Leon Cooperman, the chairman of hedge fund Omega Advisors Inc., said investors should avoid Treasuries after yields dropped to record lows.
Rates on 10-year Treasuries fell to 1.67 percent on Sept. 23. Cooperman said that given tax rates and inflation, he’s unwilling to accept the negative real rates investors are effectively getting from the securities.
“I wouldn’t be caught dead owning a U.S. government bond,” he said today during a presentation at the Value Investing Congress in New York. “Not because I have a problem with the credit. I have a problem with paying 35 percent on the 2 percent to Uncle Sam, and then have a 2 to 3 percent rate of inflation,” he said. “It’s confiscation of my capital. I think I’m too smart to play that game.”
Investors are snapping up Treasuries as a haven amid concern the European debt crisis will slow the global economy. The securities returned 6.4 percent during the third quarter, according to data compiled by Bank of America Corp., as equities posted the biggest worldwide losses since the last three months of 2008.
Cooperman, who was the first chief executive officer of Goldman Sachs Asset Management, founded New York-based Omega in 1991, said the U.S. economy will avoid a recession and American equities offer “appealing valuations.” He started at Goldman Sachs Group Inc. in the late 1960s.
“Stocks are cheap relative to history, relative to inflation, relative to interest rates,” he said. “The recent facts suggest the economy is accelerating moderately.”
He recommended buying shares in 10 companies: Apple Inc. (AAPL), Boston Scientific Corp. (BSX), KKR Financial Holdings LLC (KFN), Qualcomm Inc. (QCOM), SLM Corp. (SLM), Transocean Ltd. (RIG), E*Trade Financial Corp., Sunoco Inc. (SUN), ACE Ltd. (ACE) and Energy XXI (Bermuda) Ltd.
While Cooperman favors Apple, he criticized the company’s failure to pay a dividend or buy back stock. Apple had $76.2 billion in cash and marketable securities as of June 25, according to the Cupertino, California-based company’s last quarterly report.
“Their financial policies are somewhat destructive,” he said. “Not paying a dividend, not buying back stock doesn’t make any sense to me, and perhaps things will change looking down the road.”
Apple is scheduled to report quarterly results after U.S. markets close today.
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