Interest rates aren't too high says legendary investor who is predicting a recession

The S&P 500 may be up significantly this year and economists appear to be walking back recessionary predictions, but things aren’t as rosy as they appear, according to one Wall Street icon.

Leon Cooperman, chairman and CEO of Omega Advisors, a New York-based investment advisory firm with over $3.3 billion in assets under management, appeared on CNBC’s Squawk Box on Sept. 7, with thoughts of a rising recessionary climate in mind.

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Cooperman — whose net worth is estimated at $2.5 billion according to the Bloomberg Billionaires Index — said despite some encouraging economic trends, a recession is pretty much unavoidable.

"I don't think interest rates are too high. The stock market has been going up," says billionaire investor Leon Cooperman. "Ultimately we'll end up with a recession. It will be caused by either QT (quantitative easing), the Fed the price of oil or the dollar. Right now everything is well-behaved."

Asked why a recession looms in the shadow of a burgeoning stock market, Cooperman said all is not what it seems, market-wise.

“Even at a 16.3% year-to-date uptick, the S&P 500 can be deceptive,” he noted. “Seven companies account for 73% of all of the S&P’s gains. Everyone else is — the other 27% — are averaging about 3% or 4% gains for the year.”

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Cooperman also said he’s one of the few people who don’t think interest rates are that high right now.

“Maybe it’s my age, because I’ve been around a while, but prior to 2008, the ten-year government bond yielded in line to nominal gross domestic product,” he said. “If you have real growth at around 1.5% and inflation bottoming out at 3 or 4% it wouldn’t be surprising to me if the 10-year bond goes to 5.5%. – it’s currently around 4%.”

There’s no sign that interest rates are out of whack, Cooperman noted.

“What’s the sign that interest rates are too high?,” he said “The stock market is going up even as it’s a bit speculative there’s no indication the Federal Reserve is too restrictive.”

Cooperman also believes the U.S. will wind up with a recession even as the economy seems generally okay.

“Morgan Stanley’s Mike Wilson consensus view is that we’d had a difficult first half and a better second half of 2023 — I think that scenario is reversed,” he said. “(In the first half of 2023) people were very negative and finally caught up with the stock market. Secondly, the price of oil declined, and that was a positive and a strong dollar reversed course, which also helped the economy.”

That scenario sets the stage for a recession heading into the holiday season and into 2024, Cooperman added.

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