David Tepper, co-founder of Appaloosa Management, spoke with Bloomberg TV’s Stephanie Ruhle and Erik Schatzker on “Market Makers” today about a wide variety of subjects, including the bond market, the U.S. stock market, Bill Gross’ departure from PIMCO and Roger Goodell. Appearing alongside Tepper for the interview was David Saltzman, executive director of the Robin Hood Foundation.
Tepper said that price-to-earnings ratios for U.S. stocks aren’t high and that junk bonds are at the mid-point of fair value: “The U.S. economy is pretty good, stocks are not at high multiples right now.” He also said: “I wish I didn’t have any investment” in Fannie and Freddie.
Charlie Munger’s Cancer Surgery Formula
Sometimes, even the best businesses lose their way. Companies like General Electric, which was once a giant of American industry, has flopped in recent years. It has been hamstrung by underperforming businesses and high levels of debt. Q1 2020 hedge fund letters, conferences and more Efforts to turn around struggling businesses generally yield mixed results. Read More
On how Bill Gross’ departure from PIMCO will affect the bond market, Tepper said: “Nothing. Who cares?…You saw it the other day. The little bit that was done with the corporate markets…It’s not going to mean that much…The market is the market. It’s bigger than anybody.”
Tepper, who owns a 5% stake in the Pittsburgh Steelers, was asked about Roger Goodell and the NFL’s handling of the Ray Rice situation, saying: “I actually like my job better than his right now…[Goodell] should be more sensitive and potentially be making some donations…That’s one thing he should be doing and it hasn’t been done yet…I think he should be reaching into his pocket and just doing that, like any player in the NFL would be doing if they committed something.”
David Tepper: Stocks Interesting, Junk Bonds at Fair Value
STEPHANIE RUHLE: We’ve got some very special guests. It is a foundation with a clever name and a noble goal. The Robin Hood Foundation wants to end poverty here in New York City, and like its namesake, it takes from the rich to give to the poor. The foundation holds its always lively investor’s conference later this month. With us, one of the foundation’s big supporters, David Tepper, co-founder of Appaloosa Management, and the executive director of the Robin Hood Foundation, one of my favorite New Yorkers, David Saltzman. David, David, welcome.
David Tepper: Thanks for having us.
RUHLE: Mr. Saltzman, this is the second year you’re having the investor’s conference. It’s a big ticket item. We ask a lot of people to spend a lot of money to see your presenters. How’d last year go?
DAVID SALTZMAN: So last year was amazing. We raised $5.5 million to save lives here in New York City, help the 1.8 million New Yorkers who live in poverty. But here’s the thing. If you bought a ticket last year and you followed the investment advice that you heard, you made money. You made a lot of money. It’s a great thing to do because you can do well and do good at the same time.
RUHLE: I want to pull up the Robin Hood basket versus the S&P and how it did last year. Do we have the graphic?
ERIK SCHATZKER: It did well.
SALTZMAN: Yeah. It doubled the S&P. If you bought a weighted basket of all the tips from David Tepper and others, you doubled the S&P.
SCHATZKER: You made 21 percent.
SALTZMAN: Yeah. That’s pretty good.
RUHLE: All right. Mr. Tepper, you’re going to be speaking –
SCHATZKER: – fees involved.
RUHLE: You’re going to be speaking at this conference in a few weeks. People know you are a man who makes news, moves markets, but the last time we spoke you basically said bonds are going to die. And when I look at where the 10-year is today, that doesn’t seem to be the case.
David Tepper: Well Steph, are we going to talk about Robin Hood or are we going to talk about (inaudible)?
RUHLE: We’re going to talk about everything.
TEPPER: I just want to make sure what we’re talking so I know what we’re talking about.
RUHLE: What are you going to talk about at Robin Hood?
David Tepper: Well I can’t tell you exactly what I’m going to talk about at Robin Hood unless you’re buying a ticket.
RUHLE: I’ll be there.
David Tepper: Are you buying a ticket or are you going to get a ticket for free, Steph?
RUHLE: Mother of goodness.
David Tepper: I want to know if you’re writing a check because I don’t want to give you the goods without seeing what you’ve got.
RUHLE: David Tepper doesn’t want to give us the goods. I’m going to buy a ticket –
RUHLE: – Bloomberg LP is a huge supporter of Robin Hood. But tell us, the last time we spoke you talked about the bond bubble.
David Tepper: I did.
RUHLE: It hasn’t burst yet.
