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00:00Has anything altered your view about investing in U.S. equities over the last few months?
00:06Not really. We've had a very conservative view, and we continue to have a very conservative view.
00:12I don't see the conditions that would suggest the market is attractively valued.
00:16I look around the world, and I see the market at a high at 24 times earnings, currently around 22 times earnings.
00:23And I look at all the issues out there, and the multiple seems far too high.
00:26And it's high against current interest rates. I think interest rates are going on the 10-year and longer sector are going to go up, not down.
00:35Right. So to that point, Leon, we've seen them go up, and we see that 30-year at 5%. At what point does that get super risky?
00:46Probably now, already.
00:51I have a conservative view of the market, so I don't know what you're talking about.
00:55You know, I'm not going to change my view. I'm negative, and I'm looking to become positive.
01:00And I think the thing that would make me positive, to be honest with you, is when stocks are acting better in response to bad news.
01:06You know, market tops are made on good news, and market bottoms are made on bad news.
01:11And I'm looking for the news to get worse.
01:14And, you know, there's a lot of things I don't like about the market.
01:17I don't like the action in gold. I don't like the absence of leadership in government.
01:22You know, valuations are too high.
01:26And I think we borrow for the future.
01:31Well, I am curious, Leon, though.
01:33I mean, when we talk about those points, I mean, valuations can be corrected.
01:37Trades and certain assets can be corrected.
01:38You mentioned the leadership in Washington.
01:41That's not something that, at least not as quickly corrected as you can in the markets here.
01:46So is this now creating a portfolio to stand the test of time or to stand the test of something that, in your view, could just be temporary?
01:55Well, look, all cycles are temporary.
02:02You know, economic expansions sow the seeds for the next recession.
02:07Every recession sow the seeds for the next recovery.
02:10So I look at everything being cyclical.
02:14And I'm harking back to when I started my career at Goldman Sachs.
02:18I got my MBA on January 31st of 1967.
02:21Had no money to bank, had a six-month-old kid to support, and a new wife.
02:26Okay?
02:27I couldn't take a vacation.
02:28I started my career at Goldman on February 1st of 1967.
02:32The Dow was $1,000.
02:33In 1982, it was $1,000.
02:35I made my money by picking stocks.
02:37I think the very base case I see is that environment where the averages don't do anything and the actions in individual stocks.
02:46And I find that romantic because the public has been piling into the index.
02:50And the index is very expensive.
02:54And the individual companies outside the index are much more attractive than the index.
02:59This has become much more of a stock picker's market.
03:02I also thought it was interesting just a few weeks ago.
03:04We heard from Tom DeMarco, who, of course, has advised you in the past.
03:08He was successively called the top of this market and actually was very prescient in calling, at least for what now, was the low in April.
03:16I am curious about this idea, though, of trying to find those individual stocks that are resilient.
03:22When I look at your portfolio in the Omega Funds right now, your top holding is a mortgage company.
03:28And I am curious as to how that fits within the landscape of some of the concerns that you have right now and why it would not be pulled down by those same concerns.
03:36Number one, let me just say this, we have an enormous profit thanks to management of Mr. Cooper.
03:43We bought there at materially lower prices.
03:45We've held on to it, but we like the management a lot.
03:48They're excellent capital managers.
03:50And we think this merge with Rocket Mortgage is terrific.
03:52Because Rocket Mortgage has done a very smart deal here with Mr. Cooper.
03:56And so it's 7.8 times what we think they're going to earn in 26, and we think it's very cheap relative to the market.
04:04We have very good capital management and a lot of free cash flow.
04:07And we see good growth ahead.
04:11Leon, sorry, go ahead.
04:12We bought Mr. Cooper as low as $2.
04:13It's $130, $125 currently.
04:17Leon, you talked about the risks to the U.S. market.
04:21But AI is always a bright spot for U.S. market.
04:27And you own Google, and you own some energy companies that have exposure to AI data centers like Vertiv, for example.
04:34How do you look at that?
