Tepper: No More 'Free Ride' But Markets Still Look Good
The investing climate still looks good to hedge fund manager David Tepper, though perhaps not as good as it did when he made his noted proclamation in September that "everything" will go up, setting off an aggressive stock market rally.
Stubbornly high unemployment along with lingering questions about sovereign debt and runaway growth in China have the head of Appaloosa Management a bit less bullish than he was when he triggered what is often referred to as the "Tepper Rally" four months ago.
But he said in a CNBC interview Friday that he remains mostly positive about the state of the US and corresponding investment choices.
"So much uncertainty has been alleviated. The economy is so much better now," Tepper said. "This country looks good. This is not my concern."
Tepper said he still believes stocks are a good investment, mentioning Dean Foods as a particular favorite. Technology, particularly semiconductors and equipment companies, also are favorable, with Micron Tech a specific choice.
Outside equities, he classified both currencies and gold as "tough right now," though he believes oil and other industrial commodities will be stronger due to global growth.
Much of what happens, though, depends on fiscal and monetary policy.
In his September remarks, he predicated his forecast that all asset classes would rise on the belief that the Federal Reserve would intervene in the markets with more monetary easing that would in turn boost capital markets.
His remarks then came a few weeks after Federal Reserve Chairman Ben Bernanke, in a speech from a Jackson Hole, Wyo., summit, made remarks that were widely interpreted as a precursor to another round of easing.
The actual Fed decision to buy another $600 billion of Treasurys through its quantitative easing program didn't come until November. But investors spent most of the fall pricing in the Fed's moves and rallying the stock market 22 percent, as of Thursday's close.
So long as the central bank exits its easing programs in a way that pleases the markets and Congress takes on deficit reduction, the rally should continue, Tepper said.
"If they do those things—cutting the budget, cutting the deficit—and that stuff happens and you have a Fed that gets itself out, the US looks pretty darn good, pretty darn good," he said.
Interest rates will bear watching as the Fed contemplates its next move.
"If the Fed does it the right way, they will extricate themselves right. That doesn't mean they stop on a dime. Maybe they spread out this QE—I don't think they're going to do another one but maybe they do a little bit more," Tepper said. "What you'd like to see is a smooth progression of interest rates going up just when they should go up and smooth out this economy and not let it get overheated, which it is not close to doing."
But he did warn that because of disruptions in the world and unemployment unlikely to moderate, in his opinion, for another 10 years, investors need to be cautious as well.
"It's not a free ride in the market," he said. "You've still got to worry about Europe. You've got to worry about China a little bit. We are at a higher level, but pretty darn good. So you can't be too negative but you can't be uncautious."
In China, policy makers are indicating that monetary tightening will increase as inflation starts to take hold in the fast-growth economy.
Sovereign debt concerns have been weighing on Europe for nearly a year now, with the most pressing concerns being Spain, Greece and Portugal, though the problems have rippled through multiple European Union nations.
Even so, he thinks investors can make money by spotting the right opportunities in the euro zone.
"Basically if I know that things were coming, if I got the right things out of Europe, I would invest in different things there," he said. "I'd really invest more in Spain, but I've got to have the right things because if I don't I'm going to get killed."