David Tepper Interview: Has Been Positioned Cautiously

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:

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Appaloosa Management & Senator Investment Group Send Letter to Allergan Board

David Tepper's hedge fund firm Appaloosa Management has sent a letter together with Alex Klabin and Doug Silverman's Senator Investment Group to the board of Allergan (AGN).  They previously sent letters to AGN's board on May 7th and April 23rd as well.

Here's the text of the latest letter:

"Letter dated June 5, 2018:Board of Directors
Allergan plc
Clonshaugh Business Technology Park
Coolock, Dublin, D17 E400, Ireland

Ladies and Gentlemen:

We write concerning the conclusions drawn from Allergan’s much-heralded strategic review, publicly outlined by Chairman and CEO Brent Saunders on May 30th. Like the rest of the investment community, we were underwhelmed by the Company’s half-hearted attempt to restore strategic momentum. The result of this process is all the more disappointing given our previous discussions and correspondence (attached hereto for reference). In view of this outcome, we are compelled to express our views publicly.

The token measures outlined in Mr. Saunders’ presentation betray the Board and management’s desire to cling to a status quo that has produced three years of steadily declining stock performance and a fire-sale market valuation. It is now clear that fresh thinking is absent from the current regime, thus explaining the market’s complete loss of confidence in the stock. To that point, we reiterate our strong suggestion that at a minimum the Company (1) split the office of CEO and Chairman; (2) retain a new Chairman or CEO from outside the Company; (3) replace at least two additional directors on the current Board; and (4) upgrade management personnel in critical operating units.

Concurrent with these measures, we renew our calls for the Company to stop hiding behind an arbitrary debt reduction target as an excuse to preserve the means to pursue a transformative M&A transaction. Prioritizing such flexibility at this time makes no sense given Allergan’s undervalued equity currency, its mixed M&A record and the market’s loss of confidence in the Company’s ability to deploy capital for the benefit of shareholders. More importantly, it will not address the Company’s malaise. Instead, it is time for Allergan’s management to concentrate on running a world class pharmaceutical and aesthetics business and forego thoughts of, or the exhilaration from, an ambitious acquisition strategy.

In our conversations, Chairman and CEO Saunders has been fond of repeating a famous quotation that “the definition of insanity is doing the same thing over and over again, but expecting different results”. Until Mr. Saunders and the Board heed this advice, adopt new governance and renew the Company’s operational focus, it appears that shareholders can expect Allergan’s stock price to continue to languish."

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:

David Tepper Still Long Stocks & Short Bonds

Appaloosa Management's David Tepper has told Scott Wapner at CNBC Fast Money Halftime Report that he's still long stocks and short bonds.  Here's the quote:

"Why are stocks and bonds acting differently?  It's as if they're reacting to two different economies.  Could be that there's too loose monetary policy still around the globe.  It suggests it's affecting the bond market more than stocks."

Here's the video:



To see what stocks Appaloosa is long, check out the newly released issue of our premium newsletter.

David Tepper Cautious But Not Outright Bearish

David Tepper of hedge fund Appaloosa Management made a rare media appearance on CNBC and gave his thoughts on the market.

Tepper noted that "We're pretty light in the stock market right now and we have a lot of cash.  We're probably more positioned in the bond market right now.  I just don't see the market having the ability to move up that much.  I think the upside/downside is not the most favorable I've seen.  It's not a great environment."

Tepper also touched on the election, noting that it's a "fairly bad choice at the top."  He also said that, "Depending on the outcome of the election, the market can move different ways.  So, generally speaking, pretty cautious on the market, not outright bearish on the market."

He said this environment would probably be 'ok' returns, but not 'great.'

He particularly focused on the outcome of who wins the White House and who wins Congress, basically saying that different market outcomes will be determined by those results.

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

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Video 2



You can also view Carl Icahn's interview here as well.

David Tepper's Latest Interview

CNBC's Kelly Evans sat down with David Tepper of Appaloosa Management at Carnegie Mellon University recently.

Tepper said that the ECB and China surprisingly eased but his firm has been cautious on the stock market because of margins and other things.

He said that, "You have to keep some cash on the sidelines, have a diversified portfolio."  He also noted he doesn't love the bond market right now.

On General Motors (GM), Tepper said that it's leveraged to the US economy and they're doing better than other folks in China.  He thinks management is doing a good job there.

Tepper also likes HCA (HCA) adding to the position recently as he thinks it's been hit too hard.

Embedded below is the video of Tepper's interview with CNBC:



If you missed it, be sure to check out Tepper's previous interview from a few months ago where he said he was "not as bullish as I could be."

David Tepper "Not as Bullish as I Could Be": Interview

David Tepper of hedge fund Appaloosa Management appeared on CNBC today to share his thoughts on markets.

In the interview, Tepper talked about the concept of flows and if all the money is flowing one way, then you have to buy the dips.  But if all the money starts flowing the other way, then you've got to sell the rips.

