Closing Bell - Closing Bell Overtime: Billionaire Investor Leon Cooperman on the Markets 1/5/23

Episode Date: January 5, 2023

After an ugly day for stocks, legendary investor Leon Cooperman exclusively breaks down his forecast for stocks in 2023. Plus, Cooperman reveals his top stock picks for the year. And, Mike Santoli’s last word as we head into the final trading day of the week.

All right, Sarah, thank you very much, and welcome everybody to Overtime. I'm Scott Wapner. You just heard the bells. We are just getting started from Post 9 here at the New York Stock Exchange. In just a little bit, Cantor's Eric Johnston is back with us with his outlook for stocks in the weeks ahead. Is he still super negative on where your money is heading? You know we'll ask him. We'll debate that, too. We begin, though, with our talk of the tape, the view of the markets from Wall Street legend Leon Cooperman. He is the chairman and CEO of the Omega Family Office.

Back with us now in a CNBC exclusive, his first interview of 2023. Lee, welcome back. Happy New Year. Happy New Year to you and everybody else in the program. Appreciate that. It's good to catch up with you, especially now. And I remember, boy, it feels like at least a year ago where you described yourself as a fully invested bear. And you've been cautious for a while. That's been pretty clear. I think we've heard you on the network a couple of times express your cautious views. But as we begin a new year, how would you describe yourself today? It'd be very boring because my views are largely unchanged.

When I was on your program last time, and by the way, I think coming on the show and being negative now is like yelling fire in a crowded theater. I think the major plus I see out there is most people are negative and the market very rarely accommodates to consumers. But what I said in the last program is equities were the best house in the financial asset neighborhood, but I didn't like the neighborhood, and I still don't like the neighborhood.

I felt like a pharaoh, a pharaoh had a dream, the dream was interpreted by Joseph, and his dream was we're gonna have seven lean years following the seven fat years. And so I think anybody looking for a new bull market anytime soon is looking the wrong way. We've had a speculative period in our financial history, you know, SPACs, crypto, you know, weekly, daily options, you know, crazy valuations of the would-be fangs. And going into a new bull market anytime soon makes no sense to me.

Well, let me ask you this then. Let me ask you this. How much, you mentioned some of the froth, obviously, that's come out of the market. How much more froth is in? And how much more needs to come out, in your estimation, before you might get a little more optimistic about where we are now and where we might be heading? Well, you're talking like everything is a monolith. It not you know the stock market is very heterogeneous so i think there's already some stocks that are bottomed you know a typical bear market lasts about a year okay uh more stocks decline to go up and the average decline somewhere

in the range of 25 to 30 percent but that definition you know the russell index peaked almost two years ago was down 30 from its high So I think we're finding a lot of stocks that have been through a classic bear market. And I find things that I want to do and own. I just have low expectations for the market. There's a number of reasons, the reasons I've outlined previously, but you know, I think we spent a lot of time pulling demand forward. You know, I had lunch the other day with a money manager who lives in Boca Raton, where I have a home. And he mentioned he bought a house down here three years ago, paid a million bucks for it.

It's worth two million now. He can't afford to move because he has a 30-year, 3% mortgage. Right. Negative interest rates, zero interest rates for a long time pulled demand forward. And I think we've got to straighten that out. I think labor seems to have the upper hand. There's 1.7 jobs available for everyone looking for a job. So that's going to be difficult for profit margins. But I would basically take the position that we're in a market of stocks rather than a stock market. I expect very little, very little over the next few years.

You want me to focus on 2023? I would say a 50% chance that we say in a range of 36 low, 3,600 low, 4,400 high, 5% chance only of going above 4,400, and a 45% chance that we could go into the low 3,000s. And that really depends upon whether the Fed is really going to try to shoot for 2% inflation. If they go for 2% inflation, we have no idea how high rates have to go because I think inflation is already down at 3% or 4%. And if they're willing to sell for 3% or 4%, the stock market isn't expensive relative to interest rates. You know, you hear all this talk on your program about interest rates in the Fed.

That's not the problem. The problem is there's a lack of confidence in the system because we've had these very foolish policies. And, you know, I think that, you know, P-E ratios are a function of growth rates, interest rates, and confidence. You know, I went back and looked, you know. I was around in 1972 in the nifty 50. Oh, Craig. I was around in 1972, nifty 50.

