WHEN: Today, Wednesday, December 16th
WHERE: CNBC's "Fast Money Halftime Report"
Ahead of the Federal Reserve decision, Omega Advisors CEO Leon Cooperman and Doubleline Capital CEO Jeffrey Gundlach spoke with CNBC's Scott Wapner on "Fast Money Halftime Report" (M-F, 12PM-1PM ET) today, Wednesday, December 16th. Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000466777, http://video.cnbc.com/gallery/?video=3000466787, http://video.cnbc.com/gallery/?video=3000466813 and http://video.cnbc.com/gallery/?video=3000466594.
All references must be sourced to CNBC.
Leon Cooperman, Omega Advisors CEO:
COOPERMAN ON NORMALIZING POLICY
I think they should of gone about a year ago, but I may be out to lunch but, you know zero interest rates were the result of a crisis. The last two years employment is going up by 200,000 a month, automobile sales are running between 17 and 18 million seasonally adjusted annual rate – there's no crisis. They've been screwing the savers, the time has come to normalize policy and I think it would be more negative if they don't raise then if they do raise.
COOPERMAN ON FANG MARKET
It's all about is there a recession out there or not a recession. We've been in an extraordinary bifurcated market. While the S&P has been a bull market, more stocks are down this year than up and the average common stock is probably down 15-20% from its 52-week high. And so, somebody coined the phrase FANG, you know Fang market. You know, if you own – the market really in the last couple years has been all about simplicity. If you own Google, Facebook, Netflix, Amazon, Microsoft, you have done extremely well. But if you were really into complexity, you know, pulling apart companies, understanding the value proposition they offered, it's not been all that good.
COOPERMAN ON CATCHING UP
We don't anticipate a recession. If we are right that there is no recession, I'd expect that 2016 is a year where market breath catches up to the averages. And I look at 2015 frankly, as a year where the stock market allowed the economy to catch up…You're not going to have an economy growing at 2, profits growing at 6, and stocks going up at 20. But I think the market has kind of re-priced itself, multiples are reasonable and if we avoid a recession and profits move ahead 5-6%, I think you make 5 or 6% in stocks, you make a couple percent in dividend, you make 7-8% total return stocks, and I think in that period, you're likely to have a mildly negative return in fixed income as interest rates return to more normalized levels.
COOPERMAN ON OIL
I think the market is concerned that the price of oil and the price of commodities generally are forecasting some kind of deflationary outcome in the economy and there's no question, the old story, I like ice cream, but too much ice cream you get a belly ache. I think by and large, I come down the side that the lower price of oil is unequivocally a positive for the consumer and for the economy. If you get too low, it will create some problems. By and large, I would come down on the side that the lower price is positive, but I think we're setting up for a turn in the price of oil.
COOPERMAN ON PRICE OF OIL
I would assume a year from today, the price of crude oil would be materially higher then it is now. I can't predict the bottom, but I would think that the price would be higher a year from today. And, you know, 93 or 94% of the S&P is non-energy, and so 93 or 94% are benefiting of lower energy prices and 6-7% are getting crucified.
COOPERMAN ON HIGH YIELDS
I'm definitely concerned about the high yield index. Not because of, you know, the downward effect on the overall economy. I don't think it's that big. I'm concerned the publicity coming out of Third Avenue fund is very negative and a bunch of hedge funds have gated people in 2008. But that the hedge fund industry, which is a small sector of the entire investment world…What I look for are high yield credits that are generating a positive free cash flow, paying down debt and strengthening their credit.
COOPERMAN ON RECESSION
If the economists are right, that there's no recession to forecast horizon and we have another year of economic growth. I would expect the market to broaden out. Conversely, if we are heading to a recession – oil prices reflecting recession, the poor market breadth are reflecting a recession, then I'd expect the same dozen stocks to come down and meet the average common stock.
Jeffrey Gundlach, DoubleLine Capital CEO:
GUNDLACH ON THE POINT OF RAISING RATES
What's the purpose of raising rates today with all of these indicators weaker than they were three months ago and you gave the reason for not raising rates primarily that these indicators were weaker. So, I think the Fed is raising rates because they promised they would in 2015, and they just can't do it one more time to just fail to deliver on the type of rhetoric that they've given while maintaining credibility.
GUNDLACH ON THE DOTS
the most important thing today is the dots. the prediction of where the fed funds raise is going to be, per the feds best estimate, one year and two years from now. Because the dots, as they stand today, at 1 3/8 for the end of 2016 and around 2 3/4 for 2017 cannot be left alone while sitting next to rhetoric that uses the word gradual or dovish or measured pace or whatever you want to say. that type of rate increase – ten hikes between now and the end of 2017 and five hikes including today perhaps, you now have 2016, is not my definition of gradual. those dots need to come down.
GUNDLACH ON JUNK BONDS
Junk bonds are in real trouble because oil is probably not going higher based simply on the inventory data. The inventories in oil are so high particularly in the United States where the inventories remain so high compared to where they were even a year ago which were inventory levels which were sufficient to break the camel's back with the price of oil and send it into a tailspin. So I think it's very unlikely oil is going to go higher. If it stay where is it is, then junk bond defaults are almost certain to go up.
GUNDLACH ON TRADES
I think that the most interesting trades that are out there respect the fact that the S&P 500 is whistling through the graveyard in comparison to the junk bond market and to say the closed and bond fund market. I think the most no brainer trades out there are to do a pair trade of exiting S&P type of risk and owning credit risk, particularly in closed and bond funds and in other vehicles like REITs, that are exposed to a little bit to the Fed hiking interest rates.
GUNDLACH ON SLASHING JUNK BONDS
We slashed our junk bond holdings in the middle of this year by over two-thirds. We own a few junk bonds, but not very many. And this is one of the reasons why our funds are doing so well. So, I do own some junk bonds in our portfolios .
GUNDLACH ON THIRD AVENUE
Thank goodness Third Avenue didn't happen a month ago because we would be in the teeth of a huge redemption cycle probably for credit hedge funds right at the end of the year while the Fed is raising interest rates. I mean, it would have been a perfect storm for a debacle, but that's been pushed forward since the window on redemptions is closed for most hedge funds. But I've got to believe that there's credit hedge funds that are down very significantly. Third Avenue said they're down 30. We know they are down more than that or they wouldn't be gating people. So, if you're leveraged one time, you're worried about being wiped out. So, we're going to see big redemptions and that pressure is likely to weigh on the junk bond market for some months to come.
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