Surveillance: Speculative Bubble With Cooperman

in his family to go to college. He ended up landing at Xerox, went on to Columbia University with the usual NBA and landed at a small investment shop a million years ago, and there he built their investment research department, the II winner for I believe it was nine even ten years in a row. Leon Cooperman joins us, this could be a four hour conversation. We don't have that, so let's get to it with a gentleman from Omega. Leon, I want to talk right now about the future of

Golden Sex. You have a beloved relationship with it. You and I have talked about this many times before. I guess they're trying to be a retail bank. We went from Lloyd over to David. How is your Golden Sex doing. I think they're doing very well. I didn't expect this question, and I retired from Golden Sex excuse me at the end of so I'm gone for what twenty years? Um, so maybe more than twenty years, to be closer to

thirty years, and so things have changed. But I have an extraordinary high requ off for the firm to have a great culture. They're they're they're terrific people. But in all honesty, uh, I'm not current. What do you point? Okay, that's diplomat. I made a big mistake when I got my stock when they went public. I gave it all to charity, and that I should have given a cash and kept a stock we Okay, that's a good way

to put it. But Leon Cooperman, what's so important here is this experiment of trying to do investment banking, trying to do investment research and strategies you did and Golden successet management, and also trying to be a bank. Do you think that can be a successful strategy. I'm sure if Goldman Sacks Persuser will be successful strategy. What can I say? You know, I don't run the shop. When

I was there, we were a private partnership. We used to laugh about the banks uh, and then what happened during the financial crisis in two thousand and eight, we were they were forced to survive, and you know, they'll go with the they'll go with the float. You know, when I was dead, they were very reluctant get into money management. Now that in my management with two feet, so you know, they adapt to the environment. They're smart people, they're good people, and I would have great confidence in

the farm. Leon Cooperman Jerome Power will speak at Jackson Hole today a virtual jackson Hole this week. Rather, I should say, tell me how you perceive the interest rate structure that the FED has set. What is the FED rant on Global Wall Street? They have created a real speculative bubble. In my opinion, I have to admit that I'm uncomfortable at the present time because not because of

the virus, it's a factor. Uncomfortable because focus on something the market isn't focused on, and that is the amount of debt that's being created. Who pays for the party when the party is over? You know, we just celebrate our two and forty fourth birthday. And basically it took us two and forty four years to go from zero national debt to twenty one trillion will probably end this year trillion. That is a growth rate in debt far

in excess of what the economy is growing at. And I think that that's going to be a problem down the road. And I think they they've created a real speculative environment. You know, I was just looking give me some statistics. Apple announced their fourth one split on July. The twenty day average call volume at that time with seven and one calls. Okay. This past Friday, Apple traded two point one million calls, three times the average of twenty days okay, And the stock is up sevent since

the announcement of the split. Next before this morning, Tesla announced their five for one split August eleven. Same thing, big increase in call volume. The stock is up forty nine percent since the stock split was announced against the SMP up one. Now, the last time I checked, if somebody gave me five singles for five dollar bill, it didn't create a new wealth, right, did not create Well, that was the old calculation. Now this is the new calculation.

When you've got a big component of robin hood investors, that sort of one theory out there, what's risk your right now? The high flying stocks or bonds. Well, I think no question that bonds to me present the return free risk. Uh, and that's what's work in favor of the stock market. What I have not fully appreciated is the what a zero interest rate environment does for stocks.

I was focused on the fact that we've had zero interest rates in Japan and Europe and their stocks are five or six multiple points below the United States market. So I think low interest rates are indicative of a problem economy. You know, we've had artificial support for the economy since two thousand and eight. You know, it's thirteen years. And uh, I don't look at that as being the positive.

I look at that as possibly being a negative. You're you're Stephen Ratner, close to Mike Bloomberg, who I have enormous respect for, basically wrote an article this morning in The Times preach the economic recovery that isn't you know? Um, I think that the zero rates is creating a very speculative tone to the market. I have said for months now that we're really dealing with three markets, not one market.

