David Tepper: Market Multiple Kind of Full, Short Bonds, Long European Equities

David Tepper, founder of hedge fund Appaloosa Management, was interviewed on CNBC this morning.  Here's the highlights. 

Regarding the markets in general, Tepper said "Listen, I don't think the market is cheap by any stretch of a multiple, you can't say that.  On the other hand, with that backdrop of growth around the world, with the potential we'll do other things here, with the sugar that's still being put on by the ECB, BOJ and let's face it, the Fed is way low ...  You can't be short in that kind of setup.  I'm not suggesting the market is really cheap, but listen, it's hard to go short when you still have the 'drugs' being given.  The punch bowl is still full."  He went on to add, "On a multiple basis it's kind of full... I don't think the market's cheap." 

Regarding bonds, Tepper continues to be bearish and is short them: "If we're short US bonds, we're betting on a stronger economy here.  That's the bet.  Listen... bonds are really hard to own, the yields are really low."

Tepper also noted he bought Snap Inc (SNAP) shares in the IPO but sold on the spike higher.  "I'm not jumpin' through the hoop to buy it at $21.80.  But if it trades back down to the original offer price, I'd love to buy the stock there.  I'm a believer in the company, it's a valuation question to me.  Up near $30 it's too high for right now ... My youngest daughter loves the thing.  Anybody between 12 and 25 loves it, it's kind of anti-Facebook in that generation."

On Apple (AAPL): Trimmed the position due to concerns over China policy, but that shoe never dropped.  "I wouldn't be adding at $139."

He also likes Europe:  "I am long European equities, I could lose my behind.  There's upside people aren't recognizing.  It's a probability game to me.  (Valuations) are much much lower (than the US). 

On the Federal Reserve, he thinks they will raise interest rates more quickly.

Appaloosa now manages around $17 billion.  You can see the rest of their portfolio in the new issue of Hedge Fund Wisdom.

Embedded below are videos from David Tepper's interview with CNBC:

Video on the market:


Video on shorting bonds:


Video on the Federal Reserve:


Video on Snap Inc (SNAP):


Video on Europe & ECB:


Video on Apple (AAPL):


Video on regulation / tax cuts:

Third Point's Q4 Letter: Bullish on Financials

Dan Loeb's hedge fund Third Point finished 2016 up 6.1%.  Third Point's fourth quarter letter outlines their bullish stance on markets, noting that de-regulation and tax decreases under various policies from President Donald Trump should spur US economic activity.

That said, they're still keeping an eye out on the potential for trade wars and/or inflation.

Particularly, they like financials and increased exposure to the sector in November and December: "We reallocated half our initial holdings from high-multiple, FCF businesses in payments, ratings, and P&C (which traditionally outperform during periods of deflation), to more traditional reflationary exposures in banks, brokers, and geographically, in Japan."

Third Point highlights that the bank stocks they're playing trade for less than 10x earnings with EPS growth in the high-teens.

Embedded below is Third Point's Q4 letter:



We've also posted up other letters today, so be sure to also check out Greenlight Capital's Q4 letter as well as Oaktree Capital's Howard Marks' latest memo.

Carl Icahn Exits Netflix, Bearish on High Yield Bonds, Still Likes Apple

Today activist investor Carl Icahn tweeted that he has sold the rest of his stake in Netflix (NFLX).  This has been an extremely successful trade for him.  He later appeared on CNBC and noted that it was undervalued when he bought it, but now it has had a great run and their competitive moat isn't quite what it once was.


Additionally, Icahn noted his bearishness on the high yield bond market.  This is something he harped on in his Wall Street Week appearance as well.  In fact, he's concerned about the markets in general.

He tweeted: "I believe the market is extremely overheated - especially high yield bonds.  If more respected investors had warned about the market in '07, we might have avoided the crisis in '08."

The one shining light he continues to like is Apple (AAPL).  He still hasn't sold a share of his position.  He tweeted:

"Sold last of our $NFLX today.  Believe $AAPL currently represents same opportunity we stated NFLX offered several years ago."

