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Here Is Why David Tepper Will Not Make A Repeat "Balls To The Wall" Appearance Any Time Soon

Tyler Durden's picture




 

Remember when back in September 2010, David Tepper moved the market by nearly 2% when he told a stunned world that he is "balls to the wall" stocks because no matter what happens, stocks can only go higher (a ludicrous proposition in any other universe except perhaps for this one where the "Greenspan Put" has since been replaced with the "Bernanke Guarantee"). He did out perform the market that year. The next year he lost over 3%. Why? Was it because the Fed did not go through with promises of LSAP (even though it did engage in QE3 curve shifting by ZIRPing the short end in perpetuity, and buying 91% of long-end issuance). Or because the master can only create alpha when the puppet is flooding the market with liquidity. Whatever the reason, the Pavlovian creature known as the market, has been salivating for LSAP version 2012 since the beginning of January, courtesy of bearish remarks by the Chairman. And yet Tepper has yet to make a guest appearance on CNBC to discuss why the "balls" may make a repeat appearance next to the "wall." Because, as Morgan Stanley's Mike Wilson explains, instead of focusing on the means, investors should consider the end: "I think QE3 will end just as badly as QE2" and "I would feel better if earnings and economic growth were accelerating like during QE2. But they aren’t." Sure enough, one glance at the chart below explains not only why this time QE will be different actually applies, but also why when it comes to comparisons to Japan, the US may be lucky if ends up in the same condition as Japan, when the probability is one of a far worse outcome...

From MS' Mike Wilson

Just Tell Me A Story, And Don’t Let the Facts Ruin it

 

Ultimately, I think QE3 will end just as badly as QE2 even though there may be more room to run in the near term. At this stage of the rally, I believe stocks levered to inflation expectations is the best way to play for further equity market upside (see Trades at end of note for details). Unfettered QE would normally be good for all risky assets, but I think the remaining part of this rally will be concentrated in a narrow group of stocks. I would feel better if earnings and economic growth were accelerating like during QE2. But they aren’t. Call me old school (or maybe just old), but I subscribe to the tenet that growth is what really matters for stocks. And on this score, the count is not favorable. Exhibit 3 vividly shows the facts.

 

First, we have our earnings breadth measure for the S&P500 going back to 2004. As you can see, 4Q11 is proving to be the worst quarterly earnings breadth since 4Q2008. Oh, and this is despite the fact that earnings revisions have been coming down rapidly for the past 3-6 months. Imagine how low the earnings beat ratio would be if they hadn’t? For those that think the bad earnings news is behind us or that the high frequency economic data will remain positive, don’t hold your breath. The Economic Surprise Index is rolling over and it has a long way to fall. Remember, this is a mean reverting index and it’s rarely “stable.” As you can see in Exhibit 3, once it turns down or up from an extreme level, it typically falls sharply for 3-6 months. This is very much in-line with MS Economist Vincent Reinhart’s view for imminent deterioration in the US Economy. The final chart in Exhibit 3 is a nice reflection of what is really going on with the US economy and why we will probably remain stuck in a liquidity trap. Specifically, the chart examines the 10-year compounded annual growth rate (CAGR) of per capital real GDP in the US and Japan over the past 20 years with the Japan numbers shifted forward by approximately 10 years. If one subscribes to the view that the structural peak in the US economy was in 2000, the following narrative will make a lot of sense. If not, I encourage you to consider it. As you can see, the decline in the real per capital GDP CAGR for both the US and Japan went through a very rapid and deep retreat that took both down to a similarly anemic rate of 0.6%. We all know what happened to Japan thereafter as they remain mired in a deflationary liquidity trap. Fast forward to the situation in the U.S. today, and it doesn’t look very promising. In order to see a comparable recovery to Japan, the U.S. would need to grow real per capital GDP by 3.5% per annum for the next 5 years. Even the bulls would have a hard time arguing for this kind of outcome. Recall that MS economist Vincent Reinhart’s 3-5 year forecast for US real GDP is approximately 2% as we continue to de-lever and recover from the financial crisis. Under this more realistic assumption, the outcome is much worse than Japan’s and suggests Adam Parker’s call for persistent multiple compression is likely. But, we don’t want to let the facts ruin a good “story,” do we?

