Look at where multiples and rates were in 1999. I’m not saying stocks are screaming cheap, but you’re nowhere near an overheated market. Any comparisons to past overheated markets are ridiculous.
That’s what David Tepper told CNBC back in September and by God, he’s sticking with that assessment in the new year.
Who knows, maybe it’s not a great idea to question Tepper’s judgement. Recall the following from our buddy Kevin Muir, recounting the “Tepper Bottom“:
Think back to September of 2010. At the time, most pundits were bearish US equities. There was a ton of doubt about the efficacy of quantitative easing. Many investors were chasing gold, believing the Fed was pushing on a string and another 2008 style collapse was imminent.
Yet one hedge fund manager was brave enough to get on TV, and take the other side. I still remember watching David Tepper make the convincing case that stocks were a screaming buy.
Either the economy is going to get better by itself in the next three months…What assets are going to do well? Stocks are going to do well, bonds won’t do so well, gold won’t do as well. Or the economy is not going to pick up in the next three months and the Fed is going to come in with QE. Then what’s going to do well? Everything, in the near term though not bonds…So let’s see what I got—I got two different situations: One, the economy gets better by itself, stocks are better, bonds are worse, gold is probably worse. The other situation is the fed comes in with money.
That worked out pretty goddamn well, so you know, who are we (or anyone else) to question the following from Tepper, who spoke to CNBC on Thursday:
Explain to me where this market is rich? It’s not rich with the tax thing that just changed earnings projections. With earnings forecasts going up and interest rates where they are, how is this market expensive? I don’t see the overvaluation. World growth is higher.
There’s no inflation. The market coming into this year doesn’t look rich, in fact, it looks almost as cheap as coming into last year.
Ok. I mean, it doesn’t “look cheap.” Actually, it looks really – really – expensive. But remember, this is a world where “cheap” is a relative term. As Goldman will be happy to remind you, in absolute terms stocks, bonds, and credit haven’t been this simultaneously expensive in 100 years:
But relative to bonds, there’s still some “value” in equities – I guess. That’s what Tepper is going with. To wit, from the same interview:
The market can’t go down until the bond market gets hit.
Right. Everyone agrees with that. The question is how quickly and how violently do stocks react in a bond tantrum? That is, will there be enough time to get out or will Marko Kolanovic’s “quantitative exuberance” mean that when rates vol. finally does pick up (thanks probably to an uptick in inflation and the policy shock – i.e. aggressively hawkish central bank communication – that would almost invariably accompany that uptick), the systematic crowd will be forced to deleverage so quickly that everyone gets caught offsides?
Further, central banks are normalizing – albeit slowly. As the above-mentioned Kevin Muir noted a few months ago, now we have the opposite situation that existed when Tepper made the call excerpted above. Here’s Kevin:
In the current environment, we have the opposite situation. Either the economy rolls over (which should be bad for stocks), or it bounces, at which point the Federal Reserve continues on its tightening path (which could also be bad for stocks).
Who knows. I guess the bottom line is this: