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Leon Cooperman Warns of 'Too Much Debt in the Market'

GuruFocus.com
·2 min read

- By James Li

On Friday, Omega Advisors Family Office Chairman Leon Cooperman (Trades, Portfolio) told CNBC he is concerned about the long-term outlook of the stock market due to "too much debt."


Cooperman said on CNBC's "Squawk Box" that the "overwhelming reality" is the Federal Reserve is creating an environment of free money: On Thursday, the Fed held short-term borrowing rates between 0% and 0.25%, the level held since the Fed did an emergency cut in March, during the beginning of the coronavirus pandemic.

Leon Cooperman Warns of 'Too Much Debt in the Market'
Leon Cooperman Warns of 'Too Much Debt in the Market'

Although he recognizes the need for near 0% interest rates and monetary stimulus to help the economy, Cooperman warned that "there is too much debt in the system" and that someone has to "pay for the party when the party is over." The FINRA Investor Margin Debt level is close to a five-year high of approximately $669 billion.

Leon Cooperman Warns of 'Too Much Debt in the Market'
Leon Cooperman Warns of 'Too Much Debt in the Market'

Guru thinks stocks are "adequately priced," but concerns remain

Cooperman said that although stocks are "right now adequately priced," if an investor purchased into the Standard & Poor's 500 Index at 22 times earnings or more, the five-year return that followed is near zero. The guru also expressed concern in August following the market's major rally from the pandemic-driven lows back in March.

As of Friday, Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio)'s favorite market indicator stands at 171.2%, suggesting a significantly overvalued stock market. Based on this market level, the expected market return over the next eight years is -1.5% per year assuming a reversion to the 20-year mean valuation level.

Disclosure: No positions.

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This article first appeared on GuruFocus.