JP Morgan, the U.S. Trust ruled the roost. I just put out some numbers. Avon, 65 times earnings. Dow Chemical, 25 times earnings. Eastman Kodak, 48 times earnings, went bankrupt. GE, 26 times earnings. IBM, 37 times earnings. Haymar, 34 times earnings, went bankrupt, basically. Polaroid, 90 times earnings, went bankrupt. Revlon, I think, went bankrupt. Okay, 30 times earnings. Xerox, 41 times earnings. The 10-year U.S. government in 1972 was 6.5 percent and T-bills were 4.6. And the same story with the peak of 2000. It was not an interest rate problem. The market

accommodated higher interest rates. We just basically have to, you know, go through a recession. And is that your base case at this point, that the Fed essentially puts us into a recession? And are you making the argument, Lee, that the Fed should stop now and do nothing because inflation has already come down to appropriate enough levels in your mind? No, I don't think I want to make that argument. I would just basically say the Fed doesn't have a lot of credibility with me I mean, I think this whole problem was largely fostered by

Head of the Fed. I'm somewhat critical of him only in one context I'm very principled, you know about two and a half years ago when the mark was floating at this nearest highs He basically said the stock market wasn't expensive relative to interest rates. He didn't bother pointing out that interest rates made no sense. We've had a bunch of academicians running monetary policy around the world. We had a period from 2008 lows to about a year ago, we had negative interest rates. That led to very foolish behavior. So I'll leave it to the Fed, but I would say that the inflation rate has come down quite dramatically.

It's probably running right now 3% to 4%. And if the Fed is willing to accept that inflation rate, then I would guess that they're finished tightening. And then we'll- Well, I mean, when you hear- But I know that that's the case. And so I'm allowing in my thinking that we could have a recession by the end of the year. And that recession will be brought about by Fed tightening, QT, quantitative tightening, a stronger dollar, or the price of oil.

And if we have a recession, the market will have ended its decline, say, down 35 percent from its peak. So that gives you the low 3000s. But if we have a soft ending, which I don't believe in, I'm guessing the market won't go much below 3600. OK, when you hear people like Esther George today, Kansas City Fed, and you got Neil Kashkari yesterday, Minneapolis Fed, suggests that, you know, they're prepared to take the terminal rate well over 5 percent. 5.4 maybe is what Kashkari threw out. These guys are data dependent. Kashkari was yelling for ease two years ago, right, when things were at a peak. So I don't have much confidence in these characters. I think the public is much more intelligent than the politicians. You know, we're going to survive this.

You know, I read when you guys give a lot of publicity to Goldman Sachs, cutting its staff by 8%. I was with the firm for 25 years, and I lived through three 10% cuts in staff. And, you know, that's just the way the world works. You know, recessions are like a frost. You know, it takes the dead branch of a tree. It cleanses the tree. It trims the tree. It's painful. It's very difficult. We all like to hire people. We don't like to terminate people. But we've been here before. Recessions are followed by recoveries. Recoveries lead to recessions. And, you know, the world will not change.

But I would just say that I think now, because of the very speculative period we've been through and other things I'm looking at, basically, I don't think the market can go up very much. But it may not go down very much either because I'm finding a lot of cheap stocks. And we're going to get to some of your actual investment picks in a little bit. But first, you know, one of the issues I think we're dealing with, too, Lee, is that there's finally competition in the investment universe, right, where it was there is no alternative. Now there finally is. And you used to describe the situation, for example, of, you know, buying a 10-year treasury was like picking up a dime in

front of a steamroller. That was either your saying or you were quoting somebody else. But now there actually is competition. Are you yourself finding other opportunities that are better than equities? Have you bought any treasuries? What's your take on that whole idea? I'm very old-fashioned. I wouldn't buy a U.S. government bond at the current yield of 3.7 percent. Okay? I could see the case for a two-year treasury at 440, because I think over the next two years, the market won't go up 10 percent. So, in terms of averages. But I believe, I go back in time when prior to 2008, the 10-year government bond yielded

in line with nominal GDP. So if you say you have a couple percent real growth and you have inflation of 4% at the best, the 10-year wouldn't be attractive to me at 6%. But you're talking to an equity guy. I find things to do in the equity guy. You know, I find things to do in the equity market. And I could buy stock shielding 9, 10, 11, 12 percent. That makes sense. How much? How much? I'm also curious, like, how much cash do you for somebody who has said, you know, a few times already that you are finding opportunities where, you know, others are maybe scared away at the present time. How much cash do you have on hand now relative to, say, historical averages for you and the Omega,

what was Omega and what is now the family office? I have about 10 percent cash. I would probably have more if I was running client money. You know, I'm running my own money now. I want to make money for two reasons. You know, if I make money, it means my views were validated. I'm arrogant as anybody else. I want to be right.