Tepper said, "I'm not probably as bullish as I could be because I have problems with earnings growth, I have problems with multiples... so I can't really call myself a bull.  However, I will say this, if you invest today in the stock market if earnings grow 5.5% per year you will make money at the end of five years."

He also noted that if you're fully invested now, it's not a bad time to take some money off the table.  Tepper also went on to say that if we had a 15-20% correction, "I would buy."

He says that valuations are adjusting to new realities and before "jumping back in the water" he wants to see big stocks with emerging markets components have their P/E's come down and mutual funds with higher cash levels.

Tepper notes that the US is fine with low unemployment and that it's an individual stockpicking moment.  But he also says that you "don't have that cushion of safety" in the stock market right now.

When you have lower global growth, you'll see lower P/E's, Tepper says.  The Appaloosa manager said that Apple (AAPL) has a low multiple and he owns it (though it's only around a 0.75% position for them now that they're just maintaining).  He says it will always have a low multiple because it's a device company with technological risk.  But it has China exposure, which the market dislikes these days. 

He mentioned he no longer owns Alibaba (BABA) as well.  He said he read the Chinese situation wrong and got out in early July.  "They just keep making policy mistake after policy mistake over there," Tepper notes.

Tepper also says that he thinks it's going to be hard to hit earnings estimates next year.  He argued that "flat is not a bad place to be" right now, referring to his exposure levels in equities.  He says he's not a great short seller and doesn't think levels are high enough right now.  But if the Federal Reserve doesn't tighten and the market gets excited about that, then he might bring himself to short.

He again reiterated that, "We don't have a huge equity book" right now.

Tepper then noted: "I have a saying in my office: 'There's a time to make money, and there's a time not to lose money.' What time is this? Not to lose money."


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Sohn Investment Conference Notes 2015: Einhorn, Tepper, Ackman, Robbins & More

The 2015 Sohn Investment Conference just took place in New York where hedge fund managers pitched their latest stock ideas to benefit the Sohn Foundation and pediatric cancer research. 


Sohn Conference New York: 2015 Notes

- David Einhorn (Greenlight Capital): Short Pioneer Natural Resources (PXD).  Compared it to St. Joe (JOE).  Energy companies with negative development economics, negative on frackers in general.  US production boom: Bakken, Eagle Ford, Permian.  Buy the land, set up drills (expensive).  Huge cumulative CAPEX, more than oil brought out.  None of them generated cash flow, even when oil was high.  $20B cash burn by group last year.  Depletion is the "D" in EBITDAX.  It's not really growth, because once you get the oil out it's gone.  CAPEX has been 75% of revenue over last 5 years.  Not natural gas frackers, they are fine.  PXD:  Well located, well run, Permian assets mainly.  #2 pure play behind EOG.  $26B market cap, EV $27B, may earn $1.50 per share next year.  Spent $19B in CAPEX last few years - funded partially by capital raises.  Proved reserves have been flat or down despite huge CAPEX.  $36 rev/bbl, if you take out the $28 CAPEX, they lose $12/bbl.  Negative NPV if you include time cost of money.  If you had used $68 price of oil, reserves are only worth $9/share.  He says if you cut their costs, it's $22/share.  Value creation per $ spent is only 0.74.  You can view Einhorn's slideshow presentation on PXD here.  For even more from him, we recently posted up Greenlight Capital's Q1 letter as well.


- Barry Rosenstein (JANA Partners): Walgreens (WBA) and Qualcomm (QCOM).  WBA an example where activism worked.  12 layers of management between CEO and store managers vs. 5 at CVS.  Turnaround began with deal to buy Alliance Boots.  Then they got involved (cost cutting, tax inversion talks, but they didn't actually do the latter).  QCOM: Bloated costs, board with no owner orientation, family in positions, issuing a lot of stock.  He tries to downplay the breakup idea (tech analysts say it can't be done).  He says they need to return capital; doing a $15B repurchase, which is 13% of market cap (says they have 30 per share in cash).  He wants to cut/change management compensation, reduce board size, evaluate corporate structure (break off the chipset business).  Smartphone market is large and growing, IP model approved by China (although many OEMs still not paying royalties).  For more from this manager, we recently posted Rosenstein's appearance on Wall Street Week.


- Keith Meister (Corvex Capital): Long Yum Brands (YUM).  1/3 in China, outside of that it's almost all franchise, inside it's owned.  KFC, Taco Bell, Pizza Hut restaurants.  Says China problems are being fixed.  Top 5 holder of the stock.  Says franchise mix leads to more leverage, better multiples.  Simply put it's a bet on recovery in China (previous food issues at KFC).  SSS getting better, but still negative.  51% of those surveyed in China said KFC was their favorite place to eat.  Today 0.97 of $2.09 in earnings is China.  If they go back to '12 rev/unit, it would be over $3 EPS from China alone in 2017, that would be about $6 EPS in 207, with stock at $60, paying only about 10x now.  China business is very different - should spin it off.  Have it enter a franchise business deal with the main "FranchiseCo."  Says it unlocks $16/share of value.  ChinaCo becomes "more Chinese" which helps in China.  Valuation: 50-90% upside.  $130-16 PT.  Franchise co worth $88 in 2017, ChinaCo, $41-72 depending on how well it recovers from the food scandals.  Dan Loeb's Third Point also laid out the YUM investment thesis its Q1 letter.


- Larry Robbins (Glenview Capital): Long Abbvie (ABBV) & Brookdale Senior Living (BKD).  Money is cheap now.  BB junk bond 10-12 year debt for less than 4% after tax.  Own over-capitalized businesses and have them borrow money.  ABBV:  Old school pharma to new.  Spending 16% of revenue on R&D.  Structural acquirers and owner-activists pressure them on both sides.  Why ABBV?  1. Growth through 2020, 2. Numerous areas of upside optionality, 3. Excess cash they could use for acquisitions.  Says Humira grows through 2017, acknowledges the debate about patents expiration.  Biosimilars are not exact copies.  6 key upside optionalities: Pipeline is underappreciated, making biosimilars is 1000x harder than generics (state by state regulation, difficult process, etc), Humira patent protection possible, could change formulation of Humira to extend economics, look at Evercore ISI work, paying 30% repatriation tax plus dividend taxes in US "don't give it to us, keep it and do something productive with it", says they could buy 30% of shares with leverage, adding $15 to share price, also could be more M&A "they could be the pill swallowed, or be the Pacman."  Almost a double from here.  BKD: Bet on the aging population.  By far the largest and can sell ancillary services in same facilities.  Also real estate options.  You can also read Robbins' thesis on other stocks in Glenview's recent letter.


- Lee Cooperman (Omega Advisors): 8 stock picks (ACT, AER, C, DOW, GOOGL, GM, PCLN, GULTU).  Generally bullish, 7-9% return on market, appropriately valued, negative view of fixed income.  35% of stocks in SPX yield more than bonds.  Inflation is not bad for stocks - it raises their nominal revenue.  Bear markets occur for one of four reasons: oncoming recession, overvaluation, geopolitical event occurs, hostile Fed.  Nothing today indicates oncoming recession.  He says he doesn't understand the consternation about the Fed hiking rates.  On average, the stock market raised 30 months after the first hike, the shortest was 10 months.  On average, a year later, market is up 9.5% the year after a rate hike.


- Mala Gaonkar (Lone Pine Capital): Long Microsoft (MSFT).  Value hidden in legacy tech.  1.5B installed office users globally, only 250M actually pay for it.  New stronger management (Satya Nadella).  Built the cloud platform Azure. Works with 3rd party software, no more "saving Windows first."  Solid mid-to-high single digit revenue growth.  Most controversial aspect of this pitch.  Fear is consumer Windows will die, but it is only 5% of revenue.  Enterprise software is 17%, and more more sticky.  Mainframes still a $5bn annual business and they are using MSFT software.  "Price elastic market" very stick in ADBE, Autodesk as well.  Cloud is 10% now, growing faster than the rest of the business.  Office 365 more than doubles users.  Reduces piracy.  Operating cost cuts.  Been no restructuring since dawn of PC age.  Spend $1bn marketing consumer Windows.  Cloud shift cuts costs - no commissions to pay resellers.  Capital return, has way too much cash.  Raised share buybacks, but should be much higher.  Could earn 3.89 next year, fro 3.04 this year.


- Jeff Gundlach (DoubleLine Capital): Puerto Rican Muni Bonds.  They have priced in a lot of problems.  Triple tax free yield of 11% for 8s2030 at about 78 of face.  Says they may go lower first. "You're supposed to buy them at 78."  Also talked about negative interest rates and said to borrow infinite amounts at that level.  Fed talk is just noise.  2 year Treasury bottomed 4 years ago - you can see it on the chart.  Same with 10 year - 2012 was the low.  Very bearish on junk bonds, says no one alive in the room has lived through a secular rise in high yield bond yields.  Junk bonds do NOT do well when the Fed starts hiking rates.  A couple of years of runway.  For more from Gundlach, watch his appearance on Wall Street Week.


- David Tepper (Appaloosa Management): Thoughts on markets.  Also said junk bonds are not cheap.  "Something has to give."  "Either stocks have to go up a hell of a lot, or treasuries will go down a hell of a lot."  Could 22.78 P/E vs average now 17x on stocks.  Implies 30% move if treasuries don't move.  Monetization of debt in China.  "Don't fight the Fed; don't fight 4 feds."  (US, ECB, Japan, China).  Implies Hong Kong stocks are cheap, 10x P/E.  "Maybe the big banks aren't that bad if you look at them."  Don't short options that lengthen (they become more valuable).  This is why it's risky to short China.  What happens when China does first cut?  Stocks start going up.  Reinflation of their economy.  Says terrible environment for bonds.  "This monetary policy has worked for 5 years."  Now all 4 central banks are going one way.  "Good luck" with shorting.