The first market is the fang market. And frankly, uh, these are very fine companies, these technology companies whose demand has been pulled forward by at least five years due

to the virus. They're not cheap, but by the historical standards of the nifty fifty of nineteen seventy two and UH the technology bubble of two thousand, they're not in any way expensive, and people could conjure up with I want to come up, Leon, I want to go through this, and we should mention to all of you on our simulcast, we welcome you to Bloomberg Radio and Television. We are

with Leon Cooperman of Omega. Of course he's mentioned Mr Bloomberg, the founder of Bloomberg LP, this radio and TV property as well, and also Mr Rattner writing today an essay on the market, Steve Rattner of course managing uh some of the assets of Mr Bloomberg, And of course he's appeared with this many times before. Leon Cooperman, to the world of Stephen Ratner. You learned a Columbia business school of a sixty forty or a six efficient market and

proper asset allocation? What is the Cooper theory Cooperman theory? Given the distortions that we have now, can you stay with with original investment science or do you have to invent something new for the next ten years. Book of seventy seven years of age. I have no clients. I retired at the end of twenty eighteen, and I do what makes me comfortable. Right now. I have very, very very few bonds. I think bonds represent a return free risk. Uh, and I don't. I was beginning to explain to you

there three markets out there. There's the fang market, richly appraised but not ridiculously appraised. Okay, then the Robintive market, which is ridiculous, totally ridiculous. Regrettably, I said this on TV about a month ago, that that mark would end in tears, and the very next day, some young man, yes seven creating, committed suicide. Okay, when you carl i con is as bright as they come. He liquidates his position, hurts at seventy two cents a share in three weeks later,

his training of five dollars. And you check into what's going on in the Robin hood uh, platform Eastman, Kodak Robin, the platform, Tesla, Robin and platform. So you know that's gonna end in tears. I have no interest in that market. It's not rational to me. I don't spend time on it the third market, the things to be done, and that's everything else. So I give a shout out to my former partner Sam Martini who did great work or something called Mr Cooper c O O P. I own it, Okay,

I like it. I would add to it right here, right now. He did work. The work he did was knowable by anybody. Okay, he's a digger, he's a smart on the average guy. The coming three weeks ago reported earnings in the second quarter five hundred million dollars in cash earnings, which was fifty percent of the market value of the company in one quarter. Everybody was thinking about the stocking work twelve or thirteen. Now that you are right,

just because the time I want to circle back. We're talking about the future of Goldman Sachs, the future of Global Wall Street. Can you own the banks here? And if Mr Diamond is running the sterling performer of the banks, can you acquire shares in JP Morgan? This morning? I could I own City Bank, and I'm I'm concerned about financial conditions generally, so I'm not adding to my banks. I think they're probably cheap. Uh, They're a cheap group

in the market. You keep with perseverating about Goldman. Don't worry about Goldman. Goldman will be just fine. They go with the flow, They'll figure out what they gotta do. Right. Well, well, Leanna, and perhaps don't worry about Goldman. But what about hedge funds? You moved to a family office. If you were starting your career out now, would you start a hedge fund or would you stay in the private realm? Would you say away from that industry? Let me tell you what's happened. Okay, uh,

And maybe indirectly, I'll answer you a question. If you came to me in two thousand and eight and said, Lee, I want to invest in your hedge fund, and I said to you, know, you don't want to be in a hedge fund. You want to be in a relative return vehicle. Hedge funds are hedged. Basically, they have a short position. We are now in front of a ten year bull market in the economy, a tenure bull run in the stock market. You don't want to have any hedges on. You want to be bulls out investment. You

would have had me arrested. That's exactly what's happened. Okay. Now everybody says, well, the passive index is that beat the hedge funds. We don't want to be in the hedge funds. And you have to ask yourself a question now the time you want to be fully invested on alongside and not have a hedge on and I'd say no, I think hedge funds make sense now. So the people that went into hedge funds in two thousand and eight are disenchanted, But the fact is they made that decision.

