David Tepper: There’s “Very Little Downside” to Equities

David Tepper, the founder of Appaloosa Management, was on CNBC discussing his macro outlook this morning.  It’s a good interview and I would recommend taking the time to digest his comments since he’s one of the few hedge fund guys I think we can take very seriously. I have to admit though, I am practically stunned by how unabashedly bullish he is….

Here’s a brief round-up of Tepper’s views:

  • On the economy – the economy is not bad right now.
  • The unemployment rate won’t decline to 6.5% until 2015.
  • There is a global central bank “put” in place.
  • The ECB can lower interest rates in Europe whenever they want.
  • Credit markets aren’t in bubble territories, but they’re “rich”.
  • You can’t short bad credit with the Fed implementing such massive stimulus.
  • The stock market is cheap.
  • There is very little downside to the equity market.
  • There is significant upside to the equity market.


Video 1:

Video 2:

Video 3:

Source: CNBC


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • LVG

    This seems kind of crazy. he said there was only “2-3%” downside. He sounds almost naively arrogant in this interview. Is he really worth following Cullen?

  • quark

    It’s nice to see the cnbc crew treated with proper disdain.

  • KG

    Cullen could You (or someone else bright for that matter) explain, how can we reconcile such statements with your writings concerning lack of effect of Fed bond purchases on money supply?

    Seems like Tepper is very much in line with consensus view that reigns marketwide. Otherwise, what’s behind market exuberant responses to Fed stimuli?
    Is it mere issue of perception, or to quote the classic, “As long as the music is playing you have to dance”? If that’s the thing there seems to be potential for some serious downside to markets, especially given the complacency this fosters.

    Maybe it’s my bad, but personally I don’t see the kind of growth on the horizon that would justify current valuations (even adhering to Your “muddle through” call rather than recession cries).

    This begs the question what’s behind the risk assets’ appreciation if not economic growth and not money supply. Is central banker put truly a reason to buy buy buy?

  • Kafkaesque

    I hate to say this but…I agree with him. And the big bank strategists in Barron’s also agree with him – even Adam Parker thinks the market is going up next year. So when everybody says it’s time to buy, is it actually time to sell?

    Decisions, decisions. I never should have left software engineering.

  • Boston Larry

    On the bullish side is the fact that current P/E ratios are low. So even with very modest earnings growth we could also see a bit of multiple expansion. On the bearish side, economic growth is fragile and it would not take much of a negative surprise to knock GDP growth below 1%. For me it means a carefully balancced allocation to both stocks and bonds, although I prefer the lower volatility equities.

  • http://www.conventionalwisdumb.com Conventional Wisdumb

    Cullen, have you reviewed Christian Romer’s analysis of the impact of tax increases on GDP?

    Tax Increases Reduce GDP
    “Tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.”

    How do changes in the level of taxation affect the level of economic activity? The simple correlation between taxation and economic activity shows that, on average, when economic activity rises more rapidly, tax revenues also are rising more rapidly. But this correlation almost surely does not reflect a positive effect of tax increases on output. Rather, under our tax system, any positive shock to output raises tax revenues by increasing income.”

    My base case is to assume that there will be tax increases with Obamacare at the very least and other income/investment related taxes as well. Perhaps a minimum of $100 billion withdrawn from the private sector and potentially a lot more.

    Assuming the multiple argument is correct, shouldn’t we actually be worried about these tax increases and ultimately their impact upon the market?


  • http://www.orcamgroup.com Cullen Roche

    Depends on the environment. It’s silly to come up with some one size fits all multiplier. For instance, in a de-leveraging, I would argue that tax cuts have a much larger multiplier than normal because they result in the increase in net financial assets that helps repair private balance sheets in a time of need. No one’s models account for the fact that the economy is a dynamical system.

  • Geoff

    Dynamical? Nice :)

  • http://www.orcamgroup.com Cullen Roche

    You have different moving parts here. I think the primary driver of corporate profits has been the budget deficit and recovery in private investment. But most people think the asset price increases are due to the fed. I think there’s an element of that in there, but it’s mostly psychological. I think if the deficit were slashed enormously and private investment fell that we’d see a substantial market decline regardless of what the Fed did. So it’s important to different the fundamental impact of QE and the psychological impact.

  • GreenAB

    though i loved how he handled the squawk guys he seems to be overconfident.

