Longtime investor Leon Cooperman thinks we are in the phase of the cycle Warren Buffett warned us in the second half of a bull market where bubbles can form and raise risks.
The chairman and CEO of the Omega Family Office read a quote from “Oracle of Omaha” on CNBC’s “Money Movers” on Wednesday.
“When a Bull Market is on the way, and when everyone reaches the point where everyone makes money regardless of the system, the crowd is drawn to a game that deals with the fact that it seems wrong to simply run out of stock, not interest rates or profits.”
Buffett believes bull markets often end not only when valuations grow, but also when there is an unreasonable vibrancy or fueled by momentum.
“That’s what’s happening right now,” Cooperman said, adding that investors are feeling very similar and that artificial intelligence companies are “risquéed at a great price.”
The S&P 500 has jumped almost 40% since its April low, returning to its all-time high. The rally is led by the MegaCap Tech Giants, who have invested billions in artificial intelligence and are richly acclaimed for the potential of this emerging era.
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The famous buffet indicator – the ratio of US stock market value to GDP – is flashing one of the clearest signs of market vibrancy. The Gauge is at a high above the peak reached during the 2021 dot-com bubble, a rallies in the 2021 pandemic era, suggesting that stock prices are far ahead of the underlying economy. At 217%, that’s beyond the level of Buffett that once said he was “playing on fire.”
Cooperman believes that slow-cycle crowd behavior can be at risk, but he further dislikes government ties due to rising inflation. Bonds pay fixed nominal profits, so high inflation erodes actual returns.
“Stock prices at these levels are less risky than bonds,” he said.