- Bill Ackman (Pershing Square): Long Jarden (JAH), Platform Specialty Products (PAH), and Valeant Pharmaceuticals (VRX).  JAH: 45x return in 14 years, constantly undervalued over the years.  Always valued on next year's EPS.  PAH: A shell they funded.  NOMHF: Nomad, another shell/SPAC.  Flat at cash value for a year, then bought Iglo and the stock went up 80%.  Why is the market mis-valuing these companies?  He calls them "Platform companies" not just on multiples based on comaprables.  Others as examples: Danaher, Liberty Media, AB InBev, Transdigm.  Key is to find the right management teams that do good acquisitions.  VRX: Paid $196/share, 20m shares, 20% of his capital.  Tax-advantaged structure.  Units have autonomy.  Drawback is there is a lot of competition in acquisitions.  Gives the example of the Bausch & Lomb acquisition.  Value of business is correlated with ability to buy companies and integrate them, take synergies.  PT $332, from $223.  Based on organic growth and small deals.  Compares it to a Berkshire Hathaway in the making.  For more from Ackman, check out Pershing Square's presentation from its European investor meeting.


- Ian Bremmer (Eurasia Group):  Geopolitical analyst.  Oil production in the US has reduced our willingness to engage in fights, especially in the Middle East.  "Weaponization of Finance" to use finance to influence behavior.  US may have realized that they spent so much in Iraq and the country still fell apart.  "We will see $100 oil no time soon."  "Likely to see an Iranian deal, which will be another 1.2m barrels a day."  Putin is in a corner.  More Russian cyber attacks against the US.  China - the rise is important.  They are not confronting the US militarily.  Economically China does want to challenge US hegemony.  "Best money the Americans ever spent was the 4% of GDP on the Marshall Plan.  It paid off for decades."  The only country in the world with a cohesive global strategy is not us, it is China.  China does not want to occupy countries.  Some countries will be hedging, and ally with China economically.  Including Germany, South Korea, etc.  For the next 5-10 years, China is more stable than you think.  They will be the world's largest economy, but they will be totalitarian still, and will have a lot of world influence.


- Jay Walker (Founder of Priceline): Black Swan events more likely than ever.  A few people with a few million dollars could wipe out billions in market cap.  "Bioweapons plus drones plus social media."  Risk of economic collapse.



- Sohn Investment Contest Winner (Angelo Martorell, Wharton Student): Long IAC Interactive (IACI).  Owns March.com/Cupid/Tinder, Ask.com, About.com, Vimeo, HomeAdvisor.  $5.9bn EV.  Uses sum of the parts and says market not giving value for Tinder, because there is no revenue, profits.  IACI has all the best dating properties.  "Facebook of dating."  If Tinder was private it would be more than the market cap of entire IACI.  Says 1/4 of millenials won't marry.  "Network of effect."  Tinder premium will give unlimited right swipes, 2.5% of MAUs will pay for it.  $10/month.  Online dating makes it very easy to have an affair.  Tinder will crush Ashley Madison.  You can have dates in places you travel.  Cross-selling - some can go from Match to Tinder and vice versa.  Users spend 77 minutes/day on Tinder versus 40 minutes on Facebook.  Also it's fully integrated with FB.  Valuation?  Says you get Tinder for free with current stock price.



Next Wave Sohn New York 2015

- Snehal Amin (Windacre Partnership): Long PowerFinance


- Didric Cederholm (Lion Point): Ukrainian sovereign bond play (steepeners) & Ally Financial (ALLY)


- Alex Denner (Sarissa Capital): Long Ariad Pharmaceuticals (ARIA)


- Daniel Dreyfus (3G Capital): Long Phillips 66 (PSX)


- David Zorub (BlueMountain): Long Sunrise Communications

David Tepper's Latest Thoughts: Bloomberg Interview

Appaloosa Management's David Tepper sat down with Bloomberg TV today to discuss the upcoming Robin Hood Investors Conference that fights poverty in New York and to share some of his latest market thoughts.  Here are the highlights:


David Tepper's Bloomberg Interview


On his bet against bonds:  "They (ECB) haven't done any QE yet. So let them start some QE. But the beginning of the end was basically saying that when you create inflation and some inflation in the eurozone, then the bond market is going to start going down. If you don't create inflation in the eurozone of some sort or you don't stop the deflation, then that might not happen. But I do think that if they go in action, if they get in action, if they really get in action you will start creating inflation at some point in time. Until you do that, things will go where they go. And you can look at the curves over there."

On how the saying used to be "don't fight the Fed" and now it's "don't fight Draghi": "Yeah, I think that's probably right to a certain extent. I don't think you want to fight it, but you've got to understand what it's going to mean. So the extent that if he's really in action then you don't want to fight him, but he has to really get in action. You have to start QE. This negative interest rates doesn't necessarily have the effect of creating money. It doesn't necessarily have the effect of creating inflation. So if you want to do that, do that. But right now he's done nothing. So let him start."