Secondly, I'm committed with the Buffett pledge and the Mike Levin Jewish giving pledge to give away 100% of my net worth. I'd like to give away more money. I envy in a positive way people like Ken Langone, Bernie Marcus, Gates, Bill Gates. They give away their money. You have more money to give away. And I feel that that's kind of why I want to be right. But I have about 10 million cash and I pay taxes. So I don't go in and out.

I try to hold my position. I did a good thing i sold the call premium against most of my technology holdings mr market is clearly undergoing a change in profile but i'm prepared to lose money you know i said in a bear market he'll lose his least wins so you know i was down i was down three percent last year everybody tells me that's a huge win i don't consider that a win i could have made three percent or four percent by being in cash. But, you know, you got to make that swap. You sell your Microsoft, you sell your Google, you pay big taxes, and then you get back in. I kind of a junior version of Warren Buffett, not nearly his IQ, investment IQ, but very similar philosophy.

So let me ask you this since you mentioned those names and obviously we are undergoing a regime change if you will within the market itself and we see that with the re-rating of those mega cap tech stocks the likes of which that you have owned for a while the Alphabets, the Amazons, the Microsoft and you just of course, the covered call activity that you've done against those as a hedge of the positions. What is your view on stocks like that now in an environment where some say the environment coming out of what we're in right now is going to be far different for stocks like that? Well, there's a cost of money now, but I don't think these stocks are expensive. You know, Alphabet's probably a 15 percent grower selling at 16 or 17 times earnings. You know, we have Fortress Balance Sheet. You know, Microsoft is a much higher multiple, but they have a very dominant position.

And so, you know, I think they're OK. But I would say at the margin, the leadership is going to the industrial sector of the economy. And there's a leadership change. And generally, when leadership changes occur, the market is kind of in a corrective mode. So what I see going on is very classical and not a surprise to me. The surprise to me would be if the market took off. I would not be. I would be very surprised if the market went up a lot. I just don't see it. And-

Would you- so you're not- but you're not taking the opportunity in those names that we just were speaking about, these mega cap names to add, right? I'm doing very little in the market. My business generation is down 80, 90 percent. My last two purchases, I bought a large position in something called Rexnord, where the stock got corrected when they announced an acquisition, which we thought make a lot of sense. The market didn't like the fact they were paying cash for what they were buying. They wanted to buy back stock, so Regal Rexnord. And then I bought some ADT,

where I'm buying in at a price slightly below what State Farm and Google invested in the company. And, you know, with the mortgage rates being where they are, the housing turnover has slowed. So they're getting less turnover, less, you know, terminations of their clients.

And they're generating a lot of free cash flow. You get some smart ownership there. But, you know, I find it. I'm sorry to interrupt you, but I just find it interesting. And I feel like when somebody like you comes on who has seen it all right. You've been through so many different market cycles. You understand the ups, the downs, the periods of time where stocks return less than you expect, and maybe times where they return

a lot more. It feels like people are somewhat paralyzed in the current environment because, as you suggested at the outset, we're not really sure what the Fed is going to do. We don't really know earnings at the present time, whether expectations need to come down anymore. What you should be looking for is when a company reports disappointing earnings like a Walgreens, the stock opens up down, but when the day is over, it crawls its way back to unchanged up. We're just not seeing enough of that. So it tells me the market is not yet adjusted to the current reality. I don't own Walgreens. I'm not involved. But I would say that I see it down on your screen, $2.30, down 6% today. They had a disappointing result. And so if, and their stock has probably

down a lot from its high. I don't know how high. And so I think look for that. That would tell you that the market is corrected and has recognized a new reality. I think part of my point, Lee, is if we try and get a lesson or two for people who are watching, you're still putting some money to work in areas that you like and I'm wondering in those types of situations, what exactly are you looking for to say that, OK, it's not a stock market, it's a market of stocks. And I'm willing to put fresh

money into names, even in what is a very uncertain and difficult environment where most people, as you suggested at the outset, are negative people like yourself. You even think stocks could go down even more. In some respects, you don't even care. You're finding names that you like and you're putting money to work. Yeah, I would say that what I look for is free cash flow, a intelligent management, basically a good return on equity. And importantly, importantly, I'm looking for people to pay me to wait. Since I think I have to be patient, I want to earn a dividend while I'm waiting. And if I think the stock is cheap, I want the company to have a mentality of buying