 

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Tue, 02/07/2012 - 10:54 | 2133706 fightthepower
fightthepower's picture

Fuck you Bernanke!

Tue, 02/07/2012 - 11:30 | 2133842 He_Who Carried ...
He_Who Carried The Sun's picture

I think Marilyn Monroe was spying for Russia after

the Soviets learned about her relationship with JFK!?

Tue, 02/07/2012 - 12:04 | 2133955 Pinto Currency
Pinto Currency's picture

 

Tepper may be right for reasons that he does not foresee.

 

In a currency failure onset, as currency value starts to decline more rapidly, stocks replace bonds as a savings medium as stocks in operating companies will have value no matter what the currency.  See Argentina 2002 and Weimar 1923.

 

Cash holders or, worse, bondholders aren't that lucky.  Imagine the bond market starting to drain into the stock market and Maria's screams of joy.

 

PC

Tue, 02/07/2012 - 10:55 | 2133709 SheepDog-One
SheepDog-One's picture

'QE3'...lol yea right.

Tue, 02/07/2012 - 20:17 | 2133817 Don Birnam
Don Birnam's picture

Surely Tepper can go a couple of rounds with Maria Steinberg or some other CNBC grande dame ? All the fellow will need for proper risk management is an armored cup...that, and a cracking bullish attitude, and we will rally. 

"To the wall !" [ Hedged accordingly. ]

http://fighterxfashion.com/wp-content/uploads/2010/12/under-armour-short...

Tue, 02/07/2012 - 10:58 | 2133720 RobotTrader
RobotTrader's picture

GDX getting smoked, while XRT is off a palty 30 cents.  As Mohammed "Rubber Lips" says, its the "new normal"....

LOL....

Tue, 02/07/2012 - 11:13 | 2133758 Pladizow
Pladizow's picture

Yes, you are LOL!

Tue, 02/07/2012 - 11:14 | 2133766 Al Huxley
Al Huxley's picture

Yes, I definitely wouldn't want to play the bounce off the 20dma at 54.80 and the 50dma at 54.60, which more or less correspond to the bottom of the channel that's forming. No, no, Sell! Sell! quick, before they go to zero! Help, Nouriel, Dennis, John, tell me again how low gold's going!

Tue, 02/07/2012 - 11:27 | 2133823 SamuelMaverick
SamuelMaverick's picture

GDX getting smoked = buying opportunity.  You are an entertaining Troll Robo.     Yours, Maverick.

Tue, 02/07/2012 - 11:01 | 2133728 alexwest
alexwest's picture

usual biullshit.. sam e old same
##
xt 5 years. Even the bulls would have a hard time arguing for this kind of outcome. Recall that MS economist Vincent Reinhart’s 3-5 year forecast for US real GDP is approximately 2% as we continue to de-lever and recover from the financial crisis
##

3-5 year.. 2% real growth... EXCUSE ME BUT DOES THIS GROWTH INCLUDES 8-10% OF GDP IN DEFICIT SPENDING...?

if yes...then 'allow me to retort' ( pulp fiction rules)

WE GONNA HAVE 3-5 YEARS OF ECONOMICAL DEPRESSION, W/ REAL GDP GROWTH DOWN 6-8% EAHC YEAR,...

alx

Tue, 02/07/2012 - 11:16 | 2133773 CrashisOptimistic
CrashisOptimistic's picture

"I think QE3 will end just as badly as QE2" and "I would feel better if earnings and economic growth were accelerating like during QE2. But they aren’t." 

 

Excuse me, but QE2 took place in late 2010 extending through Q2 2011.  

Q1 2011 GDP was 0.4%, down sharply from Q4 2010, and the Japan earthquake was not until mid March, with the vast majority of Q1 already complete at that point so the quake could not be blamed.