04:36Is that pure AI data center play, or is it something else for you guys?
04:40I look at it with suspicion.
04:44In February of this year, all the conditions for a top were in.
04:48You know, all the Wall Street strategists were raising up your estimates for the year.
04:53Now they're busy lowering them for the year.
04:55And in addition, you saw the crowding into technology stocks, which now have underperformed so far this year.
05:05And there was a great deal of optimism.
05:07Investor optimism was at a record high.
05:11Now, sentiment has turned very dramatically.
05:13Sentiment is very negative.
05:14So the only reason I wouldn't be overly negative now is, you know, because I think everybody's negative.
05:21And...
05:22Where do you think the data center trade, though, has still overdone it?
05:31Well, I'm very responsive to individual names.
05:33We own Vertiv, which we think the world of management has done a great job.
05:37And we think the stock's attractive.
05:41If I don't own it, I don't know much about it.
05:44You know, we've got to stick with it.
05:46Maybe I could talk about our newest selections.
05:49So we recently added Atlas Energy Solutions to our portfolio.
05:55You know, this is a very well-run company.
05:58I think the CEO, the founder, is Bud, I think.
06:06Give me a second.
06:09The CEO, John, right?
06:10John Turner?
06:12No, no.
06:13Hey, Atlas Energy, the CEO, chairman of the board, I guess.
06:18I'm not sure if his title is...
06:22Hold on.
06:26Ben?
06:28Yeah, well, you could keep finding it, Leon.
06:40But, I mean, maybe just expand a little bit more on that.
06:42Because, I mean, you seem to be hitting on some key areas here,
06:45some key themes about bottom-up stockpicking,
06:47and clearly a big focus on leadership at these companies
06:50and the ability to navigate this environment.
06:53So when you talk about Atlas...
06:54There's free cash flow and intelligent use of the free cash flow.
06:57Okay.
06:57And that includes Ashland, Energy Transfer,
07:01some of the other names like that?
07:03Yeah, absolutely.
07:05Absolutely.
07:06Again, you know, we're very attuned to what we pay for a stock.
07:10Energy Transfer, we're buying as low as $6.
07:12Last sale is $18.
07:14We pay taxes so I don't look to turn over the portfolio for no reason.
07:17You know, so we tend to be a holder of things.
07:21We're not quite as intransigent as Warren Buffett, as good as he is.
07:26You know, but the guy who makes calls to big shots at Atlas Energy had three energy companies before he sold,
07:36had a nice profit.
07:38And if you check inside trading on Bloomberg, you can see that there's been significant purchases of stock by management.
07:44And when guys make money and they're buying stock for themselves, they're buying stock for the company,
07:49and you think it's cheap, you know, we get motivated.
07:52So it's 10 and a half times what we think they're going to earn next year.
07:55It's tied to energy.
07:56But if you look at what's going on around the world, energy is not a bad place to be.
08:02What about outside of the U.S.?
08:04Are there opportunities?
08:05Do you even look outside the U.S. for investment opportunities?
08:09Look that much, but I'm not a good person to ask that question to because, you know,
08:13we're running a small family office.
08:15We're very big on management contact.
08:17And so it's discourage us to go outside the United States.
08:20So recent purchases, I mentioned, you know, Atlas Energy.
08:24I would mention GE Healthcare, 13.3 times earnings, growing, we think, 12 percent,
08:32selling a very reasonable multiple at 13.3 times.
08:36And I like the insurance company Fidelis, you know, $20 plus book value,
08:47hard market for insurance, buying back stock.
08:51You know, I think they can earn 20 percent in equity.
08:53That means they have $4 earnings potential.
08:57And when we get out of a catastrophic environment, you know, a normal, you know,
09:01catastrophe a year, the current $4, buying back stock, excess capital, you know,
09:10so it's a big discount to other insurance companies, you can see a deal.
09:13Mm-hmm.
09:14Leon, what's your biggest concern right now?
09:18Like, I see the individual stocks that you're talking about.