back cheap stock. Because as they buy back stock and shrink the cap, I'm increasing my ownership. And I love increasing my ownership in something that is undervalued. So I'll give you the perfect example. The reason I did relatively, I say relatively well last year, is I had a big energy exposure. And I think energy is attractive. I think as the economies around the world open up, world travel is going to pick up. China is going to come out of lockdown. We're no longer depleting the Strategic Petroleum Reserve. We have to replace what we took out.

Russia's supply is down. We're not replacing reserves in line with production. And so I have a bunch of energy stocks. We're selling at three times cash flow. My favorite name, I'll give you statistics, it's Paramount Resources, PLU up in Canada. The growing production at 15%, which is highly unusual. The stock yields 6% on a recurring dividend. They just announced the intention of paying a dollar extra, probably come out in January

or February of next year. They are going to next this year debt free. I expect them to be buying back stock with their free cash flow in 2023. And basically, the management owns about $2 billion of stock. So they're incentivized to do intelligent things. And they have a smart management. And they have $4 or $5 a share in other energy holdings that they get no credit for. So if I have $25.53 at today's close, I'm going to get a buck back early this year.

You know, I keep saying next year. It's this year, January, February. So that takes me down to $24.53. They have $4 or $5 of holdings in other energy companies, so I'm paying $20 for, you know, less than, you know, maybe two and a half times free cash flow. So if the manager is smart, they'll be buying back stock, which really increased my value. And I think if you get wrong on

it, it's cost me a fortune, but I can't believe it. And I've recommended it in the past and I've been wrong, but it's Legato First Lean paper. It's a little bit of a difficult story to tell, but this is a company that has close to 40 megahertz of 5G spectrum. It's extremely valuable. Okay. The country needs more spectrum. Okay. They got approved. They bought the spectrum at an auction many years ago. And about eight years ago, the Department of Defense alleged that the spectrum was interfering with the GPS system. The FCC, which is responsible for setting spectrum policy in the country,

studied the allegations for five years, five years, under the leadership of Jeet Pai, who was head of the FCC. And after five years of studying the question, they basically concluded by a five to zero bipartisan vote, the spectrum did not interfere with the GPS system. Now the Department of Defense changed their story. They say we want the spectrum for national security purposes. I have no problem with that. Let them pay for it. This asset that they have is worth $20, $30 billion.

You create the first lien paper at like you know 25 30 cents of the dollar first lien to create a value is about 4.8 billion dollars and i think the asset is probably worth easily 15 billion so you know the question the risk i'm taking is can the government seize an asset worth 15 billion and not pay for it i've spoken to a very senior person, an expert in constitutional law in the Yale faculty. He says anything is possible, but it's highly unlikely, particularly in peacetime. So I would think that the government will come up and recognize the need to pay for these guys, what they have. Okay. Let me do this. Let's squeeze in a break if we could, Lee. Bear with us for a moment. We'll do that. We'll come back and we'll talk more.

Go nowhere. Go nowhere. With investing we'll talk more stuff. Go nowhere. Go nowhere. With investing legend Leon Cooperman. Go nowhere. All right. We'll be right back. By the way, let's get to our Twitter question of the day, too. We want to know, how will the market react to the jobs report tomorrow? Didn't react all that well to that data today, did it?

See what happens tomorrow. Head to CNBC Overtime on Twitter. Place your vote. We will share the results later on in the hour. We're back in two minutes with Lee Cooperman. We're back now with a legendary investor, Leon Cooperman. True to his word, he hasn't gone anywhere. He is still with us. So let's continue the conversation if we could, Lee. I remember, you know, a time where we would talk about the financials, which, you know, I'm not sure if you got a chance to check out the halftime program recently,

but we're holding our stock summit. And I thought it was pretty telling yesterday that three of the people chose financials over the last couple of days as their favorite sector. You've had some exposure there over the years. Maybe it was Citi and some other equities too. Citi, Bank of America, and J.P. Morgan. Where is that today? You still own them, and what do you think about the banks? I think they're cheap. They're single-digit multiples with decent yields and generating a lot of cash. But again, I'm very patient. Maybe I'm too patient. I don't know.

