This article is based on a presentation from John Mauldin’s 2020 Virtual Strategic Investment Conference, which was held from May 11 to 21.

If rates stay low, the returns on stocks will be better than for bonds, according to Leon (“Lee”) Cooperman. “Bonds are the high-risk investment,” he said.

Cooperman spoke yesterday at John Mauldin’s 2020 Virtual Strategic Investment Conference. He is retired and previously founded and ran a hedge fund, Omega Advisors. He is a billionaire and philanthropist, having signed the Giving Pledge, a commitment to donate at least half of his wealth to charity.

The U.S. stock market is “reasonably fully valued,” Cooperman said, “not dramatically overvalued.” One reason he believes it is not overvalued is because of its composition, with 25% in high-technology stocks.

If the market is appropriately setting interest rates, he said, that means you will only make 2% to 4% in stocks. He based that on assumptions that the labor force will grow at 0.5% and productivity will grow at 1.5%, producing 2% real growth in the economy. To that he added 2% inflation, which would provide a 4% nominal return. He acknowledged that it will take several years to get to a 4% yield on the 10-year Treasury.

He said that a 4% yield implies a 17 P/E multiple for stocks. Applying that multiple to $150 per share in S&P earnings leads him to conclude that the market is fully valued.

Cooperman expressed deep concern about the country’s fiscal situation, which underlies his conviction that bonds are riskier than stocks.