Leon Cooperman: Why this bull market isn't over

Leon Cooperman optimistic on markets
Leon Cooperman optimistic on markets
Markets fairly valued: Leon Cooperman
Markets fairly valued: Leon Cooperman
Two market titans putting money to work: Gabelli & Cooperman
Two market titans putting money to work: Gabelli & Cooperman

Hedge fund founder Leon Cooperman said Tuesday he's been a buyer throughout the recent selloff, and he sees stock markets heading higher.

"Even though I think the market is in a zone of fair valuation, I think the market is not in a position in my opinion to go down a lot, and I think that the path is still upward," the Omega Advisors chairman and CEO said on CNBC's "Squawk Box."

His No. 1 reason for being optimistic: This would be the first bull market in history to end without one Federal Reserve interest rate tightening.

There have been eight interest rate cycles since the mid-1950s, and the market went up for 30 months on average after each rate hike, he said. In addition, the market was up 9½ percent one year after liftoff on average across those eight cycles.

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The Fed has held its benchmark federal funds rate near zero since December 2008, but could raise it for the first time in more than nine years when the Federal Open Market Committee meets Sept. 16-17.

Cooperman said he believes the economy is strong enough to absorb higher interest rates.

"I think the Fed's been somewhat irresponsible," he said, citing strong automobile sales and continuing employment growth. "There's no basis for zero rates."

Cooperman's second reason to be optimistic is his belief that bear markets don't "materialize out of immaculate conception," but because investors anticipate the onset of recession.

He noted that at a recent gathering convened by Blackstone Advisory Partners' Byron Wien, not one of 21 distinguished guests saw a recession coming.

Thirdly, Cooperman said stocks still represent the best option among financial assets.

"Common stocks are in line with their historical norms, not overpriced, and you can find so many attractively priced stocks," he said. "I think stocks are still the most attractive house in the financial asset neighborhood."

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To be sure, stocks are not cheap, he said, "I think the market's priced to give you a return in line with the growth in earnings. If earnings don't grow, the market's not going up."

The period of annual 20-percent-plus gains is over, he said, but with the index currently trading at a multiple of 15 to 16, it could get back to 2,100 next year.

Oil in 'bottoming zone': Leon Cooperman
Oil in 'bottoming zone': Leon Cooperman

Cooperman said he's still buying energy stocks and believes oil has entered a "bottoming zone." While triple-digit oil prices are gone for at least the next five years, the cost of crude will be materially higher in three to four years from today's prices, he said.

One of the names he likes in the space is Gulfport Energy, which he said is in some of the best basins in the world.

He also sees opportunity in the renewable space. Despite a rough ride for Omega's SunEdison holding, Cooperman said he's not selling.

"There's no question the growth in solar is there. The problem for them is these yield vehicles they created to sell off their plants to capture a larger share of the cash flow coming out of the plants collapsed, raising their cost of capital, and everyone's worried they're going to get stuck with a lot of plants on their balance sheet," he said.

"I think the answer is no because there are legitimate buyers of these plants," he said. "The market we think has overreacted and we'll have to wait for things to settle out, but we feel comfortable with the name."

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One area that Cooperman said he's "very perplexed" about is specialty financial services.

Over the course of the next 20 years, he said, he expects the stock market to yield about 7 percent on average per year. But he said a few stocks in the financial space are yielding 11 to 16 percent with dividends he feels are secure.

Among the stocks Cooperman owns that fit that profile are Chimera Investment Corporation, Ellington Financial, and PennyMac Mortgage Investment Trust.

Machines taking over markets: Leon Cooperman
Machines taking over markets: Leon Cooperman

Recent extreme market volatility is due to complex, automated quantitative and risk parity trading, Cooperman said.

"I think the machines seem to be taking over, which I have a very negative view of," he said, adding, "It's scaring the public, and if the public gets scared, they leave the market. It's going to raise the cost of capital to business."

Cooperman said about 75 percent of daily trading today has nothing to do with fundamental investing, but is instead tied to high-frequency trading and "slicing and dicing of ETFs and things like that."

"In the world I grew up in, and the world Warren Buffett grew up in, when something went down you wanted to own more, and in the world that we're in now, it goes up you want to own more and it goes down you want to own less, and that's just counter-intuitive. It lacks common sense," he said.

Omega Advisors has $9 billion in assets under management. The firm has generated compound annual returns of 14 percent, net of fees since 1991, a source told CNBC.

The firm's equity-focused investment funds are down 6 to 11 percent this year following a 9 to 11 percent drop in August amid a broader stock market selloff, according to a letter to investors cited by the Financial Times.

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In the letter, Cooperman blamed systemic and technical investors who use esoteric trading strategies for exacerbating the selloff. Fundamental factors like weakness in China and interest rate uncertainty cannot entirely explain the decline, he said.