Do you still hold the names that you just mentioned, the cities, Bank of America? I think in the aggregate, if I add them three together, I don't have major positions in very few things. I'm just looking there. I don't want to give you any bad information. I think if I added up my positions in the banks, there may be 2% position in the aggregate. I'm just doing, you know, I may be just dead wrong. I just don't like the leadership of the country. And I don't like the tremendous buildup of debt in the system. You know, on those two points, the country was founded in 1776.

We had debt coming out of the Revolutionary War. Andrew Hamilton wisely and intelligently paid off that debt. So forget about 1800. In 2017, the national debt was, I think, $20 trillion. From 2017 to date, the national debt has gone from $20 trillion to $32 trillion. That's the growth rate, foreign excess of growth rate of the economy, which means more of our income has got to go to service debt unless we become a fiat currency. OK, and so that is troublesome. And then in terms of leadership of the country,

there is no leadership. Look at the zoo that's going on now in Washington with this House leadership. You know, I'm married 58 years to a terrific lady. The only reason we've lasted 58 years, I learned how to compromise. If you can't compromise, you can't get by in this world. And we need more intelligent leadership. And we're going to get intelligent leadership. We're going to get intelligent leadership when we have a crisis.

But financial markets don't discount a crisis. We're living too comfortably with the policies that we're following. Now, I'm a capitalist with a heart. You know, I'm working hard to give money back into the system. But we've got to get more intelligent policies, you know, and this is designed to be somewhat humorous, but it's factual. In 1776, the nation's population was two and a half million people. A million were women that did not have the right to vote, okay, and the 250,000 were slaves that didn't have the right to vote. So a million 250,000 voters found Washington, Jefferson, you know, Hamilton, Madison, et cetera. OK, we now have three and 30 million people in the country. We found Trump and Biden. There's got to be a better way. There's got to be a better way. That's it. You know, let me ask you this in the last moments

that we have. You know, we're obviously you know, we've gone on to politics. But in some respects, Fed policy ends up somehow along the way being political. I think we've learned that over the last, you know, however many years that it's been difficult to, you know, raise interest rates without drawing the ire of Congress. And I just wonder whether you expect a rate cut from the Fed at some point in 23, whether you think they should. How do you view that? And then I'll ask you one more question and I'm going to let you go. I don't think we're in store for any rate cuts in 2023. You could get them in 2024. But, you know, if they want to stop inflation, they got to get rates in excess of nominal GDP. OK. And so it is very clear inflation is coming down.

It's very clear, clear inflation is coming down, but it's coming down to three or 4%. If they're willing to accept that, which is, you know, one half to twice what their target is, but if they're willing to accept that because they don't want to crush the economy, then the downside is largely over. Because as i've said often in the past and even including on your program inflation is a friend of common stocks because companies incorporate the inflation in their selling prices which lifts the nominal level of revenues and earnings inflation becomes a problem for the market when the central bank is moving to curb inflation because investors understand curbing inflation is tantamount to curbing growth. But I don't see rate cuts this year unless we fall into recession.

And that would suggest that the market will go lower. But that can happen. Look, anything can happen. But I would say that my central tendency is I think we fall into recession by the end of the year. And some people argue we're in a recession. But I think the combination of QT or Fed tightening or the high price of oil or a strong dollar will basically push us into recession. But it's not guaranteed. And I don't believe in soft landings. So I would keep my options open. I would not get, you know, I wouldn't want to be a margin if I was an individual investor.

And I can understand buying bonds, even though it's not my thing, because I, you know, I could find things that are much better than bonds. But that's just my persuasion. You see, I'm an equity guy. But I get it. But I do believe what I say. You know, I mean, they get bond yields up a lot enough that I could play bonds. But the Teddy yield at 3.72 just doesn't excite me.

And I know historically when the yield curve is inverted, you're supposed to buy bonds because the best time to buy bonds is when the yield curve is inverted. But I just can't bring myself to buy a bond at 3.7, not with what I can do in the equity market. Look at this. Legato has got a 15.5% pick coupon. I think the bonds are at par. So if I know what I'm doing and I'm right, I go from 34 to par in less than a year. These bonds mature November 1st of 2023. I get another 15 points of pick interest. So if you take 66 points of capital appreciation and add 15 points of additional interest, that's 80

points in a $34 investment. That excites me. That gets me up in the morning. I have a big position. And the only way to do it is the government can steal something for nothing. And if that happens, you're not comfortable being an investor in the United States of America if they can get away with that. It's disgraceful what they've done. Disgraceful. We're going to leave it there. We're going to leave it there.