On the US equity market multiple:  "Well I don't think it's high because if you – if you believe interest rates are 4 or 4.5 percent, 16.5 seems like about the right multiple. But I don't think we're at the 4.5 percent 10-years. We're at 2.5 percent 10-years or unfortunately 2.43 or something like that right now. And next year at 14 –"

On Fannie/Freddie:  "I wish I didn't have any investment.  And we're just – we're going to do a little bit more research and see where we stand in different courts. There's – it's – there's appeal processes for different lawsuits, so you’re not done with this particular court. You also have other courts that you’re involved in. I forget the name. The court of settlement claims or something like that.   So you have different places, different venues to – to – that you haven't brought a case yet, and also you can appeal this last decision. So I think that will go on. And then you want to see what happened exactly in this – in this judge's opinion right here. So you have to do some analysis right now to see where the securities are (inaudible) down a lot. Are they value now? Are they buy, sell, hold? That's what you have to do, reevaluate (inaudible)."

Tepper's thoughts on equities: "Well I kind of told you. Listen, it's – it's interesting on a multiple basis and – but you have to have certain things happening. You’ve got to have Europe stop – stop the nonsense, so to speak, Draghi stop the nonsense. So that's kind of it."


Embedded below is the video of Tepper's Bloomberg Television interview:



For more from Tepper, head to his call for the beginning of the end of the bond market bubble.

David Tepper: Beginning of the End of the Bond Market Bubble

Bloomberg today featured an interesting comment from Appaloosa Management's David Tepper.  The hedge fund manager basically said that the ECB decision means the "beginning of the end" of the bond market bubble.

And while he didn't specifically reveal his positioning, host Stephanie Ruhle says that Tepper expressed that's he's pretty adamant about his statement and so it's pretty easy to guess his positioning based upon that (short bonds).

Embedded below is the video of Tepper's full quote via Bloomberg:

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.

David Tepper: Markets Could See a 18-20x Multiple (Interview)

Appaloosa Management founder David Tepper appeared on CNBC today and gave his market thoughts.

Tepper thinks an 18-20x market multiple could be the 'new normal' while Lee Cooperman said earlier today he sees a 16x multiple.  Regardless, Tepper thinks stocks will be up next year and feels we'll see a higher multiple on the markets.

Regarding tapering, he feels that they're not going to taper for some time.  "My basic belief has been when you have this large QE, markets go up."  Generally speaking, despite the near-term uncertainty, he expects the markets to go up. 


The videos of Tepper's interview are embedded below:

Video 1 on tapering


Video 2 on interest rates


Video 3


For more hedge fund interviews, head to Lee Cooperman on the 3 stages of a bull market from earlier today.

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.

Top 10 Highest Paid Hedge Fund Managers of 2012

Institutional Investor's Alpha is out with their annual ranking of top earning hedge fund managers.  Here's the list:

Top 10 Highest-Paid Hedge Fund Managers of 2012

1. David Tepper (Appaloosa Management): $2.2 billion
2. Ray Dalio (Bridgewater Associates): $1.7 b
3. Steven Cohen (SAC Capital): $1.4 b
4. Jim Simons (Renaissance Technologies): $1.1 b
5. Ken Griffin (Citadel): $900 million
6. Eddie Lampert (ESL Investments): $750 m
7. Stephen Mandel (Lone Pine Capital): $580 m
8. Leon Cooperman (Omega Advisors): $560 m
9. David Shaw (D.E. Shaw): $530 m
10. Dan Loeb (Third Point): $380 m


Tepper finds himself atop the list after a solid 2012, returning around 30% after fees.  Lee Cooperman's firm also turned in great numbers last year (up around 28%) as did Ken Griffin, whose Citadel returned over 25%.

Of the managers listed, over half make a solid portion of their investments via equity strategies (though Appaloosa also focuses on distressed and Third Point also dabbles in mortgages).  Two managers listed are primarily quant funds (RenTec, D.E. Shaw).  Eddie Lampert's earnings are largely tied to Sears (which his hedge fund owns a large stake in) and shares rallied in 2012.

II Alpha ranks all the way up to the top 25 managers and you can view the full list here.

David Tepper Says Be Long Equities

Continuing his round of rare recent media appearances, Appaloosa Management's David Tepper was on Bloomberg today telling people "to be long equities" as he's bullish.  Last month we highlighted his other interview where he said there's a lot of upside in equities,


Bullish on Equities


Valuation is part of the reasoning for his bullish call on equities as a whole: "If you look at the markets, they are trading at a really low multiple. 13 handle this year, 11 handle next year on the S&P."

Additionally, he simply points to the vast money creation across the globe as a reason to continue to ride the equity train.

He drew attention to an incredibly underweight equities stance by retail investors, pensions and more.  He feels that eventually there will be a shift.  Inflows to equity funds at the start of the year were at higher levels than they have been in quite some time.

Tepper gave a memo to long/short managers too, saying "good luck, because you can't get long enough" in this environment as he feels there will be a 'party like the 90's.'  Arguing potential for 20-30% returns in equities, he feels you don't want to be long risk averse assets like Treasuries, the yen, or the swiss franc.  He says to be long equites and 'equity-like' things.