Market Strategist Jeff Saut on Activity Versus Inactivity

It's been a long time since we checked in on well known market strategist Jeff Saut.  His latest piece entitled "Activity Versus Inactivity" is a look at a common dilemma for investors.

In it, Saut takes a look at human nature and writes, "Plainly there are times for investors/traders to be active.  But there are also times for them to be inactive, despite the trait of human nature to be 'active;' and, for the past few months inactivity has been the best overall strategy."

Saut then goes on to talk about some market technicals and the latest market datapoints.  They feel crude oil has bottomed and that the stock market, even if it sells off in the near-term, would be doing so "within the construct of a secular bull market that has eight to nine years left on the upside."

Embedded below is Jeff Saut's latest market commentary:



You can download a .pdf copy here.

Jeff Vinik Says Market Not In A Bubble

Jeff Vinik, formerly the portfolio manager of Fidelity's Magellan Fund, recently appeared on CNBC to talk markets.

In the interview, he said that the market's not in a bubble right now, but did acknowledge there's pockets of overvaluation (though nothing like the 1990s.)

Vinik said that, "The economy looks just fine going forward.  It's a good time to be invested ... The economy is cyclical.  The stock market is cyclical.  There will be downturns ... But if you have good companies with strong managements, earnings will grow over time and stock prices will grow."

He said he's a big believer in buy and hold for the long-term.

He also noted his bullishness on the city of Tampa as he lives there now and is working on real estate development and he's the owner of the NHL's Tampa Bay Lightning.  He invited hedge funds to join him down there.

Stan Druckenmiller on Markets, The Fed, & Which Investors He Admires Most

Stanley Druckenmiller, a legendary hedge fund manager (formerly of Duquesne Capital), was interviewed by Kelly Evans on CNBC today and shared his thoughts on the markets and other topics.  Here's some of the key takeaways: 

On the current US markets:  "By historic, fundamental measures, we are extremely high.  Stock market to GDP, which I know is one of Mr. Buffett's favorite measures is probably the highest its been in the last hundred years with an eight month exception around the 1999-2000 period."

He also points to the strong dollar as a headwind for earnings.  He thinks stocks are high by historical measures, but the monetary policy has been so aggressive that they should be high.  He says you should short bonds, not stocks if you think interest rates are going up.

Lastly, he mentioned, "I have positions in the United States, but net-net because of the valuations we talked about and because I'm encouraged by what I'm hearing out of the Fed in terms of them tightening, I'm not all that excited about the U.S."

On the Fed:  He thinks it'd be great if the Fed acts now because he believes there's higher risk in the US economy by acting later.

On which investors he admires most:  He singled out "three lions" he thinks that are talented younger investors who will be considered great one day:  Zach Schreiber at Point State Capital (used to work with Druckenmiller at Duquesne), Chase Coleman at Tiger Global, and Eric Mandelblatt at Soroban Capital (all of which Market Folly covers.) 

On his thoughts on IBM:  He disagrees with Warren Buffett and quoted him saying, "An investor should never let someone else's opinion drive their decision in stocks."  Buffett thinks IBM's problem is cyclical, whereas Druckenmiller thinks its secular.

On foreign markets & positions:  "I just think Europe and Japan are much, much more attractive ... The majority of my long exposure is in Japan and Europe, not in the United States ... You know, a few months ago we started buying the-- I would say global consumer brands who are primarily stable in nature like-- Unilever or Pernod Ricard or L'Oréal. But recently we've shifted into more cyclical names like Volkswagen, BMW, Airbus. When you get the-- you get the tailwind of-- the euro having gone from 140 to 120, which will give them an earnings push in addition at a lower energy. And they are great consumer brand names in and of themselves."

You can read the full transcript of the interview here.

Jeff Saut Predicts Pullback Within Secular Bull Market

It's been quite a while since we checked in on market strategist Jeff Saut's latest commentary, so we figured it's time to see what he's thinking.  This week, Saut's investment strategy piece is entitled, "Making a Market Call." In it, he predicts that the market will see the "first decent pullback of the year" in mid-July or early August.

He arrives at this prediction based on various readings and he's advising raising cash levels, comparing it to the summer of 2011 when the market dipped 18%.  But taking a step back to the bigger picture, he also believes we're still in the midst of a secular bull market that has years left to run.