I so much appreciate your time. It's nice to see you again. Happy healthy. Happy healthy. And stay above ground. That's the important thing. Now, I'm at an age now. I'm going to my ninth decade.

I'm just losing friends left and right. It's unfortunate. Very lucky. I wish you well. We wish you and your family well. We'll catch up with you soon. I'm sure of that. That's Leon Cooperman joining us exclusively today in overtime. It's time for a CNBC News Update with Bertha Coombs. Hi, Bertha. Hey. Hi, Scott. Here's your CNBC News Update at this hour. Mexican authorities arresting the son of notorious drug lord El Chapo. Ovidio Guzman was previously detained in October 2019 before quickly being released to avoid violent retribution from local drug gangs.

This arrest comes less than a week before Mexican President Andres Manuel Lopez Obrador is expected to host President Biden and Canadian Prime Minister Justin Trudeau in Mexico. Meanwhile, President Biden saying the United States will immediately begin turning away Cubans, Haitians and Nicaraguans who illegally crossed the Mexican border. This marks Biden's boldest move yet to confront the growing number of migrant arrivals since he took office. The new rules expand on an existing effort to stop Venezuelans attempting to enter the U.S. And Massachusetts Governor Mara Healey made history today at the Statehouse in Boston. She became the first female governor in state history to be sworn in and is also one of the first lesbian governors to serve in the country. Healy's

successful campaign flipped the Massachusetts governor's seat back to the Democrats after eight years of Republican leadership. Big changes in the base tape. Scott. All right. Bertha, thank you. That's Bertha Coombs. Coming up, our all-star OT panel. We get their instant reaction to billionaire Leon Cooperman's big market call. Don't go anywhere. OT right back. All right, welcome back. Stocks finishing the day lower. The S&P 500 and Nasdaq both on track for their fifth straight week of losses, the longest losing streak since May of last year. Joining us now, Hightower's Stephanie Link to react to a little bit of what Leon Cooperman said. Steph, nice to see you. Good to see you. What do you make of what he said, right? Surprised if the market goes up a lot, looking for a recession by the end of the year,

10 percent cash. You know, I kind of agree with him on a couple of different things. So first and foremost, I agree with him that parts of the market are frothy and expensive. And we've talked about that. That is growth in general, right? It's also stay-at-home beneficiaries in technology, staples, utilities. On the flip side, there are parts of the market that are not expensive. He highlighted energy and financials. I couldn't agree more with him. I also thought it was interesting that he said this is a market of stocks, meaning it's a stock picker's market. And I absolutely agree with him there. And I know you and I are probably going to talk about some of the moves that I have been making this week alone, because I do think

there are opportunities in the downdraft. And then he also talked about lack of confidence in the markets overall. And that's what's putting pressure overall on the markets, right? So yeah, for sure, there are a lot of unknowns. We know Fed. We know higher rates. We know economy slowing. We know earnings. In my opinion, though, it's not all gloom and doom.

It's not all negative. We have the dollars down 9%. That's going to help multinationals. Input costs are definitely falling. Rents are starting to ease a little bit. We have to keep an eye on wages. But that's the good part of the economy, jobs, right? And that means consumers hanging in. And oh, by the way, wildcard, China reopening. So who knows if that is going to happen? But it's not all negative. And so that's why it is a market of stocks. And you have to take advantage

of the winners when everybody is looking for, you know, this is such a negative type of environment. He did kind of, you know, temper expectations, though, for, you know, the bigger picture, if you will, for stocks based on what we've witnessed over the last, you know, few years, the amount of money in the system and what that has all led to. Let's listen to what he said about his view overall of the market now and going forward. Anybody looking for a new bull market anytime soon is looking the wrong way. We have had a speculative period in our financial history, you know, SPACs, crypto, you know, weekly, daily options, you know, crazy valuations of the

would-be FAANGs. And going into a new bull market anytime soon makes no sense to me. Yeah, I guess one of the principal questions, Steph, is whether you think that enough froth has come out of the market or if some of the areas that he mentioned, you know, even the FAANGs or mega caps, which, you know, even the FAANGs or mega caps, which, you know, he's done the covered call strategy against his own holdings as a hedge, still have valuation resets that, you know, are going to be tough to handle but need to still happen. Yeah, no, I think there's definitely parts of the market that still are seeing froth and higher interest rates are not good for growth assets. They're not good for long duration assets.