    1 trillion from the fed + an improving economy (houses/autos) = rising stock market. sounds a bit too easy for me.

    since qe3 (infinity) started the stock market hasn´t moved, while temporary downside was bigger than upside with the same conditions (ecb put, improving economy) 3 months ago as we have right now.

    also his thoughts on a potential fed exit strategy were very thin. his absent concerns looked to me like “party now, worry later”.

    sorry, but Dalio is way more the kind of reasoned money manager i´m paying attention to.

  • Stephen

    Who is left who wants to ,or more specifically needs to sell?
    This is a fairly low volume equity market and I would argue that this represents a lack of speculative/retail activity. Peopl wanted out of equity and we can all see where they have gone. Now we still have most people talking about what “shock” would knock it down.Well excatly what “shock” have we not yet had that is worth calling a “shock”. Frankly it looks to me like one of those markets that will just grind upwards and has it does so those not in it will get increasingly itchy to be involved.
    Banks/credit,autos,property look fairly rosy and this stuff should be showing signs of stress should it not if we are in real trouble?

  • Matt

    Yeah, I was on board with him two years ago. But today, I just can’t agree. From my view, the economy continues to deteriorate and asset prices are rich across the board. But he makes a lot more money than I do, so he must be right!

  • Bond Vigilante

    The notion of a global “central bank put” is outright flawed. central banks can print A LOT OF money but it requires rising asset prices somewhere. Which asset prices are going to rise next ? Or are all asset prices ging down together and then the FED can print whatever it wants but then that won’t help any asset/the markets at all.

  • KG

    Thanks for Your answer. This makes sense, altough this psychological effect will probably cut both ways one of these days, be it grounded in reality or not. You don’t see Tepper et consortes conjuring sectoral balances as the reason to buy, but Fed stimulus, and he is supposed to be one of the smart guys around. Still deficits cannot grow forever, neither do profits in absence of revenue growth, feels more like life support than building durable base for growth. As for private investment, latest readings are quite tepid to say the least but bear no visible impact on markets so far.

  • Geoff

    Cullen, judging from your profile pic, it can’t be your looks that is attracting the ladies. It must be your dynamical personality :)

  • Quaternion

    It’s hard to argue with Dave’s assertion that this is NOT a good time to sell bonds!

  • micro2macro

    I stopped after 10 minutes on Video 1. The guy is incoherent. He might need a good night’s sleep or something. He handling of the CNBC people could be considered disrespectful to be honest.

    He makes it sound so complicated. Yes it is I know it is, but I always think the simple Buffett explanations – the economy is getting better or the economy is getting worse. Simple really. But I suppose he cant spread that out over 20 minutes….

  • whatisgoingon

    Ted spread is rising. Someone call Ben and tell him to reopen those swap lines and get liquidity flowing.

  • InvestorX

    In 2011 he was down 5% with bets on banking stocks. But in the previous two years he did extremely well. He is a street smart investor with a lot of volatility plus the balls to quickly get in and out, that is all.

  • http://www.conventionalwisdumb.com Conventional Wisdumb


    That makes sense. So actually raising taxes in this BSR environment would be much worse than under “normal” circumstances. Is that correct?

  • http://www.orcamgroup.com Cullen Roche


  • Boston Larry

    Cullen, did you see today’s Jeff Gundlach interview on Bloomberg TV this morning? It was excellent. He said if you look a little further out than one month or one quarter, then the downside risk far outweights the upside in nearly all risk assets except for Japan and China equities, which have been beaten down to bargain levels. Nearly all other risk assets, including SPX, are overvalued in his view. He said the most important thing for individual investors over the next year or two is to protect themselves from downside risk, even if it means settling for a very low positive return. A recession is inevitable sometime during the next 2 years in his view. What do others think who saw the Gundlach interview on Bloomberg?

  • Boston Larry

    Gundlach said the OPPOSITE of what Tepper said. The two interviews couldn’t be more different – very opposing views. If your timeframe is one to two years, not just a month or two, then I think Gundlach is closer to the truth. He is also more coherent, easier to understand than Tepper.

  • farthing

    I agree. Better safe than sorry, but who really knows? I continue to believe markets are propped up by policies that will, at a minimum, need scaling back at some point.

    Disclosure: been in DBLTX for a while now and am pleased.

  • Anonymous

    What are the basis for his assumption , and what time frame he assumes such range of limited volitelity would prevail? I guess this would be fair , prior to reaching a conclusion.