Stocks Interesting, Junk Bonds at Fair Value, Bill Gross Who Cares?
Stock-Markets / Financial Markets 2014 Oct 02, 2014 - 08:31 AM GMTBy: Bloomberg
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.
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."
Full transcript.
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.
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?
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.
TEPPER: Are you buying a ticket or are you going to get a ticket for free, Steph?
RUHLE: Mother of goodness.
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 -
(CROSSTALK)
RUHLE: - Bloomberg LP is a huge supporter of Robin Hood. But tell us, the last time we spoke you talked about the bond bubble.
TEPPER: I did.
RUHLE: It hasn't burst yet.
TEPPER: No, I didn't say it was going to burst. What did I say?
SCHATZKER: Beginning of the end.
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?
SCHATZKER: QE.
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?
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?
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?
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.
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.
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?
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.
TEPPER: No it doesn't say that on the WPE screen.
(CROSSTALK)
RUHLE: He seems to know the terminal better than us.
TEPPER: Is that a CNBC screen? What is that screen?
SCHATZKER: WPE.
TEPPER: Yeah. What does it say there?
SCHATZKER: Price to earnings on the S&P 500, 17.78.
TEPPER: What does ti say for next year?
SCHATZKER: It says 16.42.
TEPPER: What do you - what do you got over there?
SCHATZKER: So 14.78 for next year.
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.
TEPPER: It says next year estimate, 14.78. Current year - see, that's current year. 16.42.
RUHLE: Sit down. Sit down.
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 -
TEPPER: 14.77. So 16.5, is that a high multiple for this year?
SCHATZKER: You tell me.
TEPPER: I'm asking you. I get to ask you once in a while.
SCHATZKER: My opinion -
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?
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?
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?
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?
TEPPER: I wish I didn't have any investment.
RUHLE: Do you? Do you - long term --
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 -
(CROSSTALK)
TEPPER: Is that how they do it? Okay. I didn't know that.
RUHLE: You're a performer more than we are.
TEPPER: Really? You think so?
RUHLE: You did win best singer and dancer in your high school (inaudible).
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?
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?
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?
TEPPER: Where am I? I'm sitting right here. That's where I am, Steph.
RUHLE: In the figurative sense.
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?
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 from over. Come on, Stephanie. We're blessed. We have tens of thousands of donors, including 162 who give more than $100,000 a year to Robin Hood. We want more people to join our community of caring. Each year we raise money and we give 100 percent of it out to save lives here in New York City. None of it goes to pay for our salaries, our overhead, our administrative costs because David Tepper and the other members of our board cover all of our fundraising and administrative expenses. It's a good investment.
SCHATZKER: David, is there a constituency in the financial community that isn't playing enough of a role in Robin Hood yet that you would like to see there?
SALTZMAN: We'd like to see every single person watching Bloomberg, every single person in the financial community help us save lives. We need to do it.
RUHLE: David -
SCHATZKER: You're smiling.
TEPPER: David's very nice.
RUHLE: Then what do you think of the Giving Pledge?
TEPPER: What do I think of it? I think it's very nice for those people who want to do it.
SALTZMAN: Bill Gates came to our office yesterday.
RUHLE: And?
SALTZMAN: That man is brilliant. That man -
SCHATZKER: A lot of people would agree with you.
SALTZMAN: That man is wiping diseases off the face of the Earth. That man will go down in history along with his wife and Warren Buffett as having saved more lives than anybody in history.
SCHATZKER: I'm going to be seeing him in Boston tomorrow. You say the Giving Pledge, great for people who want to do it. Does that suggest that --
TEPPER: That means that - listen. I - I've been giving money away for a long time publicly, okay? Before there was a Giving Pledge, I named a university, okay? So listen, I can talk about the Giving Pledge. I could do the Giving Pledge. Do I really need to do the Giving Pledge? I was there before the Giving Pledge. I'll be there after the Giving Pledge. Give money away every year. It's not -
SCHATZKER: Is it a good idea to persuade people who are less philanthropic than you?
TEPPER: Yes. That's why I - that's why I said that. That's what I basically meant. That was kind of Pittsburgh-ease, which is a little bit different.
RUHLE: All right. Another big name besides you in the market, Bill Gross. Does the Bill Gross exit - could we see a broader tail risk effect for the markets here? What has it done?
TEPPER: Bill Gross - there was a guy that was up the street from me when I lived in Pittsburgh. His name was Neal Gross. We used to play basketball. I think it's - you're talking about his dad was Bill Gross, or that was not - a different Bill Gross?
RUHLE: Stop being funny, David. What does this Bill Gross exit mean for the market?