We've talked about this all pretty much all last year. And so, yeah, maybe as a result, the markets can't go to new highs. But I don't necessarily think that the market has to fall tremendously from here. I know where we have these unknowns. I know people thinking about recession. I'm kind of like 50-50, soft landing and recession. But at the end of the day, Scott, I mean, there are areas in the markets that are actually holding up pretty well. And it's not just energy and financials. It's industrials. It's materials. Parts of discretionary as well.

So, you know, I know tech gets all the attention because it's 30% of the S&P 500 along with comm services. It's about 34%. That's a big chunk. I get it. But there are a lot of other parts of the market and sectors that actually should benefit as rates continue to either work higher or stay higher for longer. It certainly seems like they're going to stay higher for longer after some of the Fed, after the Fed speak earlier this week and even today. Hey, Steph, quick, because I got to bounce, but you sold Accenture and Fortinet to buy more LAM research.

Yeah, this is trying to kind of get consistent with what I've said. High multiple stocks struggle with higher interest rates. Accenture and Fortinet are very high multiple stocks. LAM is down 50 percent from its high, trades at 13 times. And I think maybe I'm early by a quarter or two in terms of trough, NAND and DRAM spend. But I like the risk reward here. All right. We'll see you soon. Steph, thank you. That's Stephanie Link, a Hightower joining us there. Up next, playing with fire. Tanner's Eric Johnston doubling down on his bear case, flagging some major concerns now in equities yet again. He'll explain how

he is navigating that uncertainty, how, too, after this break. Owning stocks is like playing with fire. The words of our next guest, who's been looking for a major sell off in the weeks ahead. Eric Johnston, the head of equity derivatives and cross asset at Cantor Fitzgerald. Happy New Year. Welcome back. Thanks, Scott. Good to be here. Playing with fire. So you're still as negative as you've been recently. I really am. And, you know, one of the things that gives gives me confidence is that I think there is very little upside to this market, even if everything goes perfectly. And let me kind of speak to that. We're in a new we're in a new world right now.

If you look at the average Fed funds rate over the last 20 years, it's 1.4%. We're now at 5%, which is about pretty close to, or about to get to 5%, which is pretty close to a 20-year high. Real yields are 1.75%. That's a 14-year high. The 10-year yields, well above average. And yet, PE multiples should be lower than average, but instead, they're trading at 17 times. So if you're bullish on the market, you have to assume that either earnings estimates need to go up or you need to bet that the earnings multiple is going to go up. In terms of earnings estimates, the chance that they go up from here is extraordinarily unlikely. Okay. And I think

most people would agree with that. And then in terms of the multiple, I would ask, what is the argument for a higher multiple than 17 times, considering we're close to peak-ish earnings and based on what I just said, that rates are now at well above their 20-year average and in many cases, 20-year highs. So I see no argument for the upside. And I can make plenty of arguments that we can go into around why the market should be materially lower. So from a risk reward perspective, being short right here, extremely attractive. I hear you. And it's like the reasons to be negative, as Leon Cooperman expressed not 10 minutes ago, are obvious and plentiful and everybody's negative. And generally speaking, things don't generally go with the herd. Maybe sometimes they do for

a short period of time, but they tend to reverse themselves at a time. How about that just in and of itself, that it's so obvious that maybe it's not that obvious? Sure. So I think that's a great question and a great point. So I think what he said that everyone talking very negative is very clear, certainly amongst the institutional community. But I think he also said that he was still 90 percent invested. And I think that if you look at what the retail community has done, they put one point five trillion into equities post-COVID, and they've sold probably about $100 billion. So they haven't sold yet. Then you look at the hedge fund community.

Their net long exposure is below average, but still running 30% to 40% net long. So it's not what people say. It's what people do. And we haven't seen a bear market other than the couple months of COVID in 14 years. People are not adjusting and are not used to the fact that there could be significant downside to this market. So there's a sense of complacency. So my broad point is that there is a difference between what people are saying and how they are positioned. And I think that's a big deal. What changes your view then?

