For those wondering why David Tepper will be strangely missing from CNBC for his annual pre-QE cheerleading appearance, we now have the answer. As Institutional Investor reports, the Appalloosa head man, who was long everything but mostly financials in the form of BofA and Citi last year, and managed to get out just in time before the wipe out which left his colleagues at Paulson and Co. dazed following a 34% YTD loss, has decided to invest in a strange asset: cash. "Sources say he has gone 30 percent to 40 percent in cash, which is very high for him. Some of his cash is invested in U.S. Treasuries, which have in turn risen in value in recent weeks." II clarifies: "Keep in mind that Tepper had about 30 percent in cash entering 2009, shortly before he started buying up banks such as Bank of America before anyone else had the guts to do the same and racked up triple-digit gains by the end of the year." And in a very odd development for the man known to take aggressive risks ahead of everyone else, we learn that "he will remain cautious until there is improvement in the European bank crisis. Of course, if the markets tank, you can be sure he’ll be aggressively scouring for bargains." Alas, the markets refuse to tank on generic expectations that the second they start to tank, dip buying materializes on vapor volume and expectations that the Fed will once again kick the middle class in the gonads only to make stock chasers whole. Yet if even Tepper is staying on the sidelines, just what informational advantage does the HFT momentum pursuing crowd have?
Sources say he is not preparing to aggressively start spending this cash any time soon, except to pick up some shares of stocks he already owns on the dips.
When this year started his portfolio was primed for a blow-up, given the subsequent collapse in financials. His three largest holdings were Wells Fargo — including a big position in preferred stock — Citigroup and Bank of America. However, he began selling those stakes aggressively in the first quarter and continued to do so in the second quarter. By the end of June, his Citi stake was a small fraction of what it was at the start of the year, although it was still his third largest holding. However, in the first quarter he sold his Wells preferreds and by the end of the second quarter his common stock stake was less than half. His Bank of America position was down 60 percent.
Sources say Tepper is not eager to take an outsized risk and wind up down 25 percent even though when this happened on two previous occasions, he followed those big losses with a triple-digit gain the following year.
Tepper is not buying... Yet E-Trade babies are all over the S&P heatmap.
Remember Tepper has historically been the one who has had the most guts to buy when absolutely no one else has the stomach to tolerate it.
Tepper is not the only high profile manager to bring down risk. A well known-long short manager several weeks ago confirmed he was “de-risking,” bringing down his net exposure.
Adds an investment advisor with a large portfolio of hedge funds: “We can’t have a bottom until Europe gets worked out.”
In the meantime Europe is not only not getting 'worked out', it is getting worse daily (daily ECB deposit facility usage just hit a fresh year high at €170 billion), which according to the above explains why none of the smart money is getting in. Which begs the question: are all major intraday no volume rallies like today's (which saw ES volume at 30% below the 20 DMA), nothing but short covering sprees without any actual buying? All signs point to yes. It also means that sooner or later the shorts will stop freaking out that good news will come out of left field (it won't) and instead of the daily EOD cover they will finally grow enough confidence to keep shorts overnight. At that point, goodbye uber-hilarious CNBC line that "market wants to go higher"... because it no longer will.