market folly

Appaloosa Management founder David Tepper was recently interviewed by CNBC.  These comments came before the recent wave of Chinese tariffs were announced, so keep that in mind for context but we still thought they were worth highlighting.

On Monetary Policy:

Tepper says the stock market rally has been "better than I thought" since 2010.  He's amazed that there's still quantitative easing going on in the world.  He thinks we're "kind of late" in the cycle and the tide is turning from loose to tight (monetary policy).

The Appaloosa founder believes we're in a late inning game.  It could be the 8th inning, but sometimes the game goes to extra innings.

Also, on taxes, he feels the tax cuts might be borrowing economic growth from the future and there might be some payback for that some point down the line.



On China, Trade Wars & Tariffs:

He thinks the tariffs with China are going to make it tough on the market going forward (note again he made these comments before the latest big wave of tariffs went into effect).  

If there's no tariffs, "The market's fair valued if you don't have tariffs on China.  But if you do have tariffs on China, how high does the Dollar go and where will earnings be in that case?"

On his latest equity positioning, Tepper noted, "Ya know I probably don't have enough exposure.  I've taken down my exposure.  I'm still long, but in percentage terms of S&P exposure, maybe 25%."  He's been worried about the trade war situation.  He says he's been wrong overall on positioning and his stocks haven't done that well this quarter.

He doesn't know how much of the tariff situation is discounted in the market.  If a deal is reached, he doesn't think a 10% pop would happen, but something positive.

At the same time, he points out that "We may have to get used to that these tariffs just may be on.  Then, there will be an adjustment in the stock market."  It's clear he didn't think things were fully discounted at the market prices when he made these comments (September 13th)


Tepper's Equities Positioning:  

Tepper thinks he's been too cautious recently.  He has cash he can put to work.  He doesn't think the trade war issue is easy to solve.  But he can put on portfolio adjustments very quickly, he notes.

On specific stocks, Tepper notes Facebook (FB) looks somewhat cheap, especially for the growth rate.  They still hold a sizable position.  He's less concerned about the Cambridge Analytica data scandal and more-so looking at margins and the latest guidance there.  Stock still trades 16-17x, he points out.

On Micron Technology (MU), Tepper notes that his hedge fund is still very long.  "The demand side is going to be good for a long time.  Servers, cloud, and if you have smart cars."  He likes the company's management.  Also pointed out company buybacks and low valuation as shares have pulled back as investors react to concerns about memory chip demand slowing down.

 
Embedded below are the videos from a portion of David Tepper's CNBC interview:

Video 1



Video 2