His most notable soundbite was probably when he said that the US is on the "verge of an explosion of greatness."  Regarding Europe, Tepper feels that the tail risk there is a non-issue, at least for this year.


Likes Citigroup (C)

He pointed out his fondness for shares of Citigroup (C), arguing that it potentially has 50% upside from here, saying the company's foreign business is very valuable. 


Bullish on Airlines

Tepper highlights the reasons to like airline stocks:  a potential strong dollar scenario and oil remains largely flat (due to potential new discoveries etc), you have an industry that will do will in that scenario, and you have a consolidating industry, and you have capacity down this year.  He's looking for some airlines to start returning capital as well.

Our Hedge Fund Wisdom newsletter flagged Tepper's fondness for airlines a few quarters ago.  He owns US Airways (LCC) and Delta Airlines (DAL).


On Position Sizing & Liquidity

While everyone will focus on Tepper's bullish comments, he made a good point regarding position sizing and tracking his hedge fund's holdings.  While Citigroup is one of his larger positions, he mentioned it's only a 1.5% or 2% position compared to his firm's overall AUM.

Tepper says that instead of looking at the position size of the investment relative to his firm's AUM, look at how much of a given company that they own if you're tracking their positions.

He notes that he sizes positions accordingly to how easily they can get in and out.  He says that, "I value liquidity a lot."  So he's a long-term investor but he likes stocks like Apple (AAPL) that are extremely liquid.  He learned a very valuable lesson in 1998 regarding liquidity in Russia and that obviously shapes his decisions to this day.   

He also touched on how he started Appaloosa, something that's explained in more detail in the book The Alpha Masters.  We've highlighted an excerpt from the book in the past that touches on why his firm is named Appaloosa.


Below is the video of David Tepper's interview with Bloomberg:



If you missed it, be sure to also check out Tepper's other recent interview on CNBC as well.

David Tepper Sees "A Lot" of Upside in Equity Markets: Latest Media Appearance

Appaloosa Management's founder David Tepper made a rare media appearance on CNBC this morning so we wanted to highlight the key takeaways and post up the full videos below.

Many of you will recall that one of Tepper's appearances a few years ago launched the aptly-titled 'Tepper rally' in the markets after he said he wouldn't fight the Fed.  So what's his take on the markets this time around?  Read on below:


David Tepper's Latest Thoughts

CNBC noted that Tepper's $16 billion hedge fund is up 25% net on the year. He thinks there's a "pretty good economy, growing 2% give or take" with tailwinds in housing and autos.  He highlighted how the Fed is focused on unemployment.


On Europe

Tepper also drew attention to Europe's situation, noting that "whenever Draghi wants to lower interest rates in Europe, he can do it."  He feels this aspect wasn't really well reported and that it's important because you have a "series of puts over in Europe" via central bank action.


On Credit Markets

The Appaloosa man said that credit markets are "rich and spreads are at pretty good levels right now."  He didn't want to call them in bubble territory, but said they're close.

Andrew Ross Sorkin asked Tepper if he was shorting some high yield, and Tepper said: "No.  I would short with a trillion dollar of stimulus of Fed coming in and short?  You can short it if you want, I'm not going to short it ... This money has to go someplace."


On Equity Markets

Tepper points out that there's a 12-handle PE on the S&P, saying "it's cheap relative to everything, it's the only market that hasn't really rose to new heights."  He says the situation in Washington is holding everybody back, noting that there could be 3-5% downside in the market if things become dire.

When asked how much upside was left in the equity markets, Tepper simply replied "a lot."  It's clear that Tepper continues to live by the mantra 'don't fight the Fed.'

While stocks have risen a solid amount since his original 'Tepper rally' call in 2010, he notes that the P/E hasn't expanded that much.  When asked about current valuation, he replied that "it is really, really interesting.  I hate to say how cheap it is."


On Inflation

He also touched on the Fed's actions and potential inflation:  "At some point everybody's concerned about inflation.  On the way to inflation in the real economy, you're gonna have another sort of inflation.  It's inflation in asset prices."

Tepper pointed out that a lot of hedge fund managers have taken money off the table because they "don't want to take a year-end loss," again pointing to the Fiscal cliff situation and noting the potential downside there.  Tepper says he's willing to take a chance (but you also have to keep in mind he's already up 25% this year."


Appaloosa's 2012 Playbook

Tepper laid out how his hedge fund has essentially played this year:  In December (2011), they waited for the LTRO and *then* invested.  In April, he thought the economy was slowing so he bought some puts (noting he saw low put vol at the time).  Then Draghi "gave away" a market put and Appaloosa got invested.  Then in front of the US election, he took down his long exposure, assuming the market would sell-off on Obama's re-election.  And when things sold off, he started buying some equities again, getting long into year-end.

As far as his allocations go, he outlined that "We probably have 70% of our book in bonds and stocks.  We move them up and down based on the individual names."  Then they use options to trade around volatility.


