Friday, September 24, 2010

David Tepper On CNBC This Morning

CNBC's 6-9am program featured a half-hour segment, ending at 8:30, with David Tepper, founder and head of the $12B+ hedge fund Appaloosa Management. I'm sure it's already a featured clip on the network's website, and will remain in the paid portion for some time.

Tepper said a lot during his half hour as the program's only guest. But there were two comments which, for me, were especially notable.

The first was his nonchalance concerning the bet his hedge fund made on US bank equities and debt in 2009. According to Tepper, Treasury published a white paper declaring, in advance, the bank equities it would purchase, and at what prices. Citing the failure to comply with this document as fraud under SEC rules, Tepper claimed that it was easy to go long in the bank instruments which delivered Appaloosa's reported 100%+ gains for 2009.

"Sometimes, it's that easy," the 17-year veteran hedge fund manager observed.

Despite questions from Becky Quick and Joe Kernen concerning the changes in federal government actions, versus stated intent, for TARP, and its quixotic behavior two years ago this fall, Tepper remained calmly insistent that Appaloosa's long positions going into 2009 were a simple, riskless move.

I can't help believe that Tepper is putting a different face on those risks now then he and his team viewed them two years ago.

For example, the federal government enjoys sovereign immunity from many lawsuits. And it's very unlikely that any administration would allow its SEC head to bring action against its Treasury Secretary or the Fed for failing to act upon a 'white paper.'

I'm sorry, but I just don't buy Tepper's characterization of his funds' positions as essentially riskless and a no brainer in late 2008 and early 2009.

If he'd been wrong, and Treasury had had second thoughts, we'd have read about Appaloosa's horrendous losses. And maybe a feeble attempt to bring suit. Which probably would have brought heat from the SEC to quash the attempt at forcing Treasury to follow through.

The second interesting comment from Tepper arguably began to turn equity market futures this morning. When asked about his views for the rest of the year, Tepper didn't hesitate to say he was longer than usual, and fully expected the Fed to make good on its desire to facilitate US economic growth.

According to Tepper, between continued easy money, borrowing, and/or, if necessary, QE2, he's confident that the Fed will get its wish. As he put it, to paraphrase,

'If the Fed continues easing, equities will do well, but bonds will get killed. If, on the other hand, that doesn't ignite growth, and they need to do more quantitative easing, then everything will do well for the remainder of the year.'

Tepper didn't say there wouldn't be a price to be paid for all of this easing. He simply reiterated his early comment about 2009, i.e., you should believe the Fed and Treasury when they say they want to assure an economic result which, in the short term, they have the means to effect.

Having seen some prior examples of a market heavyweight's comments on CNBC seem to move the S&P and Dow futures, I'm not at all dismissive of the impact of David Tepper's remarks. When he began speaking, the S&P futures were around 1122. Now, at 9am, an hour later, they are around 1133, with the added help of some positive economic news.

One has to wonder why Tepper suddenly appeared on CNBC this morning. Was it a function of the equity markets falling back from their recent, multi-month highs? Was Tepper concerned about the fate of his long positions?

I don't believe in coincidences of this sort. A few months ago, Doug Kass, a noted bear and also a guest/host on CNBC earlier this morning, made public his belief that equities had hit a bottom and, sure enough, they began a march upward that morning.

No matter how talented the equity manager, whether public or private/hedge fund in nature, I can't help but see them all merely talking their books when they agree to appear on CNBC.

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