Embedded below is Jeff Saut's latest investment strategy piece:



You can download a .pdf copy here.

Glenview's Larry Robbins on Healthcare, For-Profit Hospital Stocks

At the Robin Hood Investors Conference late last week, Glenview Capital's Larry Robbins also made a rare media appearance on CNBC and talked about the Affordable Care Act, his healthcare investments, and other topics.

He articulated that the key focus on more Americans gaining healthcare is who is getting insurance versus how many.  He feels that people who actively use health services are the ones signing up first, which benefits hospitals (and he thinks managed care will have some issues).

On for-profit hospitals versus not-for-profit: "Regardless of what the competitive environment is, they (for-profit)  have fared better in the past and they will in the future."

On why he wanted Health Management Associates (HMA) to merge with Community Health (CYH):  "Consolidation is important, scale is important."

Touching on general market valuation, he noted that his portfolio is trading at lower multiples since that's what they've focused on.  But if you turn to the overall market, historically with low interest rates, the market trades at a higher multiple until real inflation goes above 4% he says.

Video 1 on the Affordable Care Act & healthcare in general:


Video 2 on for-profit hospitals (HMA, CYH, THC, HCA etc):


Video 3 on market valuation:

David Tepper Says Market Isn't a Bubble: His Thoughts on Valuation, Tapering, Airlines & More

After the Robin Hood Investors Conference last week, Appaloosa Management founder David Tepper sat down with Bloomberg TV to talk about the markets.


On market valuation: He does not think we're in a bubble now as he compared P/E multiples over the last 5 years to the 5-year period running up to the 2000 bubble.  Stocks now have seen little change in multiples, while stocks back then saw huge multiple expansion.

On airlines:  "Our big play versus the market is the airlines.  We're the biggest holder of many of these airlines." We flagged this big bet for readers of our Hedge Fund Wisdom newsletter over a year ago.  See what else Tepper is betting on by subscribing (a brand new issue was just released last week).

On his 2014 investing approach: "We'll probably stay long.  We recently put on a treasury short, to hedge ourselves against the equity markets.  Little bit scared of tapering... higher rates... though rates won't go that high."

On to be worried about: "I would be worried if I was a long/short guy and not long enough, that's what I'd be worried about.  But I'm not worried, because I am long.  But if I'm a L/S guy who can only go 60% long ... the biggest risk for the market is you'll have multiple expansion, higher growth, 10% earnings growth next year, and you'll have another year of 20-30% (performance)."

On J.C. Penney (JCP): "It was a tiny position... a trade and we're done."

On Twitter (TWTR):  They would have held Twitter longer, but they had a price target in the $40's and so when the stock hit that in the first days of trading, he exited.  "It's a discipline."

On Citigroup (C):  "Citi still has some pretty good upside, we think it can make 7 bucks a share."

On his performance this year:  "I think gross we're in the 40's (%)."

On tapering:  He does think it's time to start tapering. He also said: "There can be a short-term negative reaction.  But if you're tapering, it's because there's stronger underlying US growth.  And if there's growth, there's going to be higher P/E multiples and the market should be higher.  If the market goes down, that's great, it'll be one more opportunity that people will be come and buy."

On what a lower Japanese Yen means: "It means higher P/E multiples in Japanese companies, straight out.  That's the way it works, because they're such exporters. So when you have a weaker yen, you have higher earnings."


Embedded below is the video of Tepper's Bloomberg TV appearance:



For more on the Appaloosa manager, head to Tepper's other recent interview where he said he thinks the market could see an 18-20x multiple.

Market Strategist Jeff Saut: September Historically the Worst Month For Markets

It's been a while since we checked in with market strategist Jeff Saut, so below is his latest weekly commentary entitled, "Money and Savings?"  In it, he talks about the difficulty in timing the market and how he's tried to manage risk the past few months while expecting a decline.

While things haven't quite played out as he's thought recently, he still pulls some interesting data out:

"September is truly the worst month historically.  Indeed, September has seen the worst average returns for the D-J Industrials over the past 50 and 100 years."

