Everyone's favorite bull made another magnificently arrogant appearance on TV this morning. Following his recent CNBC embarrassment, Bloomberg TV interviewed the outperforming hedge fund manager this morning - during which he explained his 'where else ya gonna go' bullish stocks thesis. From expectations for an "explosion of greatness" in the US to his gratuitous flirtation, he appears to have the inane ability to use many words where few are needed and his bullish thesis has the ring of any and every guest pumper (with nothing new to add): the same supposedly 'low' multiple, central-banks-are-printing, and wide spread between bond and equity yield argument that everyone's mom can explain. From expectations for the 'great rotation' from bonds to stocks and his 50%-upside prediction in Citi, Tepper is "balls to the wall" the best guest ever on any stock-touting network. However, one little thing gets in the way - the last time the Great-and-Powerful Tepper appeared so overtly bullish of stocks (and financials specifically), he also was dumping his holdings into the rally that followed.
Tepper on what he's going to do this year in terms of investing:
"I am going to come out of the closet right now… we are bullish. David Tepper has never been bullish."
On why he's bullish now:
"Everything lines the right way. I am saying that for someone in my office because we play Scrabble and he hated the word I used last night…If you look at the markets, they are trading at a really low multiple. 13 handle this year, 11 handle next year on the S&P. You have unprecedented money creation here and you have Japan who went to 2% target last night. You basically have the competing assets. Junk, rallied already 40 basis points this year to 567bps or some ungodly number like that. If you look at the multiple on that compared to the alternatives to anything in credit, there's nothing close. There's never been this big of a gap in the history of my life at least."
On why now is a good time to be long:
"Listen, you're sitting here in a 2% to 3% growth situation. You have some very interesting news last week. The Republicans are not going to play with the debt ceiling. If they pass legislation on Wednesday, you probably have five months of relative quiet. So three months extension plus two months they can play games to extend it further. You really have a little bit of change in attitude that you will probably not have a debt ceiling fight. There is no major negative. You have these earnings, this money growth. You have the Japanese coming on top. There is no other choice out there. You really have not had this money supply push on a relatively good economy. I do not think it is really a steaming pile of garbage, using the G word instead of another word."
On when we'll see the shift from credit into equities:
"You saw some of the shift into equities earlier, mutual fund flows. I know people are looking for this great shift. But you don't have to have the shift. You just have to have all new money going into stocks…People make money, they invest money. There is incremental money that people save. The shift will be in new money. And there will be a shift in old money. Pension managers and others are really off sides in how they are set up. Whether you believe a Goldman Sachs report that they're underweighted by under 20% in equities, which is just huge. Insurance companies underweighted in equities. Just incredible underweights. So I think either you will have a shift or you will see all incremental funds move into the equity market over the course of this year. And then I think you will have a retail shift this year too at some point."
On the credit market:
"It is tight. You know, I have shorted tight markets before. I have shorted full markets before. I do not want to take off my clothes on TV because your viewership will go way down if I do that. I think you will get tighter. You will go very full to extreme value in credit. We have traded before in credit at 200 handle in the junk bond index. We're probably still in 400 handle. There is room to move there. I don't like it because of the absolute yield. I do not like it because I do think it is a full market and I don't like it because I think equity will give you a bigger return. If you short that you do it at your own peril. I think you can still make money of it. There is so much cash out there. People need incremental return and they're not going to get into the Treasury market. They will not get in mortgage market. There will still be moving in the credit markets, but it is by far inferior to the equity markets. Not even close."
On whether Europe should trade tighter than the U.S.:
"Look, it's a credit by credit situation if you're talking about corporate credits. It doesn't make sense for Europe to generally trade tighter than the U.S in anything. This country is on the version of just an explosion of greatness. Do you like that? Explosion of greatness. I told you, I am like a big Charlie Daniels band right now. Everyone to listen to the song 'America' by Charlie Daniels…It's a great song."
