Billionaire investor Leon Cooperman sees a ‘self-induced’ crisis and a stock picker’s market. Here’s what he’s buying.

“‘We have a self-induced crisis by irresponsible fiscal monetary policy over the last decade.’”

— Leon Cooperman, chair of the Omega Family Office

That was billionaire hedge-fund manager Leon Cooperman commenting on the current banking crisis that has seen the shutdown of SVB Financial Groups’s

Silicon Valley Bank and crypto-friendly lenders Signature Bank and Silvergate Bank, as well as a bankruptcy filing for SVB Financial. Additionally, over the weekend, UBS


announced a $3.25 billion buyout of struggling rival Credit Suisse


Cooperman, the chair of the Omega Family Office, formerly Omega Advisors, told Bloomberg Radio on Monday that he “did have a view that we were heading to a crisis of some kind, and we’ve seen it and we’re getting a predictable response by government. It’s sad what’s going on in the country, but what they’re doing is what is necessary to preserve the system.”

Also read: First Republic’s stock sinks after credit rating slashed by another three notches at S&P

Federal authorities last week organized a move by major banks to deposit $30 billion into First Republic Bank 

to stave off a fourth bank failure. That came after the government promised to protect all Silicon Valley Bank depositors and announced measures to ensure that deposits at other institutions remain safe.

Cooperman expects that the Federal Reserve will likely hike interest rates by 25 basis points on Wednesday and that it will then be ready to “accept a higher level of inflation” for the sake of stabilizing the financial system. He said the latest crisis is the “response to debt buildup in the country” and questioned how many out there want to buy U.S. debt, which is estimated at more than $31 trillion. “The banks are not the buyers anymore,” he said.

“You know [Federal Reserve Chair Jerome] Powell said that the stock market wasn’t overvalued — this was a few years ago, because of where interest rates were. But he never bothered to tell people that interest rates didn’t belong there,” Cooperman said.

In Cooperman’s opinion, investors are now in a “stock picker’s environment, especially if the S&P 500 turns out to be very pedestrian.” He believes that we’ve seen the “fat years” and that now “we’re headed for seven lean years,” adding that the S&P’s all-time high near 4,800 is probably going to remain the top for quite awhile.

“I think what’s going on in the world is negative price/earnings ratios. And I want to make this point: If the government is looked upon to moderate the downside risk, the government has every right to moderate the upside return,” he said.

Read: Morgan Stanley says now is not the time to buy stocks, and investors are misreading the SVB crisis

As for where he’s putting his money now, Cooperman said he’s got some “one-off” exposures to a couple of mortgage real-estate investment trusts that are yielding 14% to 16%, alongside with some investments in energy, which he admits have cost him this year.

“I’m generally of the view that world travel will come back, which will be a plus for energy demand. China coming out of lockdown will be a plus for energy demand. We’re going to no longer deplete the Strategic Petroleum Reserve, we have to rebuild it, and we’re not replacing reserves to the extent that … we should be in terms of where we’re producing,” he said.

“I’ve got a bunch of oil stocks in my portfolio that have current yields of 5% or 10%, with production cost well below current prices. They’re largely debt-free, and they’re in position to buy back undervalued stock,” he said.

His favorite is Canada-based Paramount Resources
“They produce oil for $21 a barrel and the growing production at 15%. The stock yields over 5% debt,” he said.

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