09:20But in general, when you wake up in the morning, what worries you?
09:24Well, when I get up in the morning, I worry much about, I support an organization called
09:28Kindness Matters 365.
09:31What I'm very disturbed about is our fiscal condition and our inability to have the two
09:35parties work together cooperatively to deal with this.
09:39You know, we're heading to a financial disaster.
09:40Even this new budget proposal, it's a tax and spend kind of thing.
09:45It's not dealing with a deficit.
09:47Deficit is $2 trillion.
09:48It's just too high.
09:50The amount of debt outstanding is ridiculously high.
09:52And nobody's focused on it.
09:54And we're going to have a financial crisis unless they start spending time on it.
09:57And the bond market is going to get them to focus on it.
10:00You know, we have a system of leadership in the country.
10:03It's leadership out of crisis.
10:05We're not in a crisis.
10:06Therefore, there's no leadership.
10:07They argue with each other.
10:08This Kindness Matters takes kids off the streets at age three or four, and they teach
10:12them the importance of kindness.
10:13And these people talk to each other in such a rude fashion.
10:17It's very discouraging.
10:19With regards to the budget and our deficit and the fiscal situation, Leon, does the market
10:26have the ability to really push back?
10:30Well, the bond vigilante, sure, could push back.
10:33You know, it's got to go back to the market to get capped out by interest rates.
10:42Interest rates are not going up.
10:44If interest rates are not going to go up, then the stock market would be OK.
10:48But I think interest rates are going to climb higher.
10:49How high do you think they go?
10:54I don't know.
10:55A lot higher.
10:56Now, prior to 2008, the 10-year government bond yielded in line with nominal GDP.
11:01If you have real growth of a couple percent and you have inflation of three or four percent,
11:06the 10-year could be up 6% or higher.
11:09Wow.
11:10And you have a capital loss.
11:12And the coupon is sufficiently low that you'd have a loss of principal.
11:18So, I guess.
11:20Yeah, I think there are individual stocks that are cheap relative to bonds, even though the
11:24market as a whole is expensive relative to bonds.
11:26But that puts us back, potentially, Leon, into territory where we're almost talking about
11:32double-digit percentage yields in order to compensate for that deficit, for that debt
11:39servicing cost.
11:40What would that even mean for the economy and, more importantly, for financial markets?
11:47Well, I think that if they deal with the deficit, it's negative for growth, right?
11:53Because it retards growth and consumption.
11:57And I think my theme is that we've run a very inappropriate fiscal policy.
12:01I don't blame the President Trump.
12:03I actually say he's not doing it the right way, in my opinion, but he's doing the right
12:07things.
12:08It's very difficult to, you know, comprehend.
12:14I've had a lot of medical issues the last two months.
12:16I've had a lot of meetings with doctors and hospitals and stuff like that.
12:20And, you know, I haven't gotten a bill.
12:23I like that.
12:23But the fact of the matter is, maybe everything should be more means-tested.
12:27And I think the wealthy people should be paid more in taxes, not less.
12:31Well, I'm sorry to hear that for you, Leon.
12:33I hope you're doing better now.
12:34Before we let you go, what excites you now?
12:37If we're ending on this negative note, let's end on a positive note.
12:40What gets you going in the morning?
12:42What excites me is buying a Mr. Cooper and having a go from $6, $7, $8 to $125.
12:49That's what excites me.
12:51Not because I'm greedy personally.
12:52All my money is earmarked for charity.
12:55I've taken two giving pledges.
12:56One with Warren Buffett to give half my money to non-Jewish causes.
13:00The other half with Mike Levin, my friend, who has a Jewish giving pledge.
13:04So I like making money for two reasons.
13:07If I lose money, that means I'm wrong and I have an ego like everybody else.
13:11And that's number one.
13:12Number two reason I like making money is I like to give away more money.
13:16My only envy of people like Bill Gates and Bernie Marcus who recently passed away is they have a lot more money to give away.
13:22And my hero in life is Ken Langone, who is very generous.
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