Speaking on CNBC, well-known hedge fund manager David Tepper said the Federal Reserve’s plan to taper down its bond buying program is because of a stronger economy, so it shouldn’t scare off investors. In fact, he actually says that the tapering is good news.
The Markets Are Unsure About Tapering
Stocks and bonds have been getting pounded since Fed Chairman Ben Bernanke’s comments regarding the program earlier this week. The S&P 500 (INDEXSP:.INX) has fallen almost 5 percent since its closing high on May 21. Bernanke didn’t give any exact time frame for the Fed’s tapering, but he did say that if the data begins to indicate that the U.S. economy is starting to improve, it will start winding down its program. He also said it’s possible that the program will be wrapped up by next year.
As CNBC Jeff Cox reports, the U.S. markets have become highly dependent on the Federal Reserve’s quantitative easing program. They have risen approximately 140 percent since March 2009 when they were at their lowest levels. Meanwhile the Fed has continued to add onto its balance sheet, sending it upwards of $3.4 trillion.
David Tepper Says Stocks Are The Place To Be
Ten-year Treasury note yields soared up over 2.4 percent this week, but according to David Tepper, stocks are still an inviting investment. In fact, Benchmark 10-year yields had their highest single day leap since October 2011.
He noted that bond yields are dependent upon the strength of the economy. He said a 10-year bond at 2.4 percent or even 3 percent is “ultimately healthy” if it is that high because of the economy’s strength. He believes the Fed should begin to taper, but he also says that when the dust settles, there’s only one place to be, and that’s in stocks.
So when will the Fed start tapering its program? It’s anyone’s guess. Ben Bernanke is undoubtedly watching what he says because his words can cause the markets to turn in an instant.