Embedded below is Saut's latest commentary:




You can download a .pdf copy here.

We've previously posted how Saut has raised cash in anticipation of a decline in stocks.

Market Strategist Jeff Saut: Raising Cash In Anticipation of Decline in Stocks

Market strategist Jeff Saut is out with his latest investment strategy for the week entitled "The One Chip Rule."  In it, he compares the markets to playing poker, a comparison numerous others have drawn as there are various similarities.

Saut opines,

"In the stock market’s case, while the human natures of fear, hope, and greed still play a large role, I tended  to substitute card players with the personalities of stocks, the market makers, the Fed, Washington, and politicians. Using  such strategies I found that if you do your homework, and manage the risk, the odds of success in the markets are much  better than a card game. When you lose in the markets at least you get most of your money back and the government shares  in a portion of your losses via the capital gains/capital losses tax system. In a card game it tends to be basically all or nothing  with each hand."

The '1 chip rule' basically says that for every 10 chips you accumulate, you pocket 1 to pay yourself.  In investing, the corollary is to take some profits as your investments run up higher.

Saut uses this analogy because he's been raising some cash recently in anticipation of a decline in stock prices.  While he admits this strategy has been wrong in the near-term, he points to various indicators and seasonality that has caused him to be more cautious.

Embedded below is Jeff Saut's weekly market commentary:




You can download the .pdf here.

For more of the indicators that have led to Saut's cautious approach, head to his commentary from last month.

Strategist Jeff Saut Cautious, Says To Raise Cash Levels

Market strategist Jeff Saut is out with his latest commentary entitled "Rosebud" where he outlines his slightly cautious approach to the markets this month, expecting a pullback while citing impending Bernanke testimony and rhetoric about sequestration slowing the economy.

Saut also poignantly points out that,

"Reinforcing my cautionary view is a stock market axiom I learned from an old Wall Street wag in the 1970s that states, “When  they start running the ‘dogs,’ it’s time to begin looking over your shoulder.”"

He then goes on to cite that the 50 smallest stocks in the S&P 500 jumped almost 22% in the first half of the year while the 50 largest only gained 13.3%.

Saut's recommendation for the near-term is to raise cash levels.

Embedded below is Jeff Saut's weekly commentary, "Rosebud":




You can download a .pdf copy here.

If you missed his commentary last week, Saut sees a decline followed by a higher market by year-end.

Strategist Jeff Saut Sees Decline This Month But Higher Market By Year-End

This week market strategist Jeff Saut has penned his latest commentary on how many investors are "wired backwards" and love to buy when the market has headed higher and often dump stocks when the market has declined and offered compelling entry points.

Saut writes,

"The reality is that when you have a 'fell good' environment, the game is usually in the late innings.  As often stated, 'the equity markets do not care about the absolutes of good or bad, but rather are things getting better or worse.  An, things are definitely getting better.  However, in my speaking tour last week most investors don't believe it.  Nor do they believe the stock market has been rising because things are getting better.  Indeed, many of the folks I talked to believe the only thing buoying the stock market has been the Federal Reserve."

Saut actually thinks that the market could see its first meaningful decline of the year this month.  At the same time, he feels the S&P 500 will pass the high from late May by year-end.

Embedded below is Saut's weekly commentary:




You can download a .pdf copy here.


For more from this strategist, head to Saut on characteristics of market breakouts from big bases as well as Saut on the odds of a new secular bull market.

Larry Robbins Rare Interview on HMA, Tenet & What He Thinks About This Market

Larry Robbins' hedge fund Glenview Capital is having another big year.  This is on the heels of stellar 2012 performance as well.  Robbins made a rare media appearance on CNBC to talk about how he's looking to replace 8 board members at Health Management Associates (HMA).


Robbins on HMA

Given that Robbins has essentially gone activist here (he calls it "suggestivist"), it should come as no surprise that he's made such an appearance to drum up shareholder support for his plan.  After all, Glenview owns around 14% of the company.

