David Tepper "Fed is not going to cut stimulus near term"
- Thread starter dealmaker
- Start date
Nearly all stocks are leveraged by virtue of the debt on their balance sheet.
eg. Consider a company with assets of 1 billion (mainly property), funded by 900 million liabilities and 100 shareholders' equity. Hyperinflation would likely be great for this company, because the real value of the debt declines, while the value of property increases.
If you are in a country experiencing hyperinflation, and your choice of asset class is stocks, the best stocks are likely to be those that:
(1) can pass on cost increases to customers without a resultant drop in demand (price inelastic industries, such as consumer staples)
(2) those with large amounts of (fixed-rate) debt, particularly those whose debt funds the holding of property.
The Caracas Stock Index has done very well this year:
http://www.zerohedge.com/news/2013-10-18/sorry-russell-2000-caracas-stock-market-shows-how-its-done
eg. Consider a company with assets of 1 billion (mainly property), funded by 900 million liabilities and 100 shareholders' equity. Hyperinflation would likely be great for this company, because the real value of the debt declines, while the value of property increases.
If you are in a country experiencing hyperinflation, and your choice of asset class is stocks, the best stocks are likely to be those that:
(1) can pass on cost increases to customers without a resultant drop in demand (price inelastic industries, such as consumer staples)
(2) those with large amounts of (fixed-rate) debt, particularly those whose debt funds the holding of property.
The Caracas Stock Index has done very well this year:
http://www.zerohedge.com/news/2013-10-18/sorry-russell-2000-caracas-stock-market-shows-how-its-done
Bag holders during the taper scare,which hit emerging markets harder than the US, are once again bond holders. Mr Tepper must be talking up his recent T - note/bond purchases as Mr Dalio recently was.
Seems the idea of taper/tightening/relative austerity wasnt handled very well world wide. I read it elsewhere that the Fed should just peg rates on bills, notes, bonds with a few words like
Drahgi's "Whatever it takes" . Maybe stocks can levitate with reduced printing if debt cant compete with risk. Fix the rates and mortgages can pick up again without the MBS purchases.
Why not. Arent rates pegged already? Would markets throw a hissy fit over a peg policy?
By the way, Is there a way to determine how much of the 85bil /month of excess reserves
end up in stocks/risk? I suspect this is media BS that IT is supporting the stock market.
But on the other hand, excuse my ignorance, are these reserves for loans ( possibly levered 10x at the source) to other banks as their reserves (levered 10 x) and so on.....if so there must be a shortage of stock out there.
Seems the idea of taper/tightening/relative austerity wasnt handled very well world wide. I read it elsewhere that the Fed should just peg rates on bills, notes, bonds with a few words like
Drahgi's "Whatever it takes" . Maybe stocks can levitate with reduced printing if debt cant compete with risk. Fix the rates and mortgages can pick up again without the MBS purchases.
Why not. Arent rates pegged already? Would markets throw a hissy fit over a peg policy?
By the way, Is there a way to determine how much of the 85bil /month of excess reserves
end up in stocks/risk? I suspect this is media BS that IT is supporting the stock market.
But on the other hand, excuse my ignorance, are these reserves for loans ( possibly levered 10x at the source) to other banks as their reserves (levered 10 x) and so on.....if so there must be a shortage of stock out there.
In the 60's a poll was taken in West Germany among retirees and one of the questions was (to the effect) what was the most frightening period of your life. Apparently for most it was in the early 1920's during the Weimar inflation not during WWll.
My ex-partner's family were German Jews who left to come to NY in the 30's. My partner's grandmother recounted how, during the worst of the panic in 1923, she was the receptionist for her husband's dental practice and that she would collect the fee in advance, lead the patient to the office where her husband practiced and quickly excuse herself so she could run to the store and spend the money on almost anything: Four hammers, 20 pounds of potatoes -- anything tangible. anything not to be long the paper currency overnight. The key was you did not have to need or have any use for what you purchased all you had to know was that it was in common usage and could be traded. A hammer, a dozen eggs or a new pair of work boots in a common size all were a store of value yet the paper was fast becoming just paper.
Weimar was hyperinflation whereas the Chavez legacy is high and dangerous inflation but not -- not yet at least -- to the point where most people are desperate to be out of the paper same day. The difference is not just a matter of degree but of kind. Past a certain point (many economists think the point is when the currency is depreciating about 2% a week) the man in the street begins to live with an expectation that holding paper, even overnight, is a risky business. Once that mindset kicks in it is tough to erase and easy for it to become a panic where an entire society fears for its viability as an economic entity.
My ex-partner's family were German Jews who left to come to NY in the 30's. My partner's grandmother recounted how, during the worst of the panic in 1923, she was the receptionist for her husband's dental practice and that she would collect the fee in advance, lead the patient to the office where her husband practiced and quickly excuse herself so she could run to the store and spend the money on almost anything: Four hammers, 20 pounds of potatoes -- anything tangible. anything not to be long the paper currency overnight. The key was you did not have to need or have any use for what you purchased all you had to know was that it was in common usage and could be traded. A hammer, a dozen eggs or a new pair of work boots in a common size all were a store of value yet the paper was fast becoming just paper.
Weimar was hyperinflation whereas the Chavez legacy is high and dangerous inflation but not -- not yet at least -- to the point where most people are desperate to be out of the paper same day. The difference is not just a matter of degree but of kind. Past a certain point (many economists think the point is when the currency is depreciating about 2% a week) the man in the street begins to live with an expectation that holding paper, even overnight, is a risky business. Once that mindset kicks in it is tough to erase and easy for it to become a panic where an entire society fears for its viability as an economic entity.
Could be,but consider that:
- the financial community looks for those who do that, and they lose credibility.It's better to take a position according to your forecasts,then tell publicly what you think(as Soros did for gold this year)
- it's the 3rd time Tepper says markets will go up for this reason,and in the past they did
- Roubini - the permabear - forecasted 2 years of "good markets" after hearing of FED and BOJ stimulus early this year
- Bernanke said in December "2013 will be very good for stocks if government solves the fiscal cliff" (and he knew what he was talking about,he doesn't play speculator games)
What I'm curious about is whatever Tepper was looking at in March 2009 that made him buy - sentiment, valuations etc. - has now changed. All these indicators have flipped from "buy" to "don't buy".
Surely only amateurs believe that a single factor (Fed easing) can keep the market going up forever?
I have had similar thoughts over the past year or two. However maybe it's QE combined with the following two factors:
(1) Momentum ("Where else do you put your money with interest rates so low?")
(2) The belief that should equities decline by a big amount (let's say 10%) that the Fed will increase its QE program to an amount more than $85 billion a month, which is supportive for risk assets.