I mean, honestly, at these prices, nothing can change it. What I would say is that let's say we go to $3,500. OK, then it becomes more challenging where you could say, oh, I could have, if I'm short, the upside could be something greater where you could potentially get hurt. But at $3,800, $3,850 in the S&P, it's very, very difficult to make a case for higher prices than here. And I think people talk about these generalities of inflation's falling. The Fed is close to being done. We could have a soft landing. I would say, OK, great. So let's say that all happens. What multiple do you want to put on the earnings? And what are your earnings estimates for 2023? And I think it's very difficult to argue for either one of those

to go up. And that's what stock prices are based on. So 35, so 10% lower from here essentially gets you more constructive on the market itself. Yeah, I think, you know, I think we're going to the low 3000s. It's very difficult to, I'm not going to pinpoint where I think exactly it's going other than my conviction that we're going materially lower is high. I think if we got to something around 3,500, that's where, you know, I have to kind of see what's going on in the environment, you know, at the time. But, you know, I think we're going to have this case where you have so many headwinds against you. You look at Microsoft, look at this, what the CEO said two days ago, that the next two years are going to be very challenging for tech. This is a $1.7

trillion company saying that. Is that an environment that you want to own stocks in? And Microsoft's trading at 24 times earnings. So is it trading at some sort of discount where it's already pricing that in? No, it's trading at 24 times earnings for a $1.7 trillion company where the CEO is saying the next two years are going to be challenging for tech. So I think the best case scenario for the market is sideways. I think if everything goes weight generally, plus or minus 3%, I think it's the best case scenario for this market over the next six to nine months. Leave that right there. We'll make that your last word. Eric, thank you. We'll see you soon. That's Eric Johnson. Thanks for having me.

Coming back, we're tracking some big stock moves in overtime. Christina Partsinevola standing by, as always, with that. Christina. And I've got some heavy-hitting wrestling news sending shares soaring of WWE. Could a sale be down the pipeline? Plus, why Costco shares are moving higher in the OT. We'll have all those details right after this short break. We're tracking the biggest movers in overtime.

Christina Parts and Nevelos is here with that. Christina. Let's start with former chief executive and largest shareholder Vince McMahon delivering a smackdown to his board. He's coming out of retirement after leaving last July following sexual harassment allegations. He plans to elect himself as executive chairman to possibly pursue a sale of WWE World Wrestling Entertainment shares are soaring almost 11 percent. And when he left, it was July of last year. And lastly, let's talk about shares of Costco moving in the OT after the release of important holiday sales.

December sales jumped 7 percent year over year. But still, there was some weakness in e-commerce sales, which may show more people are looking to shop in store versus online. Scott. Christina, thank you. That's Christina Partsinella. Still ahead, Santoli's last word and the Twitter question reveal. The answer next. All right, let's get the results of our Twitter question.

We want to know how will the market react to the jobs report tomorrow? The majority of you saying the market will sell off. Well, because today's jobs data was strong and the market did just that. We'll see if there's a repeat tomorrow. Santoli's last words next. OK, Mike Santoli here for his last word, I guess, all about jobs and how stocks react to them. It absolutely will be. And I do think people are leaning cautious, probably for good reason, because it seems like the upside for a soft number. I mean, it might be a bit of a spring

loaded move just as a reflex rally. But, you know, I heard what Lee Cooperman was saying. What Eric Johnson was saying. And I think it reflects the idea that this seems like a capped market, right, for all the factors that they talked about. But Lee talking about only a 5% chance that the S&P gets above 4,400, I mean, that's a 15% move up from here. We were there nine months ago. It's not like it's out of the realm of possibility. Obviously, a lot has to break right. And I agree that valuation is not, on the the surface a reason to own or buy this market at this level. 17 times earnings is what Johnson was talking about. That is true. However, if you

say Microsoft and Apple are way too expensive, and by the way, the S&P is at 17, well, you can get those two out of the index and you're more like 15. There are 200 stocks in the S&P below 15 times this year's earnings. The equal weight is around 14 times. So my point is the overall market might not have a massive valuation problem. And a year ago, we were at 21. The Fed was not even starting to tighten. Here we are at 17-ish. And, yeah, maybe with some downside to earnings, but the Fed is more done than not.

You have a cushion from higher yields if you own bonds. So I guess all that thrown into the mix means it's a little more of a nuanced picture. Maybe the biggest problem, too, along with some strong jobs data, obviously, is the lack of a Fed meeting coming up. Right. You have to wait a while. So you get a lot of Fed speak. And you're not going to be able to market a bit. You're not going to be able to disprove, you know, the bear story along the way. That's right. All right. Well, we'll see what the jobs report holds tomorrow. We'll catch up again 24 hours or so from now and figure it all out. Best Money begins now.