While Robbins acknowledges that consolidation is a potential outcome for HMA, he notes that the company needs to line-up a better management team and become an excellent standalone company regardless.  He says,

"The companies that did well not only for our long-term portfolio, but for the long-term portfolio of all their owners, are the companies that not only took advantage of that consolidation transaction but drove their company forward with strong operations and strong use of cash flow in an opportunistic format.  The hospitals are no different, yes there were 7 large public hospital chains with yesterday's news that Tenet will buy Vanguard there are now 6, and there are absolutely key benefits not only strategic, but financial to consolidation between one or more large hospital operators.  We are absolutely open minded that that is one way to drive value, but that is not exclusive of the other way to drive value which is a very strong management team and a very strong path to independence, regardless if we (as HMA) become a division of a larger company or whether HMA goes forth on its own right."


Robbins on THC & the Stock Market Overall

In the interview, Robbins also touched on one of his other large hospital plays, Tenet Healthcare (THC).  He likes their deal for Vanguard and notes the company has made prudent decisions.

THC has been a big winner for Glenview over the past year but we highlighted how Glenview's trimmed their THC position recently.

The hedge fund manager also addressed his view on the market overall: "We are not taking risk-off, we believe this is still a very above average opportunity set for long-term investors and frankly as an industry, we all need to remind ourselves to think and act like owners."

Embedded below is the video of Robbins' CNBC appearance:




For more on this hedge fund, be sure to check out Glenview's presentation on HMA that was released today.

Market Strategist Jeff Saut on the Odds of a New Secular Bull Market

Market strategist Jeff Saut is out with his weekly commentary and in it he features some prudent commentary on being 'early' in investing and how the crowd tends to move long after the optimum time.  Saut also talked about the odds of a new secular bull market taking place:


"Last December I pegged the odds of a new secular bull market at 20%-25%.  I have increased those odds over the past six months to where I now believe those odds are at 45%-50%, yet few investors believe it.  To be sure, most participants think there has to be a 'feel good' environment for a secular bull market to exist.  The reality is that when that 'feel good' environment occurs, you are typically in the late innings of a secular bull market.  Ladies and gentlemen, the equity markets do not care about the absolutes of good and bad, but rather if things are getting better or worse; and, things are definitely getting better!"


His point about 'few investors believing it' is certainly worth considering.  Longtime readers may recall our investor psychology illustrated post that shows how bull markets are often born with dire sentiment, rally with disbelief, and then peak with euphoria. 

If Saut is correct, then one could potentially compare the 2013 market to the 'skeptic' portion of a rally.  After all, many investors have spent 2013 wondering when the major pullback will come.

Regardless, Saut's full commentary this week is worth reading and it is embedded below:




You can download a .pdf here.

For more from this strategist, head to Jeff Saut on the market buying stampede as well as his thoughts on investor sentiment.

Strategist Jeff Saut on the Stock Market Buying Stampede

Checking in with market strategist Jeff Saut we see that his latest weekly market commentary is entitled 'Buying Stampede' due to all the questions he's received lately about the market.

Saut writes, "I continue to believe the SPX is going to trade north of 1700 into the end of 2Q13 before becoming vulnerable to a more significant decline beginning in the July/August timeframe.  Obviously I have never seen a buying stampede like this one, which has lifted the senior index above a basing formation in the charts that was 13 years in the making."

He then notes that there have been four previous 'bases' that have launched secular bull markets that have lasted 12 years or longer (1906-1924, 1929-1955, 1966-1982, and then 2000-2013).

Saut cites a slidedeck of this data that says "The characteristics of the market when it breaks out of a base that exceeds 12 years in length is different. Investor behavior reflects an underlying distrust or disinterest and is characterized by underinvestment in equities.  This results in a rebound that is relentless, providing little opportunity to buy on pullbacks."  Sound familiar?


Embedded below are Saut's full analysis and comments:



You can download a .pdf copy here.


For more thoughts from this strategist, head to Jeff Saut on investor sentiment and you can also see his best stock ideas for the next 3-5 years that he outlined early this year.

David Tepper Still Bullish on Markets, Long Japan: Today's Interview

David Tepper appeared on Squawk Box this morning on CNBC.  The once elusive Appaloosa Management hedge fund founder has now become somewhat of a sporadically recurring guest, each time popping in update his degree of bullishness.


