Leon Cooperman says stock market could be stuck for years — ‘too much debt is being created’

Billionaire investor Leon Cooperman told CNBC on Friday that he was concerned about the long-term outlook for the stock market because “too much debt is being created.”

“I think the overwhelming reality is the Fed is just creating this environment of free money. You have to kind of make a judgement whether that’s justified, how long it’s going to last and what impact this has on the longer-term outlook,” Cooperman said on “Squawk Box.”

“Longer term, I probably have a dissenting view than Wall Street because I’m of the concern as to who pays for the party when the party is over?’ added Cooperman, chairman of the Omega Family Office.

Cooperman said stocks right now are adequately priced. But he said, “I went back and I looked. Whenever you bought into the S&P 500 when it sold at 22 times earnings or more, your five-year return that followed was near zero,” he added. “So I would not be surprised if the market averages very little.”

In August, Cooperman also expressed worries about the long-term market outlook, following Wall Street’s robust rally from pandemic-driven lows in late March. “We’ve been pulling a lot of demand forward. I would expect that future returns will be relatively unimpressive for a long time,” he told CNBC then.

Cooperman said Friday that he recognizes the need for near zero percent interest rates and extraordinary monetary stimulus to help a U.S. economy, which has been upended by the coronavirus pandemic. However, he said that such policy decisions are not without consequences. “There’s just too much debt in the system, and I think ultimately there will be a problem,” he said.

But for now, Cooperman said he believes the near-term outlook for the stock market is “favorable,” due to Fed policy, and the impending clarity on the outcome of the presidential race between Democrat Joe Biden and President Donald Trump. He also said Congress may pass another pandemic stimulus package and added that positive developments on a Covid-19 vaccine should be a tailwind for stocks.

“I’m assuming that in the next 12 or 18 months, something will happen to change this Goldilocks environment and it will force the hand of the Fed” to change policy, he said. “It might be the dollar going to new lows and inflation picking up.”

Cooperman, a major philanthropist and son of a Bronx plumber, said on CNBC on Election Day that he cast his ballot for Biden in the presidential race, saying he “voted my values and not my pocketbook.” Back in August, he said he was undecided, citing uncertainty over Biden’s policies and concern for Trump’s divisive demeanor.

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