TEPPER: Nothing. Who cares?
RUHLE: Really?
TEPPER: You saw it the other day. The - the little bit that was done with the corporate markets. He's there. He's here. It's not going to mean that much. Really what means things are fundamentals. So you talk about a day, two days, three days. But long term, it doesn't mean anything. The market is the market. It's bigger than anybody.
SCHATZKER: So the high-yield market in the mid-point of fair value. The bond bubble if Draghi undertakes QE is going to blow up. Equities okay with next year's earnings.
TEPPER: What's amazing about bonds right now is that you really have negative rates in a lot of Europe in the short end of the curve.
SCHATZKER: Germany sold for negative yield.
TEPPER: Ireland. Ireland. You know that country? That's where the Irish people come from. Ireland. So it's negative there too. That was a place that was almost 10 percent - 10, 15 percent two-year yields. That was one of the countries people were worried about. There's negative yields in Ireland. So a lot of these things have been driven down. That's - it's very tricky. One - one big employment - you're - you will go down to - these yields here will come down in the US, okay?
However, you're so close to go the other way. That's what makes this a very tricky market. So if you have - listen, if you have big employment numbers that take you into the 5s, it's going to start worrying the Fed about labor push (ph) inflation at some point. And if you do get inflation in Europe to start - stop going down, inflation to stop going down or deflation looks like it'll start taking over, at the same time you'll have the market's yields turn up here. So it's tricky. And until that happens, you could have pressure on yields down. So the question is is there enough - are you getting paid enough for the risks in any kind of place in the yields? Because there's a lot of chances to lose money.
SCHATZKER: Where - where - where are you getting paid enough?
TEPPER: Listen, I think - that's a great segue. Where are you getting paid enough? You're really getting paid enough - if you look at the curves of how things are trading in the world, you go from bonds which are probably too rich on any kind of economic growth to the United States which looks kind of cheap based on - on a 4 percent yield it looks kind of right, but maybe cheap on where yields are trading. Then you go down to Japan and Europe which are pretty cheap on the yields they're trading. You're trading 12 multiples. I don't want to show you again. I don't have to stand up, do I? Don't make me get up again.
RUHLE: No.
TEPPER: Okay. We won't do that. Anyway, they're trading at those low multiples again. So you have - if you look at euro stocks - yeah, one second. If you look at a euro stock 50 right now or something, you have a 3.6 percent dividend yield, okay? You have higher dividend yields in - in - in - in all through Europe and Japan than the bond market. So at some point that has to turn. When does it turn? When it looks like they finally start doing something.
RUHLE: But what does all of this say about corporate earnings, either European corporate earnings, US corporate earnings? There's been big moves when you look at dollar versus euro, dollar versus yen.
TEPPER: There's been big moves so far?
RUHLE: I'm saying when you look at US corporate earnings -
TEPPER: See, if you talk to my good friend Stan Druckenmiller, he would say these moves have been nothing thus far. They really haven't been. If you look where the euro's at 126, it's been in the low 130s, 135 for the last few years. These aren't big moves. These are moves. Big moves is down at the 110 when it really affects it. And maybe it will go to 110. Stan is really good on this stuff, and I can tell you what Stan would say but you'll have to pay $7,500 for a ticket.
RUHLE: There you go. You have to pay $7,500 for a ticket at the Robin Hood investor conference. We have to take a break, but when we come back, these two men - we're staying here. We're not taking a break. Sorry.
SALTZMAN: Why would you want to stop this?
SCHATZKER: Why would we want to take a break? Excellent question.
RUHLE: All right. That's what Stan is going to say at the Robin Hood investor conference. What else are you going to talk about there? How about equities?
TEPPER: Listen - listen, Stephanie. I am totally not going to lift my skirt up to my head.
RUHLE: I don't ever want you -
(CROSSTALK)
RUHLE: - we didn't know you wore a skirt, and B, we definitely don't want you lifting it here.
TEPPER: You haven't seen me on Sundays. Sundays come over. You'll see me in a skirt. I can be Scottish that guy.
RUHLE: Scottish. All right. Well tell us today. What do you think about the US equity market?
TEPPER: Well I kind of told you. Listen, it's - it's interesting on a multiple basis and - but you have to have certain things happening. You've got to have Europe stop - stop the nonsense, so to speak, Draghi stop the nonsense. So that's kind of it.
SCHATZKER: Hey, I have a question for you. It is not related to investing.
TEPPER: Okay, good.
SCHATZKER: Roger Goodell. You're a part owner of the Steelers. What do you say?
TEPPER: I - I actually like my job better than his right now, I have to tell you. That's what I say about that. Look, he has a tough job. I don't know. I don't have enough information of what really happened.
