Billionaire David Tepper Is Long Europe Stocks, Short Bonds

  • Hedge fund manager says U.S. economic growth could reach 3%
  • Tepper said it’s not time yet to short U.S. equities

Billionaire David Tepper, founder of Appaloosa Management, is betting long on European stocks despite the political risks with the upcoming French election.

"It’s a probability game in Europe," Tepper said Wednesday in an interview on CNBC. Valuations there are "much much lower" compared with the U.S. He doesn’t expect French presidential candidate Marine Le Pen, a staunch nationalist who advocates that France leave the euro, to win the election, though its outcome remains a concern, he said.

Tepper is more bullish on the U.S. economy, shorting bonds while making long bets on equities even though the stock market isn’t cheap. Deregulation will spur the economy, with a high probability that growth will reach 3 percent, as long as Republicans don’t “screw things up” with issues like trade, he added.

The hedge fund manager also said tax cuts could spur inflation forcing the Federal Reserve to raise interest rates more quickly.

“I think the Fed will raise pretty quickly and for sure if you do get some of the stimulus, they should raise pretty quickly,” Tepper said.

On the newly elected U.S. president, Tepper said he’d be "very, very, very happy" if Donald Trump would "tighten it up a bit at this point" and not send "so many tweets."

Republican ‘Upside’

The money manager had endorsed presidential candidate Hillary Clinton but said today that the combination of a Republican president and a Republican majority in the House of Representatives and Senate has offered upside potential to markets.

"The day we had Republican president and two houses that’s the day we weren’t going to have another piece of regulation" for years, Tepper said. "I was guarded about the stock markets. I was a little bit nervous earlier this year about trade friction with China," he said. Tepper added that he has become more sanguine about the effect the Trump administration and Congress could have on the U.S. economy.

Addressing the U.S. border tax, Tepper said Congress is likely to craft a levy that spreads its impact over a period of years such that the reaction from business leaders is overblown.

"If you spread it out, it’s just logical that it won’t have that big of an effect," he said, adding that the market is likely to price in the bulk of a roughly 12 percent appreciation in the U.S. dollar well before the policy takes full effect, initially helping consumers. "To me it’s just a mechanism to raise revenues over time."

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