David Tepper Is "Balls To The Wall" Long (But Unlevered) The Fed
Earlier today David Tepper confirmed that virtually everyone is now hypnotized by the biggest fallacy in the history of capital markets: that stocks determine the economy, and not vice versa. Incidentally, this is precisely what the Fed banks on, as confirmed previously by Alan Greenspan, who said on TV that the Fed is far more interested in keeping the stock market artificially high than actually caring about its mandate of keeping unemployment and inflation low. Of course, Tepper couldn't resist but talk his book, and providing the most childish and discredited validation for his bullishness: the Fed will do QE in perpetuity. "Either the economy is going to get better by
itself in the next three months...What assets are going to do well?
Stocks are going to do well, bonds won't do so well, gold won't do as
well. Or the economy is not going to pick up in the next
three months and the Fed is going to come in with QE. Then
what's going to do well? Everything, in the near term though not
bonds...So let's see what I got—I got two different situations: One, the
economy gets better by itself, stocks are better, bonds are worse, gold
is probably worse. The other situation is the fed comes in with money." We are too lazy to do it, because we have done it about one hundred times in the past, but we suggest Mr. Tepper pull up a chart of the Nikkei and superimpose on it all the times Japan launched ever more impotent episodes of QE and FX intervention. How did that work out? Yes, you can devalue currencies infinitely via QE, but that only destroys the real value of assets. And as we pointed out after the latest FOMC meeting, we are now in a new regime, where gold benefits more than stocks on further currency devaluation. Period.
Additionally, as to Mr. Tepper argument that mortgages can still go much lower, we ask: how much did the marginal drop in MBS from 6% to 5% to 4% do to spur mortgages? We hope Appaloosa keeps track of new mortgage applications... which for those who do not are at a 13 year low. How exactly will lack of refinancing stimulate the economy?
Then again, betting on the Fed's desire to make millionaires into billionaires is nothing new for Mr. Tepper who prudently made the call that the Fed would destroy the middle class in 2009 and literally bet the farm on Fed intervention. He is now merely doing what he did then (and the Fed obliged, allowing Tepper to not only not shut down Appaloosa, but make a billion or so in the process). And, after all, what else can he do? Fundamental analysis is now dead, and those who still play by the rules are returning investor capital. The only play left in town is to frontrun the Fed, as Bill Gross has been so proficient in doing, and which is the only trade left. Alas, the only loser from that is 99.9% of America's population. For the sake of Mr. Tepper, we hope the great unwashed don't realize the fleecing they are being covertly subject to, before such time as Tim Geithner and Ben Bernanke are able to secure one way tickets to non-extradition countries.
But yes, once we notice that Bill Gross is going "balls to the wall" on margin and buying MBS again, we will let our readers know - at that point it will be time to frontrun the Fed, aka the involuntary US taxpayer piggybank, again... and again...
Full Tepper interview for those who wish to learn how to talk their books up with the best of them.