Tepper on Selling Due to Potential Capital Gains Increase

"Yea, we've basically taken a bunch of our long-term gains this year to lock-in these lower rates for our investors."  This is a phenomenon that's certainly happened across the markets and notably amongst hedge funds.  We'd cite Apple (AAPL) as a primary example as many prominent funds were sitting on a large position with large long-term gains.


Videos of Tepper's Interview

Embedded below are videos of Tepper's latest CNBC appearance:

Video 1



Video 2


Video 3

It looks like CNBC has the wrong code for the third video, but you can watch it here.

For more on the Appaloosa founder, head to our review of The Alpha Masters, a book that Tepper is profiled in.

The Alpha Masters: Review of Maneet Ahuja's Book on Dalio, Paulson, Tepper, Loeb & More

We've just finished a must-read book on some of the top hedge fund managers in the game. The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja takes you behind the scenes with exclusive interviews and profiles of the managers you read about on this site each day.

Ahuja is CNBC's hedge fund specialist and co-creator of the Delivering Alpha summit. Through her roles, she's developed quite the rolodex and has put it to work by giving readers unprecedented access to prominent managers. With a foreword by PIMCO's Mohamed El-Erian and an afterword by Myron Scholes, Ahuja's book profiles the following nine managers:

Chapter 1: The Global Macro Maven - Ray Dalio, Bridgewater Associates
Chapter 2: MAN versus Machine - Pierre LaGrange & Tim Won, MAN Group/AHL
Chapter 3: The Risk Arbitrageur - John Paulson, Paulson & Co
Chapter 4: Distressed Debt's Value Seekers - Marc Lasry & Sonia Gardner, Avenue Capital
Chapter 5: The Fearless First Mover - David Tepper, Appaloosa Management
Chapter 6: The Activist Answer - Bill Ackman, Pershing Square Capital
Chapter 7: The Poison Pen - Dan Loeb, Third Point
Chapter 8: The Cynical Sleuth - Jim Chanos, Kynikos Associates
Chapter 9: The Derivatives Pioneer - Boaz Weinstein, Saba Capital Management

The book's cover photo is the perfect depiction of what many perceive the hedge fund industry to be: money and secrecy hidden behind locked doors (or in this case, a bank safe deposit box). But just as the cover suggests, Ahuja has unlocked the door to the industry's top titans and she lets you in on some of their secrets and little known facts.


How David Tepper Named His Hedge Fund

One such tidbit is found in Chapter 5 about David Tepper.  While Market Folly often details Tepper's portfolio activity, The Alpha Masters sheds light on little known facts such as why he selected the name 'Appaloosa Management' for his firm to begin with.

It's always interesting to learn what hedge funds are named after because they often tell a story or reveal information about the managers themselves. In Tepper's case, it simply highlighted his desire to make money.

Ahuja writes,

"Tepper and Walton only needed the perfect name for their new venture. Greek mythology was popular at the time and they first decided on Pegasus, the flying horse, before discovering it was already taken. So Walton went to the library and came back with a book on horses. They knew they needed a name that started with 'A' to be first to receive faxes on trades, which was how orders were processed back then. They had learned well from their stints at Goldman that two minutes could make or break you. The first name they came across was 'Achaikos' but they found it too hard to pronounce. So they skipped ahead and settled on 'Appaloosa.' And the fund was born."


Why The Alpha Masters is a Must-Read

This book is a compilation of stories and fascinating facts about nine top managers. We've been tracking these prominent hedge funds for years, but The Alpha Masters kept peeling back layers of intricate details.

At first glance, some of the historical background on the managers' lives may seem tedious and boring. But then you realize that Ahuja has included these anecdotes because it paints a picture as to who the manager was and what they've become.

These stories told in the manager's own words make you feel as if you're simply at lunch with a friend reminiscing about their past. But Ahuha has masterfully taken that friend and replaced them with a hedge fund titan removed from Wall Street's trillion dollar pedestal. And when you've finished reading, these seemingly untouchable god-like moneymaking machines have morphed into mere mortals just like you.

After all, like many entrepreneurs and small business owners today, these hedge fund icons at one point in their lives took a big risk, pursued their dreams, and started their own firms.  Ahuja chronicles the entire journey (even before the fund's inception) and the real value is seeing what each manager had to go through to get where they are now.  As these dream chasers soared to amazing altitude, they now tell their success stories as luminaries sure to inspire the ascension of the next master money managers.

But apart from the human element, this book does exactly what its title implies: it's unlocked the genius of the world's top hedge funds by giving you tons of access to people you'd probably never meet as well as stories and wisdom you'd probably never hear otherwise.

The most valuable aspect of this book is that it gives you a front row seat in a classroom full of hedge fund icons detailing their investment thought process, what mistakes they've learned from, how they've developed as investors, and what it takes to succeed.  While many perceive hedge funds to be secretive, Ahuja has acquired astute anecdotes from top managers and purveyed them for all investors to learn from.  And, unbeknownst to us, it was a pleasant surprise to find MarketFolly.com listed as a reference at the end of the book.


Definitely check out The Alpha Masters (hardcover) or Kindle e-book version here.