Reasons For Tepper's Bullishness

He originally came on air in September 2010 and inspired the 'Tepper rally' in markets.  The market is up almost 45% since Tepper's original bullish call and he said "sure, I'm definitely still bullish."  He cited improvements in housing and autos as great reasons to be bullish in the US and also pointed to central banks around the globe that are easing.  We highlighted Tepper's recent media appearance in January when he said to be long equities.

While many in the market are worried about the Federal Reserve tapering, Tepper shows how the deficit should be shrinking in the next six months and notes how there's $400 billion that can either go into the economy or stocks.  "If we don't taper back, we're going to get into this hyperdrive market."

He went on to say, "There better be a true taper or else you might be back into the last half of 1999.  So like guys that are short, they better have a shovel to get themselves out of the grave."

As far as potential risks go, Tepper says you always have to consider potential problems arising in the Middle East that could cause a 5% correction or so, but he doesn't see that coming and he also points that North Korea has settled down a little bit. 

In the end though, Tepper summarizes his thoughts by saying it feels like we're in an early stage economy.


Tepper on the Equity Risk Premium

Tepper highlights how "we're at one of the highs in equity risk premium in history" and that "when the equity risk premium is high, historically you get good returns after that.  A chart he pulled up shows that the highest levels were in 1975, 1982 and now.

He also cited how there's a low 13-handle for the S&P on next year's earnings. 

When asked where specifically he's bullish "I think every place is the place to be in the stock markets of the world.  I think you've taken out the tail risk, the disaster case.  That doesn't mean you won't potentially have riots in Europe."


Appaloosa Long Japan

Appaloosa is long Japan and has been long pretty much since the beginning of this year, Tepper said.  They commented on how Dan Loeb of Third Point has approached Sony (SNE) about restructuring as well.  Tepper noted that, "even though that market's moved a lot, you can still have a lot left in there."


Other Appaloosa Positioning

Tepper said, "It's one of those times where the indexes really are cheap ... My biggest position is Citi (C), you'll see it when my 13F comes out, it's still my biggest position.  We don't own commodities, however if we still see a strong economy, as world growth picks up, commodities will pick up in 2014.  General manufacturing is good, tech is cheap, but you have to be careful because of obsolescence" (so you have to look at individual names there).

He also said they still own Apple (AAPL), though they cut their stake a little bit at the beginning of the year around $500 or so.  They bought just a little bit below $400, and he looks at it as part of his tech basket.  Tepper feels the company either needs to come out with innovative new products, or transition to an evolutionary company where they make cheaper phones, bigger screens, and promote the ecosystem and grow that way.  He says the problem is they haven't done either lately.


Embedded below is the video of David Tepper's interview:

Video 1


Video 2


Tepper was listed as the highest paid hedge fund manager of 2012.

Oaktree's Howard Marks: Equities in Stage 2 of a Bull Market

It's no secret that Oaktree Capital's Chairman Howard Marks pens some of the most-read memos on Wall Street (Warren Buffett even reads them).  So while Marks' last memo talked about high yield bonds, his newest missive is entitled 'The Outlook for Equities'.


Valuing Stocks Today


The Oaktree founder says that earnings yield is a better measure of stocks' long-term potential (earnings yield is the flipside version of the P/E ratio, i.e. E/P).

Marks points out that the P/E ratio today is around 16 and the earnings yield is around 6.25%.  Comparing the yield ratio to historical figures, he argues things are favorable today.  However, he cautions:

"The problem with basing pro-equities arguments on the yield comparison is that most of equities' current attraction on that basis comes from the lowness of interest rates."


The Bull Case For Equities

Marks highlights a few different reasons to be bullish on equities, such as: mutual fund inflows have been low (and outflows have stopped) and stocks aren't highly valued.  His most intriguing point, however, lies in investor behavior:

"A move upward can be powered by a switch from the fear of losing money to the fear of missing opportunity.  When attitudes are moderate and allocations are low, it doesn't take much."

So the main question here is, are investors now more concerned about downside risk or missing out on the rally?