I retired the top. I retired to do the path right. It's uh and uh, you know, I want to have a life of my own. You know, I'm basically I'm very focused at philanthropy now. You know. I tell the young kids that I meet with it, you know, I give them a quote. I gotta fine, Okay, Leon, we're on a time. All I can say is that's either a phenomenal backdrop in front of three guys on Madison Avenue or the island you're on, Lisa and I want to visit my con February mean, I I am totally

illiterate technologically. I pressed a button in my computer that background appeared. I can't get rid of it. Short Hills, New Jersey. I am a Florida resonate. Uh. So you're doing this to get you're doing this to get a tech dodge from the I R S. That's what he's doing, everybody. Leon Cooperman's in Florida today and for the other hundred eighty one days he's gotta be there as well. Mr Cooperman, thank you so much. With Omega as well. Right now, Dr Bremer to just as well. My book of the

summer is Richard hass Magisterial The World. It is a primer on our international relations. Of course, Ian Bremer knows every word of that. He joins us now because he is doing one of the coolest things in international relations. Ian Bremer escapes every summer to Nantucket and you think he's leading the big life. But what he's doing is leaned over a desk working like crazy on his next book. And that next book. We are in anticipation of the crisis we need. What is the crisis, Dr Bremer, that

we need? And you'd like to believe that it's coronavirus, right, because it's the biggest of our lifetimes. As we all know, crises do give us the opportunity to respond to things that are deeply broken. Uh. It is hard to see. Uh, in this environment that we are taking advantage of the opportunities this crisis affords us. So the book is all about that and other such opportunities on our horizon. What we have right now is we jump from news item

to news item. This morning, Dr bremer It is a Secretary of State making a convenient trip to Israel so he can speak from Jerusalem to support his president with his evangelical base. Comment on the appropriateness of a Secretary of State speaking at a convention from Jerusalem. Uh, there's not much that this administration is concerned about in terms of symbolic appropriateness. Uh. I've never seen anyone in the White House state we couldn't do that because it wouldn't

be appropriate. That's that's not the way they being UM, and frankly, it's not the way their base wants them to be. But let's be clear that the US relationship with Israel UM is one of Trump's best in the world. His foreign policy successes are more about Israel than just about anywhere else. Remember, they moved the embassy to Jerusalem, so you wouldn't be surprised if Pompeo is speaking from the new US embassy that many administrations had supported but

no one had done. You also have now normalization of relations between the Israelis and the UA, something actually facilitated by the Trump administration. And it looks like Pompeo is going to Sudan after that. I think that that my expectation is Sudan is also going to normalize. This is not going to stop with the U a E. It's

actually quite something. And since we usually beat up on Trump in terms of foreign policy failings and how different leaders don't like him, this is one way they do forgetting about the way they do it, or the this course or the tone. What is the distinction between a Biden foreign policy in a second term Trump foreign policy? The biggest difference is probably Europe. President Trump and the entire administration believes that the EU is bad for the

United States. They want to deal individually with European governments. They strongly supported Brexit. President Biden if he became, if he won, would be the antithesis of that. He would support a stronger EU. Um he would clearly and build up the multilateral aspects of that relationship, where Trump there's not. On China, Tom the Biden administration and the Trump administration

would be almost identical. And it's so interesting from the d n C last week, you didn't hear anyone talking about China, despite the fact that that's probably the single issue that exercises and animates President Trump the most internationally. And it's because quietly, when you talk to Biden's national security and foreign policy team don't have problems with the

way that Trump does some of these things. But actually, in terms of you know, Taiwan, Hong Kong, South China, CE technology based one trade deal, all of that, Biden and Trump were nearly identical. All Right, Ian Bremer of eur Asia Group joining US right now, let's talk about China. President Trump has come out saying that he was going to ban all transactions of US businesses with the likes

of ten Cent and TikTok's parent company. We're seeing him perhaps dial back some of those threats, at least in private conversations. Where are we on that and how pivotal is that to the relationship between China and the US. Um it's it's significant. I wouldn't say it's pivotal. UM. I would say Huawei is more pivotal. Huawei is the most important technology company for China. It is their national champion.