On how Appaloosa started:
"I left Goldman Sachs. I was thinking about going to another Wall Street place. I didn't want to do that. That was crazy. After you work on Wall Street it's a choice, would you rather work at McDonald's or on the sell side? I would choose McDonald's. Over the sell side."
On why he likes Citi:
"You can look at the earnings estimates on Citi. We think it has potentially 50% upside from here. We think, listen, if you ask JPMorgan, come get Jamie Dimon on the phone. Ask him if there's one franchise to like to buy in the whole world. Get him to be honest. He will say Citi's foreign business. It is unique. He cannot get into it."
On what's so unique about Citi's foreign business:
"It's steady, growing in the right places in the world. You don't have a lot of continental Europe. You're a lot in Asia and other places that are very good. Mexico. It is a very nice business there. When you talk about any one of our individual investments and our biggest investment, they are just not that big. Citigroup is 2% or 1.5%."
On whether he values liquidity:
"Yes. I value liquidity a lot. We do like liquidity. There's a measure of liquidity and I think it's not valued in the marketplace enough in general. We do like liquidity, although you have to realize that Appaloosa historically is 60% long term gains. We are long-term holders. But I value the liquidity. I value it because I was a head trader at Goldman Sachs. In 1998 i found out what liquidity was all about. There have been other things. These once in one hundred sort of things seem to keep happening every seven or eight years. I value the liquidity in that respect. I am a little more willing to be in bigger positions right now because I think it's safer right now. I think the main thing right now is to be long equities."
On whether he would go into structured credit:
“We are big CMBS players. We have the biggest book of CMBS subs. One of the biggest of books on the Street right now. It has a lot of upside. It's a big investment for us, but it has tremendous upside. We have things in structured credit. I am willing to put some money, but I am not willing to put 50% of my book in that."
On going long subprime last year:
"We were long subprime. We are a big fund. We have a lot of sh*t in there. Is that a bad word for Bloomberg?"
"I think there is probably more to go there [in the mortgage space] again because I thought there was more to go in all credit. There's probably more to go in some parts in the mortgage space because it's cheaper than corporate credit. I think money will find those spots that are cheaper. CMBS is cheap to corporate, equity is cheap to everything."
On playing the lead role in his high school performance of Bye, Bye Birdie:
“I actually played the father. I used to go around singing Conrad Birdie's part, ‘One Last Kiss’…[Tepper sings]…that is not my role. That was it, just like that. That was not my role though. I am not Conrad Birdie.”
On what he would have done with his life if he did not end up being a professional investor:
"As a matter of fact, McDonald's. I tried to get a job at McDonald's. I couldn't get a job. They would not hire me. It was a problem to get a hairnet over the afro."
"I always said when I grew up I would be a social worker. In some respects, I really do like some of the philanthropy stuff. I like getting out there and helping people. That is probably what I will do after Appaloosa I think."
On his biggest regret:
"I wish I would have used Rogaine earlier."
"Probably the biggest mistake we made was in '98 when we lost money in Russia. We did not understand how fast the markets could get illiquid and how dangerous it was to have concentration in some positions. That was one of the reasons we ask about concentration it is easier to get in than anything. It's sometimes hard to get out. In Russia we moved real fast but not fast enough to not have a loss. We thought that Russia was going to devalue and not default in '98 and I was wrong. That was a huge mistake. We were down some 20% in '98."
On how Appaloosa got its name:
"When we started Appaloosa we were going to name it Pegasus because everyone was using Greek names. We filed the name. We paid $300 and they said you cannot use it because it is taken. Pegasus Funds. Then we said Pegasus is kind of a horse. We did not want to be the Unicorn Fund. So we pulled out a horse book. We still have the horse book and the second name in the horse book was Appaloosa and we chose Appaloosa. The reason we did the A's--when we started things are sent out by fax. There wasn't email. If you were in the A's you had a half hour advantage compared to others at the end of the alphabet and you could trade if you were a small fund. So that's what we did."