PJ Grzywacz
President & CCO
CMG
The market had a Tepper Tantrum last week. We all know what a taper tantrum is after the Fed backtracked on tapering its bond buying program last year. But what is a Tepper Tantrum?
David Tepper, aside from being a fellow Carnegie Mellon alumnus, is one of the most well-known money managers in the world. His firm, Appaloosa Management, manages more than $20 billion. More importantly, Mr. Tepper has been right about equity markets.
Since the financial crisis, few investors have matched Tepper’s track record. His ability to read the tea leaves of Fed policy has made him a market sage. So when David Tepper speaks, the market listens. It didn’t like what it heard last week, namely, that it’s time to take some chips off the table. Mr. Tepper didn’t really say anything new; many market observers (ourselves included) have been highlighting the elevated risk at these equity market levels, but investors like winners, and Tepper’s winning calls have made him the highest paid hedge fund manager over the last two years.
So what did he say?
I am nervous. I think it’s nervous time. There’s times to make money and there’s times not to lose money. This is probably when you’re supposed to think about preserving some of your money…I think you can still be long, but I think you’re supposed to have some cash now.
David Tepper
President & Founder
Appaloosa Management
Tepper added that he sees “coordinated complacency” in Central Bank policy, the ECB better act soon (in June) and he’s not so keen on the amount of deflationary forces in the world. There was not much more to his comments, but last Thursday (5/15) started with a 30 point sell-off on the S&P 500, approximately -1.50%. One doesn’t have to look far across the economic landscape to see why Tepper signaled caution.
GDP growth, corporate earnings, falling bond yields, weakness in high beta sectors like small caps and tech all point to slower growth and a likely correction. In the case of Europe, there is the potential for outright deflation and the conflict in the Ukraine is pushing Russia into a recession.
While economic indicators are signaling caution, equity markets, in the U.S. specifically, keep making new all-time highs, immune to the economic and geopolitical reality on the ground.
CMG Capital Management Group is a firm that specializes in tactical investments. We have our own tea leaves that we read and they have been signaling caution as well. Much like market leadership that has shifted from small caps and tech to healthcare and utilities, our tactical strategies have increased allocations to defensive sectors and bonds this year.
Tactical strategies seek to take advantage of rising asset classes and avoid falling ones, doing so without emotion, the investor’s worst enemy. Equity markets have moved into a technical no-man’s land after hitting all-time highs and with economic indicators skewed by the harsh winter, investors are looking for an oracle. This is one Tepper tantrum investors should listen to. – PJ Grzywacz