They're using it to drive five G, which is their effort to control the Internet of things and all of the data and the monetization of that data, and and the advance is an AI that come from it, and the United States is not all dialing back. In fact, last week we saw tougher efforts against Huawei and specifically more companies that would be put on watch lists if they are providing semi conductors and other critical pieces of

of of of supply to Huawei. And you know they have some semi conductors store up, but within a year they're in serious trouble. So I mean, I really do think that on every issue that matters between the US and China, whether it's national security or internal human rights, or whether it's the economy or tech, the relationship between the US and China is heading in a bad direction. Um.

And so there It's true. I was talking to Jared Kushner a few days ago, and he was being considerably softer I would argue than say Peter and Navarrow on issues like the importance of still doing business with China, not breaking tech company's ability to engage. Then I would see from others like light Highs or like Pompeale in

particular my Pompeio securiy state. Um. But in general, we know where this relationship is heading, no matter who wins in November, and it's probably the most important geopolitical issue for the markets by by a factor of magnitude. Yeah. Well, the way that you distinguish that is really important. The idea that ten Cent shares rallying with the idea that perhaps President Trump is softening his stance ambanning these businesses, but the direction of travel is what's important to watch.

Nile Ferguson, a Bloomberg opinion columnist, writing that Joe Biden could end up being a wartime president, talking about the concern that some people have that the US China titfor tat is going to lead to a hot war. Do you think that we are getting closer to that? No? No, I wrote Neil after he wrote that piece, And you know sort of that it would amused me because I mean he has become a bit of a bomper on

that issue. I do think that we are in a technology code war with the Chinese, where we literally want their tech companies to fail and we will punish not just those companies, but those that work with them. But I mean the likelihood of a hot war. First of all, the Chinese truly don't want one. They understand they're a c asymmetric capabilities compared to the United States. I mean,

there are a regional military power. They know we're close to American capacity, but they also still understand that there's a lot in that we work on together. I mean, no matter how bad the US China relationship gets, I still think we're gonna be selling them crude oil. No matter how bad it gets. I still think when we go to Walmart, we're gonna be buying a lot of

goods that are made in China. And I still think that a lot of our universities are gonna be working really hard to make sure that Chinese foreign students can come and pay a pull freight, because otherwise many of those colleges will be in a lot of trouble. So not only do I not see a hot war, I think there are limitations to how bad this relationship can get, and and they considerably greater than say with the Russians.

Uh Ian Bremer. Just with the time left, I want to turn ourselves to the levant into the future for mr Ara Tojan. We don't have time to really dive into this correctly. But there's been three or four air to ones across the span from two thousand two, which are to Wan is affecting Greece, affecting hydrocarbons north of crete, which air to Wan is affecting Libya. Uh. Well, Libya, we have a cease fire now that actually seems to

be able to stick. That's a good thing, um, And I would say that I recognize that overplaying his hand is only gonna lead um to military confrontation. Doesn't want The same thing has been true in Seria, uh, with their claims for buffer zone but backing away when the Russians pushed them hard. Um. I think the same thing

is true in the East Mediterranean. I mean, you know they're saying they're gonna drill, but that's in part it's because it's easy to beat up on the Greeks by themselves when you have divisions inside the European Union, unwilling to have a comedy united front against Turkey. That's been frustrating, I think to the Greeks. Um. So the problem is that Turkey is in massive economic trouble right now. The Turkish leyra, of course, UM continues to fall. Um, the

the indebtedness is a serious problem. UM and uh and and and the the small and medium enterprises. You're doing very badly. And so if you're Earnwan and you're thinking through how you can continue to leave that country and not end up in jail um and a Turkish prison is not a fun place to be right Um. You're you're thinking about what you can do to rally the population behind you. And a lot of this UM is overt nationalism and bomb throwing, but it's it's not getting

