The current stock bull market started in March 2009 fueled by unprecedented monetary easing by the major central banks, which consisted of near-zero and negative interest rate policy and historic liquidity injections, known as quantitative easing, by the major central banks.
“I love riding a horse that’s running” David Tepper told CNBC’s Joe Kernen in an exclusive email. “We have been long and continue that way.”
David Tepper, the founder of Appaloosa Management, has credentials. The billionaire hedge fund investor reportedly scooped a $2.2 billion paycheck in 2012 marking him the world’s 4th highest-earning hedge fund manager. He was also ranked first for earnings that year by Institutional Investor’s Alpha.
“I love riding a horse that’s running… We have been long and continue that way”
David Tepper bets bull market has legs but his claim that “we have been long and continue that way” contradicts what he said not too long ago
Indeed, Back in September 2018, David Tepper’s 20% stock pull-back view stole the limelight.
David Tepper had been underweight US stocks since he predicted back in April 2018 that the “highs are in.”
The crux of David Tepper’s 20% stock pull-back view was based on the Fed’s transition to monetary policy normalization, which entailed four Fed fund rate hikes in 2018 from 2.25 percent to 2.5 percent and reducing the Fed’s balance sheet below 4 trillion US dollars through quantitative tightening.
So David Tepper’s 20% stock pull-back view did payout due to the Fed’s attempt to policy normalization.
“David Tepper was urging investors to move to cash in early 2019”
Back in the first quarter of 2019, David Tepper bets bull market has legs view was off
David Tepper was urging investors to move to cash in early 2019.
If investors had taken David Tepper’s advice they would have missed a multiple asset bull market rally, spurred by the central banks’ Viagra of unprecedented quantitative easing (QE), near-zero, zero and negative interest rate policy. The S&P 500 stock Index achieved a whopping 30.43% return that year. But that was eclipsed by the NASDAQ, the benchmark index for US technology stocks which returned an eye-popping 39.39% in 2019.
Moreover, fixed-income investments that under-performed stocks with investment-grade corporate bonds gaining 14% in 2019. Treasuries returned 7.6%, and high-yield bonds gained 12%, according to ICE BofAML Indices. Tax-exempt municipal bonds also returned 7.4% in 2019. Cryptocurrency, Bitcoin returned 92% and the broad commodity market, managed a 17.6% gain last year.
“I think we are actually at a point of encouraging risk-taking, and that should give us pause” – Fed Chair Powell
So what happened to the horse that David Tepper claimed to love riding in 2019?
Last year’s horse was one hell of a horse to ride, but David Tepper was urging investors to stay on the sidelines in cash.
Perhaps more importantly, should investors take with a pinch of salt David Tepper bets bull market has legs view which the billionaire hedge fund manager is currently touting
David Tepper’s rationale for holding cash in 2019 could still hold in 2010.
David Tepper argued that Fed Chair “Powell told you the Fed put is dead.”
The Fed’s rate cut trio and its balance sheet blowout above 4 trillion in net assets in 2019 proved to the market that the Fed put was alive and well in 2019.
But excessive risk-taking in the market, rather than a US dollar depreciation, is likely to make Fed chair Powell consider contracting the Fed’s balance sheet.
Minutes of the October 2012 FOMC meeting suggested that the new Fed chair Powell was about to burst the biggest asset bubble in history.
“I think we are actually at a point of encouraging risk-taking, and that should give us pause” said Jay Fed chair Powell.
The Fed put could be dead in 2020 if so David Tepper bets bull market has legs view could also be legless
David Tepper recommended moving to cash because everyone is tight. David Tepper was referring to the central banks’ money growth. But the Bank of Japan, The European Central Bank (ECB), The Bank of England and the Federal Reserve have all indicated their willingness to carry out asset purchases in 2019. The Fed is now growing the balance sheet at a rate of about 100 billion US dollars a month.
“Nearly 40% of countries will witness civil unrest in 2020”
But monetary easing is also subject to the laws of diminishing return. At some level, credit expansion will do more harm than good. Already we are seeing the symptoms of a massive central bank easing policy. From a social perspective, we see a widening wealth gap, social fragmentation and the rise of populism. Nearly 40% of countries will witness civil unrest in 2020.
From a financial market perspective, negative-yielding debt in the world has ballooned to 15 trillion US dollars. Excessive risk-taking is the norm, even among conservative investors. Moreover, we see the proliferation of zombie companies, these are companies which exist not because they have a viable business model, but because they can suckle on the central bank’s free money teat. So this exponential credit growth is causing not only a misallocation of resources, but it is also depleting the world of its vital natural resources polluting the planet which could lead to an environmental catastrophe.
David Tepper bets bull market view is based on QE to infinity. But that is unrealistic
You can’t replace a natural business cycle with a fiat credit cycle. The greatest monetary easing experiment in the history of finance will eventually end either by the hands of the central bankers or through some other external factors outside their control. Already the International Monetary Fund has recently warned of another Great Depression. So the greatest asset bubble in history could be about to blow.
So with such stellar returns in 2019 perhaps many investors will act on the saying that you don’t go broke taking profits.
David Tepper bets bull market view in 2020 but perhaps the billionaire investors would do better sticking to his view that holding cash is not that bad.