SCHATZKER: Based on what you know, should he remain commissioner?
TEPPER: Listen, based on what I know, it's - it's a little bit disappointing. I think you have to say that. And I think personally if I was Roger Goodell I'd be speaking about donations. I'd be making donations out of my own money for some of the causes that we're talking about - what we would be talking about as far as abusing -
SCHATZKER: But does that make the problem go away?
TEPPER: Doesn't make the - it doesn't make the problem go away. The problem is not his to make go away. You asked me about Roger Goodell and what do I think he should be doing, okay? He can't make the problem go away, nor can any one person make this problem go away. This is -
SCHATZKER: Well there are two - there's two problems. There's a domestic violence problem and then there's what did Roger Goodell know and when and what did he - and was he honest with the public.
TEPPER: So - but I'm saying for his - for himself, he should be more sensitive and potentially be making some donations in - in this way. That's one thing he should be doing and it hasn't been done yet. So you asked me what about - what do I think about Roger Goodell. That's what I think. 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. That's - that makes sense to me, okay?
Beyond that, listen, obviously the problem of domestic violence is not a problem only to the NFL. This is a problem across not only the United States but across the world, unfortunately. So he's not - he can't do anything about that. As far as what's going on in the NFL, listen, it's a question - this is a very difficult question because I don't know what was said when and how, and the person that was really hurt in this thing is - and I - is Ray Rice's wife, okay? Because he said she was in there and he was doing things for her as a - and I don't know enough to know what he knew and how he didn't know. So for me to say anything would be ridiculous, okay? But to - but on the other hand, what I did say is easy to say. And that should have been done I think.
RUHLE: All right. You two - David, I want to bring you back into this conversation. The two Davids work in different worlds, but you have a common goal. We're going to play a round of word association. We're going to give you some words. You tell us what comes to mind. One percent.
SALTZMAN: What a wonderfully generous group of people.
RUHLE: One percent.
TEPPER: I hope I'm doing better in performance than that.
RUHLE: Chris Christie?
SALTZMAN: Governor.
TEPPER: Lap-band.
RUHLE: Excuse me?
TEPPER: Lap-band. He uses a Lap-band. You know we did this company? We actually own 38 percent of this company called --
RUHLE: I thought he said lap dance.
TEPPER: Lap-band. It's a surgery -
(CROSSTALK)
TEPPER: No, lap dance. I never would do a lap dance with Governor Christie. But no, Lap-band is the surgery he had. We actually used to own 30 percent of this company called Inamed and we actually funded the Lap-brand. We actually brought that product to market. So that's why I'm - that's why I'm thinking Lap-band.
SCHATZKER: Lap dance with Chris Christie.
RUHLE: Warren Buffett?
SALTZMAN: Genius.
RUHLE: Warren Buffett?
TEPPER: Warren Buffett? He's an interesting guy.
RUHLE: That's all you're giving us?
TEPPER: Yeah. He's an interesting guy. I'll say that.
SCHATZKER: Let's get serious here for a moment. Ebola.
TEPPER: Obama. Are we still playing the game or not?
SCHATZKER: Not a game.
TEPPER: Listen, it's - I'm surprised you mentioned Ebola. To me - to me it's - it's - I don't - I think the United States, if any country can contain the risk, the United States can contain the risk. And you could - there's a lot of questions you can ask. Should we have brought cases here? How did it happen? Again, I don't have enough information to know what happened down in Dallas.
RUHLE: Ebola.
SALTZMAN: Tom Frieden, who's the director of the CDC, was the health commissioner here in New York and we got to work closely with him. He's absolutely brilliant. If there's one person I would trust -
SCHATZKER: You have full, utter confidence in him?
SALTZMAN: I do.
RUHLE: All right. Last one. Because Robin Hood loves rock stars and you love Jersey, Bon Jovi or Bruce Springsteen?
TEPPER: Do I have to make a choice?
SCHATZKER: You do.
TEPPER: Bob Seger.
SALTZMAN: They performed together at a benefit concert for Robin Hood and that was the best.
RUHLE: Because only Robin Hood - Robin Hood does the best events there are.
TEPPER: I'm from Pittsburgh.
RUHLE: I do know you're from Pittsburgh.
TEPPER: And Bob Seger's a Midwest guy.
RUHLE: I do know you're - is Pittsburgh considered the Midwest?
TEPPER: It's a gateway. We gave St. Louis the arch.
RUHLE: I should - when I think Pittsburgh, the gateway. Both of you, David Saltzman, David Tepper, thank you so much.
Copyright © 2014 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Bloomberg Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