involved in serious military confrontation. And I do think that earn One is savvy enough to understand how deep doesn't want to go. Remember remember Tom that you have that turn the Russian relationship which was totally broken. It was arder One that ended up apologizing with a face because it was hurting his economy. He understands that he can only go so far. Ian Bremer, thank you so much

and good writing to you in Nantucket. He of course is with your Asia group an oil and read a cent of Energy aspects and reading what is the distinction right now in supply, demand dynamics and oil. What are you focused on all right now? Even with the storms comming Thomas Unfortunately, so long demand and how much we are recovering, how far away we are from pre twenty that will put it along way away, and we have

built so much infant treat that. Yes, while these storms are supportive for crude in the sense that we are shutting in a lot of classes Mexico prodition, it's not really going to move the needle. That comes to just the shire volume of inventory that we still need to run down, all right, So what will move the needle? I'm looking right now Crewe traded on the n imax

forty two dollars and seventy six cents. It's been moving in this forty to forty three dollar range for a while right now at the upper end of that range. What would take? What would it take to break out? And it will break out to the upside or to the downside? I mean, honestly, had it not been for the weaker dollar, given where the physical market is right now,

crude would have been five dollars law. So this is very much in a financial market supporting the price of oil, because if you look at the contango, which really tells you how weak or strong the market is. The crude curves have moved into more of a contango, you know, for the front month is far more depressed than future prices. Um, we will get there, It will. It will take another year or so to run down this massive infantry overhand. We built over the first five months of the year.

We are drawing stocks right now. The hurricanes again will help draw down that faster, but it just will take us a good year given that demand. It's not recovering in a straight line. Right. There's a lot of stops and starts that are parts of the US that are getting better, pots that are not. Even the rest of the world is the same too. Short of visit, Amrina sent thank you so much for joining us today with

energy aspects. This is a joy. She was a strong which if you're in the game, everyone knows, was one of the premier value houses of another time and place, and is now head of active equity at Wells Fargo Asset Management. And Melody joins us now from the land of PEPs blue ribbon beer. Uh. And I've got to ask right now. It's a simple question. Our Amazon and

Apple value stocks. Well, you know, tom As we used to say, prices what you've hey, value is what you get, and the market would say that you're getting a lot of value still out of these larger cap names. Certainly the price seems very high. But as you know, and as you have been talking about four months and months and months um, investors are seeking growth in this market where there's very hard to come by. We're all looking

at three years, four years, five years. You as a value pro if it's stupid crazy pricing on so many different sectors, how far out are you rationalizing revenue and earnings growth? Those are two lines, folks that cross out in the distance. Is in melody buying for five years from now? Well, you know, I think our managers really are looking three to five years out, and that's kind of typical for portfolio managers to do when they're building models.

I think the interesting thing about this time is, you know, I was taught early in my career really try to figure out what the market is telling you, and it's really difficult. It's a difficult question to answer in today's world. But I have to wonder if the market's not saying, gosh, there's a big te tonic shift happening in our economy, and it's happening at a pace that we haven't seen before, just accelerated because this pandemic UM and that might be

the reason for that. Our contrast between the winners and the losers in the market and so when you look three to five years out doesn't look a lot different. It doesn't mean that, you know, technology UM really drives productivity, supports profit margins um and drive expansions right, and and doesn't mean that some other sectors that we're really supportive of our of our our economy, like travel and leisure

and bricks and mortar retail just don't anymore well. And this is the whole idea that what we're seeing in the stock market is the reality that the future has been brought forward by ten years due to the pandemics. It's accelerated a lot of these changes that already were happening. As an active equity manager, how do you get an edge on that? Do you just go Apple Amazon? No?

