David Tepper, founder of $20 billion hedge-fund firm Appaloosa Management LP, said he’s “nervous” about financial markets because the economy isn’t expanding at a sufficient pace.
Investors should hold cash and focus on avoiding losses, rather than making profits, Tepper said yesterday at the SkyBridge Alternatives Conference in Las Vegas. While Tepper said he wasn’t recommending that investors bet against assets, they shouldn’t be too optimistic either.
Don’t be too “freakin’ long,” said Tepper, who started his Short Hills, New Jersey-based firm in 1993. “I think it’s nervous time,” he said, even if markets may “grind higher” in the near term.
Tepper, 56 and last year’s top-earning hedge-fund manager, is becoming less optimistic as the U.S. Federal Reserve reduces its asset purchases and the European Central Bank struggles to revive growth in the euro region. U.S. stocks fell today, with the Standard & Poor’s 500 Index sliding 0.9 percent, as data showed an unexpected drop in industrial production.
Equities had reached all-time highs this week after three rounds of monetary stimulus helped fuel economic growth, sending the S&P 500 Index surging as much as 180 percent from its 2009 low.
Appaloosa sold 6.58 million shares of SPDR S&P 500 ETF, an exchange-traded fund tracking the benchmark index, in the first quarter as the value of the firm’s U.S.-listed equities fell by $583.5 million, according to data compiled by Bloomberg from a regulatory filing today. The sale trimmed Appaloosa’s largest stock holding by more than half.
Tepper, who is worth $7.9 billion according to the Bloomberg Billionaires Index, said in November that stock markets aren’t inflated and that while he was optimistic about U.S. equities, they may fall 5 percent to 10 percent when the Fed curbs its monthly stimulus program.
Fed policy makers last month trimmed monthly bond buying by $10 billion for the fourth consecutive meeting. The world’s biggest economy will expand about 3 percent this year, which will probably prompt the Fed to stop its bond purchases in October or December, Federal Reserve Bank of Atlanta President Dennis Lockhart said this month.
“We have this term called coordinated complacency to describe the world’s central banks right now,” Tepper said. “The market is kind of dangerous in a way.”
Tepper said the economy should be moving faster than it is, and he would be “comfortable” if the nation posts economic growth of 4 percent in the second half of the year. He said he’s more worried about deflation than inflation.
Fed Chair Janet Yellen will address the U.S. Chamber of Commerce today after the market close. She said last week that the world’s biggest economy still requires a strong dose of stimulus.
ECB President Mario Draghi said at the institution’s policy meeting in Brussels last week that he’s “comfortable” with the idea of boosting stimulus at the June gathering, and that a strong euro currency “in the context of low inflation is cause for serious concern.”
The European Central Bank is “really far behind the curve” and should boost its stimulus program, Tepper said. Markets may react negatively to inaction by the central bank, Tepper said.
The euro-area grew just 0.2 percent last quarter, half as much as economists had forecast, according to Eurostat data released today, adding pressure on the ECB to deliver stimulus measures next month.
Should the ECB decide to act, it might deploy multiple tools rather than just cutting interest rates. At 0.7 percent in April, inflation was less than half of the ECB’s goal of just under 2 percent. The rate has been below 1 percent since October.
Carlyle Group LP co-founder David Rubenstein, speaking today at the same conference, said it’s difficult to find deals in the U.S. currently because the market isn’t cheap. While economic growth rates are not what people expected, Rubenstein said he doesn’t see a recession anytime soon.
With low interest rates “it’s tempting to take inexpensive debt and buy companies,” Rubenstein said. “There is a bit of frothiness.”
Tepper, who described global markets as “tough,” said that he has moved his investments around and that his fund is exposed to the markets to the extent that it can either boost or cut holdings easily.
Tepper was last year’s top-earning hedge-fund manager as he made $3.5 billion, according to Institutional Investor’s Alpha 2014 Rich List. He joins money managers, former politicians and celebrities including actor Kevin Spacey and basketball Hall of Famer Earvin “Magic” Johnson among the conference speakers this week at SALT, which is in its sixth year.