Marks feels there are three stages of a bull market

1. Few people begin to believe things will get better
2. Most investors realize improvement is actually underway
3. Everyone's sure things will get better forever

He thinks we're currently in the first half of stage 2.

Embedded below is Howard Marks' latest memo, 'The Outlook for Equities':




For more from Oaktree, be sure to also check out Howard Marks on high yield bonds today.

Jeff Saut: Don't Just Do Something, Sit There

Market strategist Jeff Saut is out with his weekly investment commentary and this week's missive is entitled "Don't Just Do Something, Sit There."  Saut appropriately titled it as such because he's received lots of advisor commentary where clients want back in the markets and there's really been no pullback to do so.  A few weeks ago, he singled out the best stock ideas for the next 3-5 years.

This highlights the seemingly omnipresent appetite for equities by retail investors... that is once markets have rallied higher and they feel 'safe' looking in the rear-view mirror and seeing gains instead of tumult. 

Saut continues to believe that we could potentially be entering a new secular bull market.  But first, he'd like to see the Dow Jones Industrial breakout to new highs.  In his piece, he draws on similarities between the present and 1982.

That said, he feels that the market will pullback soon to the tune of 5-7%.  Embedded below is Saut's latest commentary:




You can download a .pdf here.

For more from the market strategist, head to Jeff Saut's best stock ideas for the next few years.

Ray Dalio: Cash Will Move Into 'Stuff' in 2013

Ray Dalio, founder of Bridgewater Associates, spoke with CNBC at Davos about a myriad of topics.  Dalio started Bridgewater with $5 million and now manages $130 billion.  His Pure Alpha hedge fund ended 2012 up 0.8% though his long-term returns are much more impressive.


Cash Will Move Into 'Stuff'

The Bridgewater founder thinks 2013 will be a year of transition as cash moves into 'stuff' like goods, services, financial assets (equities, gold, etc).

He points out that there's so much cash in the system due to central bank action.  Since cash has a negative real return, he argues that it has to go somewhere as risks are being reduced.  The desire to hold cash is being reduced. 

Dalio laid out his framework as essentially a scenario where US investors pile into stocks driving markets higher which will then give the Fed confidence to start to tighten, which will then cause a pullback across risk assets.


Bearish on Europe

However, he's quite bearish on Europe it seems noting that there's a terrible economy with a gradual restructuring.  He says there will be a depression there or a 'lost decade'.


Wisdom From Dalio

Dalio also had a some fantastic quotes about approaching investing, saying that,

"The way to look at any market... is to look at the buyers and sellers and to understand who's buying and who's selling and what the motivations are behind that."

He went on to note that,

"Too many investors are reactive decision makers... if something has gone up, they say 'ah, that's a good investment,' they don't say 'that's more expensive.'  It's the most common mistake in investing.  You have to look ahead and say what is the transaction? What will determine the buyer or seller?"

Dalio also points out:

"So much of the driver of any asset class returns is based on how events actually transpire relative to expectations. So there's a certain discounted growth rate in equities."

Lastly, Dalio made an excellent analogy comparing investing to poker:

"The bets are zero sum.  In order for you to beat me in the game, it's like poker, it's a zero sum game.  We have 1,500 people that work at Bridgewater, we spend hundreds of millions of dollars on research, and so on.  We've been doing this for 37 years and we don't know that we're going to win.  We have to have diversified bets.  So it's very important for most people to know when not to make a bet.  Because if you're going to come to the poker table, you're going to have to beat me, and you're going to have to beat those who take money.  So the nature of investing is that a very small percentage of the people take money essentially in that poker game away from other people who don't know when prices go up whether that means it's a good investment or if it's a more expensive investment."

This analogy is not a new concept and there are actually many similarities between poker and investing/trading.  Numerous hedge fund managers play poker (like David Einhorn) and we've highlighted the link between hedge fund managers and poker.

Embedded below are the videos of Dalio's interview from Davos:

Video 1



Video 2



For more on this legendary investor, Dalio is profiled in the book The Alpha Masters.  You can also check out Dalio's other in-depth interview on QE3, gold and other topics.