Hedge fund manager David Tepper has generated $12.5 billion since his firm Appaloosa Management launched in 1993. That makes him one of the top ten moneymakers in an industry known for its enormous returns.
But the camera-shy investor is hardly a household name like George Soros or John Paulson. Indeed, a CNBC anchor compared Tepper to the elusive Carlos the Jackal and joked that he did not know what the fund manager looked like during Tepper's rare television appearance Friday morning (see video below).
And perhaps because of his status as a recluse, his strongly bullish statement of support for stocks carries a special punch. Tepper's reasoning is simple but persuasive. If the economy picks up steam, stocks should continue to rally. A relapse, meanwhile, would provoke further stimulation by policymakers -- and that should boost equities in the intermediate term too.
Tepper doesn't pretend to be overly meticulous or exhaustive. "I am the animal at the head of the pack," he said in a widely circulated description of his investment process. "I either get eaten, or I get the good grass." In financial markets packed with endless reams of data and perpetual analysis, though, Tepper's ability to see the forest for the trees may ultimately be the most persuasive aspect.
Much of Friday's sharp rally in stocks can be chalked up to stronger than expected macroeconomic data like US capital good orders and surprisingly bullish business confidence in Germany. But investors should take note of Tepper's outlook since it may have much longer impact than the day's data. The outlook could provide the intellectual cover for skittish investors on the sidelines and set the pace in the months to come.
An Impressive Record
Tepper's track record for honing in on opportunity as other investors ran for cover – particularly in situations where potential government involvement tacks on another variable to the already complex economic picture – gives his view extra credibility.
In 2009, Tepper had the wherewithal to pile into badly beaten up financial stocks like Bank of America (BAC) and Citigroup (C) as fears of a nationalization that could wipe out equity holders pushed shares to rock bottom levels. The bet paid of enormously. Appaloosa made an estimated $7 billion in profits and Tepper took home an estimated $2.5 billion.
On CNBC Friday, Tepper described the bet on banks as obvious. The U.S. government had made its intention to bail out the financial sector perfectly clear. While the market second-guessed what might happen, Tepper started loading up.
Tepper described his current bullish stance as equally straightforward. Interest rates and bond yields remain low while corporate profits are booming. Fears of a European debt crisis and meltdown in China that choked stock markets over the summer have proved to be overdone.
And while many continue to worry about the type of deflationary spiral that rocked Japan, policymakers in the U.S. have far more ammo. The Fed can accelerate purchases in the mortgage market and push rates down. That would boost leftover discretionary income and consumption to a far greater degree than in Japan where mortgage rates had already collapsed.
The biggest hedge fund managers carry a special gravitas on Wall Street. The views of high-profile managers like George Soros and John Paulson -- who expect fairly muted and very strong recoveries, respectively -- are widely known. A low-key manager like Tepper stepping out to take the bullish side may help tip the balance of market sentiment.
Investors should note that sometimes it can just be that simple.
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