David Tepper: No, I didn’t say it was going to burst. What did I say?
SCHATZKER: Beginning of the end.
David Tepper: It’s the beginning of the end. Yeah. And what that meant is that if the ECB – because I referred to the ECB – if the ECB would – is – starts to do QE basically, then you would have the beginning of the end. Now do you know what the ECB hasn’t done yet?
David Tepper: They haven’t done any QE yet. So let them start some QE. But the beginning of the end was basically saying that when you create inflation and some inflation in the eurozone, then the bond market is going to start going down. If you don’t create inflation in the eurozone of some sort or you don’t stop the deflation, then that might not happen. But I do think that if they go in action, if they get in action, if they really get in action you will start creating inflation at some point in time. Until you do that, things will go where they go. And you can look at the curves over there.
SCHATZKER: Given what we see, what you point out, and given that there is so much deflationary pressure, it appears that there’s so much deflationary pressure in Europe, what choice does the ECB have? What choice does Draghi have but to undertake something like quantitative easing?
David Tepper: He doesn’t have any. He should have done it last year. So it’s –
SCHATZKER: Well where would Europe be if Draghi had done it last year?
David Tepper: It would not be in the verge of deflation.
RUHLE: Are you on the side of Richard Fisher who has said it used to be the saying don’t fight the Fed and now it’s don’t fight Draghi?
David Tepper: Yeah, I think that’s probably right to a certain extent. I don’t think you want to fight it, but you’ve got to understand what it’s going to mean. So the extent that if he’s really in action then you don’t want to fight him, but he has to really get in action. You have to start QE. This negative interest rates doesn’t necessarily have the effect of creating money. It doesn’t necessarily have the effect of creating inflation. So if you want to do that, do that. But right now he’s done nothing. So let him start.
RUHLE: David, let’s say our viewers are watching and they’re saying not that impressed. Maybe not worth the price of a ticket. Who else is speaking?
SALTZMAN: Well wait a second. Here’s what they’re saying. He’s very handsome.
David Tepper: That’s exactly what they’re saying.
RUHLE: You know what? It’s the hair. It’s the look. It’s the Robin Hood look.
SCHATZKER: Maybe if you started singing they might – they might be more impressed.
David Tepper: (Inaudible) how you – how you put makeup on me. I look Caribbean today I think. Maybe that’s what it is.
RUHLE: You went for a pre-TV spray tan.
SALTZMAN: Ready? The legendary Stan Druckenmiller.
RUHLE: The one and only.
SALTZMAN: The one and only. Paul Jones. Dan Loeb will be there. John Griffin, Philippe Laffont and David Einhorn. Those three are on Robin Hood’s board and they’re pulling together this great conference. Mary Erdoes from JPMorgan, our great sponsor, the most generous corporation in all the land, along with Bloomberg – along with Bloomberg.
RUHLE: Bloomberg Foundation. Can you really have Dan Loeb and Carl Icahn in the same room as a Larry Fink, who sit on opposite sides of the room in terms of activist investing?
SALTZMAN: It’s going to be interesting, isn’t it?
RUHLE: Indeed it is.
SALTZMAN: And then we’ve got some great new faces. Eric Schmidt will be there talking about tech. Harvey Weinstein will be talking about entertainment. Jim Chanos, the legendary short seller, will be there. Tom Pritzker, who helped us out by helping provide the – provide the Hyatt for free this year, which saves us a tremendous amount of money. So it’s going to be a great two days, October 20 and 21.
RUHLE: We’ll be there.
SCHATZKER: David, people are listening very closely to what you have to say about the bond market, about what Mario Draghi might need to do, might have to do, but they remember vividly some of the great calls that you’ve made on the stock market over the past couple of years. With the S&P 500 a roughly 1,960, what do you think?
David Tepper: Look, the US economy’s pretty good. That’s – all bond markets are kind of tricky right now because this – what we just talked about. But with the stock markets, I think that you really aren’t at – at high multiples right now. On the – if I look at the Bloomberg and put up a WPE screen, I think it will say –
SCHATZKER: It’s almost – it’s almost 18 times right now.
David Tepper: No it doesn’t say that on the WPE screen.
RUHLE: He seems to know the terminal better than us.
David Tepper: Is that a CNBC screen? What is that screen?
David Tepper: Yeah. What does it say there?
SCHATZKER: Price to earnings on the S&P 500, 17.78.
David Tepper: What does ti say for next year?
SCHATZKER: It says 16.42.