In fact, when I look across the board at all of the managers that now are on the Wells Fargo Asset Management platform UM, we have two very prominent growth teams that have done both done extremely well. One of them doesn't own Apple at all, the other one is slightly overweight Apple. And so there you take two different you know, two different dynamics there. Um both doing well, but it's difficult as a growth manager not to be UM and have some exposure there. Now they both have

exposure to a lot of other names in technology. They're both overweight that space because they do believe in the power of technology driving all of those things that I talked about profit margins, productivity, etcetera. UM, But they're also very diversified in other sectors. And I would say so are our value managers who see the US manufacturing renaissance really truly happening, right, And this is not just about jobs,

but it's about cost structure and margins. And so we have seen more and more manufacturing coming back to the Midwest in other places in the US, and it seems like that really is truly, you know, here to stay. I'm glad that you mentioned that. I mean, there was a story on the Bloomberg over the weekend about the Kenosha region in Wisconsin, which I'm sure is close to you. This idea that there there was actually a twenty five salary increase in certain areas. Do that fox Con uh

factory that was brought to the region. Where do you see the most potential upside due to what you call the manufacturing renaissance that you see taking place. Well, I think it's going to continue to come from you know, you know, all different areas of manufacturing across the board, whether it is in tech manufacturing but also industrial manufacturing. And so we've seen it in Wisconsin certainly, We've seen

it in the rust bells in Ohio and other states. UM. So fox Con was clearly electronics, but we're seeing it UM in other places. So UM, I have friends that work in the manufacturing building. You know this isn't in great you know standing today, but um auto airplane manufacturing parts, UM, certainly automn automobile manufacturing part appliances. So UM across all industries.

What is your view forward? I mean, and you know you've so experienced at value in the conundrum of growth and value and now heading active management where you're in brutal competition with index funds as well. Where is the where I don't mean this by value like stock fundamentals, but what's the value opportunity now for active management, how do you place yourself to outperform whatever the mandate is

against index funds. I actually think this is kind of a unique time for active management to really show its true advantage. When we saw volatility levels like we saw, you know, when we saw I'm starting in March and in April, when this pandemic really hit, that's when active management truly can show its power, right because managers, portfolio managers, that analysts can go in and analyze fundamentals and where those companies might be three to five years from now.

And so more than sixty of our active managers are outperforming six in a five year time frame. When you look out UM over over five years, when you look over three years, it's more than seventy five. So this is a time for active to really shine, and you know, hopefully taking advantage of more and more volatility overpassed UM will clearly showcase that what do you do on the banks? I mean, Strong was so good at avoiding bank tobaccos along the way, what do you do with the financials?

Right now, our managers are underweight that space, and I think it's clear that it's going to be difficult for banks to really outperform with rage with race as low as they are and seemingly as low as they will be for the next couple of years. Melody, I'm curious about the bogey that you're looking for an active management. In other words, what type of returns target for an active equity portfolio seems appropriate over the next five to

ten years. You know, I think you have to look at out performing the benchmark by two to three I'll pay I'll perform in your specific benchmark by two to three percent to really showcase, um, the strength of active management now clearly, um. You know you have to cover your fees. That's ground one. So if you can cover your fees and beat passive, to me, that's a win.

And I'm a believer in active. If an active manager can do that, I'd actually rather be an active manager, meant because that's going against the crowd, and I'd rather be not with the crowd today, um, than with the crowd. But ideally two all right, So if you want to be against the crowd or you want to take a have a contrarian take of some sort. What's the one popular stock right now that you'd sell you know what I am not because of my new role and I'm

not actually managing money. I'm not allowed to talk about specific stocks. I can only talk Come on, no, who's listening. We're in We're in the Aderondecks. We're doing right. Um. I heard you get hassled all morning from thank you, Thank you? Tom? Did you hear that somebody is on my side? And come back any time. We're really to take a vacation, and Tom, you need to take one's right kids and work. What's sick is Lisa. The deer flies up in the aderondis or like a B fifty

two bomber, you camp draw them. They're even bigger out in northern Wisconsin. It's true. I spent a lot of time in northern Wisconsin. I'll just let you know that I had, I have family in Wisconsin. It's beautiful up there. Dead silence, you guys just like I just a confirming that, yes, there are incredible Let us know, folks, what time of years should Lisa and I traveled in northern Wisconsin. It's beautiful now, Okay, Emma bloody, thank you so much. I

greatly appreciate it. With Will's Fargo Asset Management really really quite good, and value investing is there as well. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio