive,” saying he would have won at trial but would have faced far higher legal costs, Bloomberg reported.

Meanwhile, other respected economic voices are much more optimistic about the future.

Despite being critical of how long the U.S. remained in lockdown amid the coronavirus, former Trump campaign economic adviser Stephen Moore is confident in a fall recovery.

"It will be a slow process," Moore told "The Cats Roundtable" on 970 AM-N.Y., per The Hill, "but you've got to get going.

"I do believe that by the end of the summer we're going to see a very swift kind of recovery for the fall."

Moore laments the progressively slow return to business, particularly in the bigger-budget blue states, is setting up a "tough summer," due to lingering coronavirus infection fears.

"Customers are still a little bit afraid to go outside," Moore told host John Catsimatidis. "People are nervous. They're worried about their health. Every day you see more and more people venturing out. You see more and more people getting on the job.

"It's going to be a tough summer . . . as we try to get our feet back on the ground, but I believe that by the end of the summer we could start to see a real recovery."

Moore is an economic adviser on the White House coronavirus task force, helping the administration get the economy rolling again safely.

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Billionaire hedge fund manager Leon Cooperman recently offered nearly a dozen reasons why he is worried about the long-term effects of the coronavirus on the economic and financial worlds.
leon cooperman, reasons, skeptical, stock, virus
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2020-16-11
Monday, 11 May 2020 08:16 AM
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