David Tepper: What do you – what do you got over there?
SCHATZKER: So 14.78 for next year.
David Tepper: What are you looking at? I don’t even know what you’re looking at here.
SCHATZKER: David Tepper is going to join me on my Bloomberg screen.
David Tepper: It says next year estimate, 14.78. Current year – see, that’s current year. 16.42
RUHLE: Sit down. Sit down.
David Tepper: I’m going back over here. 16.5 for this year it says, right? Current year. That’s the current year. That’s that screen. It’s Bloomberg, right? It’s not CNBC.
SCHATZKER: 14.77 for –
David Tepper: 14.77. So 16.5, is that a high multiple for this year?
SCHATZKER: You tell me.
David Tepper: I’m asking you. I get to ask you once in a while.
SCHATZKER: My opinion –
David Tepper: Well I don’t think it’s high because if you – if you believe interest rates are 4 or 4.5 percent, 16.5 seems like about the right multiple. But I don’t think we’re at the 4.5 percent 10-years. We’re at 2.5 percent 10-years or unfortunately 2.43 or something like that right now. And next year at 14 –
SCHATZKER: Would you like to come over and see the WT (ph) screen?
David Tepper: I might have to come over again and look at it. I don’t have it in front of me.
RUHLE: Well hold on. High-yield spreads are the wides of the year. What do you make of that?
David Tepper: What’s that?
RUHLE: High-yield spreads, they’re at the wides of the years. So is this the time to buy high yields?
David Tepper: You know what? They were on the rich side of fair value and now they’re probably in the – in the – probably in the more mid point of fair value.
RUHLE: What’s your view on Fannie and Freddie today?
David Tepper: I wish I didn’t have any investment.
RUHLE: Do you? Do you – long term —
David Tepper: Is it that interesting to you that you lean forward on that question? Is that – is that how you do that on TV? You lean forward when you’re really –
David Tepper: Is that how they do it? Okay. I didn’t know that.
RUHLE: You’re a performer more than we are.
David Tepper: Really? You think so?
RUHLE: You did win best singer and dancer in your high school (inaudible).
David Tepper: I did. I did. I did. We – yes, you (inaudible). Anyway, so what was the question?
RUHLE: Fannie and Freddie. You wish you didn’t have an investment, but truly what are you going to do? What do you think of this?
David Tepper: Listen, I think right now we’re in – in all honesty, we were talking about this right before I left the office. And we’re just – we’re going to do a little bit more research and see where we stand in different courts. There’s – it’s – there’s appeal processes for different lawsuits, so you’re not done with this particular court. You also have other courts that you’re involved in. I forget the name. The court of settlement claims or something like that.
So you have different places, different venues to – to – that you haven’t brought a case yet, and also you can appeal this last decision. So I think that will go on. And then you want to see what happened exactly in this – in this judge’s opinion right here. So you have to do some analysis right now to see where the securities are (inaudible) down a lot. Are they value now? Are they buy, sell, hold? That’s what you have to do, reevaluate (inaudible).
SCHATZKER: Are you on the sidelines or are you a party or thinking about being a party to any number of these lawsuits?
David Tepper: I don’t think we’re on any of the lawsuits. And the position is not a tremendously large position at – you don’t – you don’t really hear Appaloosa’s name, although it is a position we have so I do know about it. But no, we’re – if Appaloosa – Appaloosa’s been in plenty of lawsuits and bankruptcies and we may get a little bit more interested in that in some fashion. But we don’t really have a position big enough to get involved in that fashion.
RUHLE: Speaking of lawsuits and battles, where are you against Apollo and Caesars right now?
David Tepper: Where am I? I’m sitting right here. That’s where I am, Steph.
RUHLE: In the figurative sense.
David Tepper: Oh, in the figurative sense. Okay. Well listen, obviously that is sensitive right now. There’s been a – I guess The Post loves to cover unless they have pictures. They try to pick the worst picture they can find of me and put it in The Post so they —
RUHLE: Impossible. Is there such a thing?
David Tepper: Believe me. There is. So —
RUHLE: Okay. David, what is Fannie and Freddie? It’s a blood bath for hedge funds today. Hedge funds in general underperformed the market last year. And when you think about who are Robin Hood’s biggest funders, it has been hedge fund managers from the beginning. So has this been a struggle for you? Does Robin Hood need to diversify who’s backing given that the hedge fund glory days, present company excluded, some people think are over?
SALTZMAN: They’re far