So why is this moron allowed to say economic growth was accelerating during QE2?

Tue, 02/07/2012 - 11:27 | 2133827 SheepDog-One
SheepDog-One's picture

Yea but we're not 'recovering from the financial crisis' at all its only gotten worse, just papered over with more of the same problems.

Tue, 02/07/2012 - 11:01 | 2133729 johnnynaps
johnnynaps's picture

Jim Craemer just said he knows the Economy better than Bernanke and that the economy is stronger than Bernanke thinks! It's all rosy! Viva la recovery! Now, I'm going back to Maury because looking for a job is like hitting the lottery.

Tue, 02/07/2012 - 11:08 | 2133732 Normalcy Bias
Normalcy Bias's picture

Is this "Balls To The Wall" Tepper singing?

https://www.youtube.com/watch?v=B_3TlrZLpQ0&ob=av2e

Tue, 02/07/2012 - 11:13 | 2133762 Spastica Rex
Spastica Rex's picture

Never mess with a chromosomally challenged pudgy dwarf in a camo t-shirt.

Tue, 02/07/2012 - 11:32 | 2133851 Dr. Engali
Dr. Engali's picture

Ar we allowed to say that?

Tue, 02/07/2012 - 11:34 | 2133859 Dumpster Fire
Dumpster Fire's picture

I think they prefer "heavy little people" but it seems so counter-intuitive.

Tue, 02/07/2012 - 11:03 | 2133735 The Axe
The Axe's picture

If you want real evidence that the market is completely fucking broken and the SEC is back on YOUPORN    check out the trading in BVSN and the MGM new issue....ha ha  fucking clowns....SEC is such a joke

Tue, 02/07/2012 - 11:14 | 2133761 Tsar Pointless
Tsar Pointless's picture

Could it be that the SEC and other governmental agencies are "a joke" because we let pro-business and anti-regulatory dicks take over our government, practically at all levels all throughout our country?

Nah. It's gotta be those damn atheist commie socialist liberals.

Tue, 02/07/2012 - 11:36 | 2133868 Dumpster Fire
Dumpster Fire's picture

When the town drunk staggers out in front of Santa on the fire engine, he often imagines he really is leading the parade.

Tue, 02/07/2012 - 11:37 | 2133875 MJ
MJ's picture

Ah yes, because regulatory capture has only happened just this one time.  And if we can just create this set of laws it will make all those other sets of laws effective, ad infinitum.

 

Tue, 02/07/2012 - 11:38 | 2133880 Dumpster Fire
Dumpster Fire's picture

I always worry we will outlaw gravity and then where will we be?

Tue, 02/07/2012 - 12:56 | 2134205 GovtMediaLiars
GovtMediaLiars's picture

It can really boggle the mind sometimes how many people believe, against all reason and experience, so very strongly in the magical properties of the legislator's pen. 
Just wave that magic pen, recite the traditional ancient sacred incantations (for the children! fat cats! security! save the whales! greed!) against whatever evil is being banished from the world that day, sign on the line and... *abracadabra*
...Saved once again by our faithful servants in government (apparently they have saved us well in excess of 1 million times in the last decade alone) from whatever ill was forever banished from our Earth this day of "regulating." All in a day's work and don't you worry one bit we got plenty more saving where that came from. The universe is a veritable smorgasbord of potential things to save you from!

Never fear, the Politicians are Here!!! 

Mass delusion

Cheers!
GML 

Tue, 02/07/2012 - 12:59 | 2134124 GovtMediaLiars
GovtMediaLiars's picture

Dude. Regulatory agencies are there for the PROTECTION of the established corporate interests. NOT for the protection of the consumer.
The regs they adopt are most often authored in whole or in part by the very firms they are supposed to be "regulating."
They are nearly always designed to raise "barriers to entry" and disadvantage smaller firms (phony pro small-business rhetoric aside) to protect the already established ones, and to provide a veener of legitimacy to their activities (see Jon Corzine for one--out of an endless list--example in the financial sphere). The same applies accross all "regulated" sectors of the economy (so basically...everything but illegal black market goods). 
The examples are quite literally endless. Indeed it takes real work to actually find a regulation enacted in good faith, with the intent of benefiting all society as a whole (though they do exist as a miniscule minority).....And even those few and far between well intended ones that are allowed to proceed, overwhelmingly epic fail at their stated goals.

Look for yourself if you do not believe me. Pick some random section of some random industry's regulations and do a bit of browsing.

Wake up my friend. We all share the same enemy...and it isn't (R)'s and (D)'s....it's the institutions themselves and it matters not a whit who you or anyone else punches a diebold machine button for...
We need unite against our common enemy...

"Our Enemy, The State." -- Albert Jay Nock (1870-1945)

...not argue over manufactured Red team v Blue team bullshit. The WWF pro wrestling isn't real folks, sorry...Either is partisan politics, your welcome...

Cheers all!
GML 

Tue, 02/07/2012 - 18:22 | 2135818 StychoKiller
StychoKiller's picture

"Pro-business and anti-regulatory dicks" can also be "damn atheist commie socialist liberals"; Check your premises.

Tue, 02/07/2012 - 11:03 | 2133736 poor fella
poor fella's picture

Balls nailed to the wall, maybe.

Tue, 02/07/2012 - 12:56 | 2134206 Spastica Rex
Spastica Rex's picture

Not that balls.

Tue, 02/07/2012 - 11:07 | 2133749 resurger
resurger's picture

Wake me up when Elliott Wave 5 is formed ....

Tue, 02/07/2012 - 11:31 | 2133834 francis_sawyer
francis_sawyer's picture

as soon as 1, 2, 3, & 4 complete (then all get re-labeled), which you should have seen, but didn't...

In more general terms... if RoboTrader does not post a comment for about a week, wave 5 was forming 8-21 days prior...

Tue, 02/07/2012 - 12:20 | 2134035 slaughterer
slaughterer's picture

You will have approximately 24 to 48 hours to sleep.  

Tue, 02/07/2012 - 11:10 | 2133751 DaveyJones
DaveyJones's picture

Balls to the wall... like the Kamikazes?  

Tue, 02/07/2012 - 11:09 | 2133752 Savonarola
Savonarola's picture

Smug scumbag. I hope you rot in hell.

Have a nice day.

Tue, 02/07/2012 - 11:20 | 2133795 lizzy36
lizzy36's picture

The 8 largest central banks have expanded their balance sheets from $5.4T TO $15T in the last 6 years.

These various forms of QE plus ZIRP4EVR has allowed States (cough USA) to finance their massive and growing federal deficits. 

As we move from QE2 to 3, 4, 5.....more and more people will see this for what it is, NOT a path to growth, but a path which entrenches fiscal insanity.

Tue, 02/07/2012 - 11:28 | 2133831 DaveyJones
DaveyJones's picture

I've got the straight jackets if you've got the time.

Tue, 02/07/2012 - 12:10 | 2134004 TooBearish
TooBearish's picture

TY - what the MTM on the Teppler ETF????

 

Tue, 02/07/2012 - 12:11 | 2134008 nscholten
nscholten's picture

Right or wrong... the economy in Seattle is gettting significant traction.  An investor I know has seen multiple offers on office space.

The residential real estate market is strong with multiple offers and buyers having to offer full price.

 

 

Tue, 02/07/2012 - 13:44 | 2134394 TheObsoleteMan
TheObsoleteMan's picture

Damn it Nornmalcy Bias you beat me to it! Remember that one from the good ol' days. Ah the '80s.

Tue, 02/07/2012 - 14:20 | 2134526 jimmy9200
jimmy9200's picture

my roomate's step-sister makes $73/hr on the laptop. She has been out of work for 6 months but last month her income was $7334 just working on the laptop for a few hours. Read more on this site.... http://LazyCash9.com

Mon, 02/13/2012 - 01:18 | 2152619 q5251355
q5251355's picture

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