Top 10 Hedge Funds By Net Gains Since Inception

Bloomberg is out with an interesting piece examining the top 10 hedge funds by net gains since inception. The list contains the who's who among the hedge fund elite and is pretty much who you'd expect to be on it.

The data was compiled by LCH Investments NV (part of the Edmond de Rothschild Group) and is based on audited reports from each investment firm, discussions with the funds, as well as confidential sources.


Top 10 Hedge Funds By Net Gains Since Inception

1. Ray Dalio's Bridgewater PureAlpha: $35.8 billion net gain since 1975
2. George Soros' Quantum Endowment: $31.2 bn net gain since 1973
3. John Paulson's Paulson & Co: $22.6 bn net gain since 1994
4. Seth Klarman's Baupost Group: $16 bn net gain since 1983
5. Brevan Howard: $15.7 bn net gain since 2003
6. David Tepper's Appaloosa Management: $13.7 bn net gain since 1993
7. Bruce Kovner's Caxton Associates: $13.1 bn net gain since 1983
8. Louis Bacon's Moore Capital: $12.7 bn net gain since 1990
9. Thomas Steyer's Farallon Capital: $12.2 bn net gain since 1987
10. Steve Cohen's SAC Capital: $12.2 bn net gain since 1992


One interesting tidbit here is that Louis Bacon's Moore Capital makes the top ten, but his mentor Paul Tudor Jones (Tudor Investment Corp) does not. Tudor was largely responsible for seeding Bacon's fund by sending him investors that Tudor had to turn away back when he was first getting started.

Compare the above to the top 10 biggest hedge funds in 2010 and it's no surprise that there's considerable overlap as some of the most successful hedge funds have become some of the largest. Also, the two funds that have been around the longest on the list (Bridgewater and Soros) are the two that occupy the top positions.

Five of the managers above are featured in our Hedge Fund Wisdom newsletter and you can see their latest investments in our brand new issue.

David Tepper's Appaloosa Sells Bank of America (BAC) and Wells Fargo (WFC)?

David Tepper's hedge fund Appaloosa Management filed their 13F early with the SEC and in it are some noteworthy moves. The filing reflects portfolio activity as of June 30th, but it does give us a glimpse as to what he was up to in the second quarter.

The big talking point here is that in the second quarter, Tepper sold 41% of his position in Bank of America (BAC), selling over 7.2 million shares. He also sold 5% of his position in Wells Fargo (WFC) and 6% of his position in Citigroup (C), his top equity holding at the end of Q2.

However, David Faber at CNBC is hearing that Tepper has since sold completely out of BAC and WFC in recent weeks. He also apparently sold a chunk of his stake in C too. Tepper has not confirmed this though.

Turning back to the factual information from the 13F we do have though, Tepper also sold 54% of his stake in Hewlett Packard (HPQ).

In terms of new positions, Appaloosa started new stakes in Mosaic (MOS), Western Refining (WNR) and Google (GOOG). It's likely that Appaloosa took advantage of the MOS secondary as Dan Loeb's Third Point also bought MOS. Tepper also bought more CVR Energy (CVI) which we already highlighted back in June.

On the long side, refining seems to be a big theme for Appaloosa as they ramped up their stake in Valero (VLO) by 202% in the second quarter in addition to starting their stake in WNR. To see what other top hedge funds have been buying & selling, subscribe to our Hedge Fund Wisdom newsletter as a new issue is due out in just a week and a half.

Tepper's Appaloosa Boosts CVR Energy (CVI) Position

David Tepper's hedge fund Appaloosa Management recently disclosed an updated position in CVR Energy (CVI). Due to a 13G filed with the SEC, Appaloosa now shows a 8.26% ownership stake in CVI with 7,141,434 shares. This latest disclosure reflects trading as of May 23rd, 2011.

This marks an increase in their position size to the tune of almost 360% as they owned only 1,556,374 shares at the end of the first quarter. Interestingly enough, a selling stockholder affiliated with Kelso & Company LP shed 7,988,179 shares of CVI to Goldman Sachs on May 23rd.

Spin-Out of Fertilizer Business

The company had a secondary offering in February and numerous hedge funds were involved. Dan Loeb's Third Point, in particular, bought CVI under the spin-out thesis.

CVR Energy filed an IPO for its fertilizer business and will pursue an MLP structure for this offering. Hedge funds invested in the stock believe this new offering will garner a high valuation due to high demand for yield in the current low interest rate environment. You can see the full rationale for buying CVR Energy here.

Per Google Finance, CVR Energy is "an independent petroleum refiner and marketer of transportation fuels. In addition, the Company owns all of the interests (other than the managing general partner interest and associated incentive distribution rights (the IDRs)) in CVR Partners, LP (the Partnership), a limited partnership which produces nitrogen fertilizers in the form of ammonia, and a solution of urea and ammonium nitrate in water used as a fertilizer (UAN)."

To see the rest of David Tepper's investments, head to the brand new issue of our Hedge Fund Wisdom newsletter.