The market is going to have to show David Tepper a few things before he jumps in with more of his cash.
In an appearance on CNBC’s Squawk Box, the billionaire founder of hedge fund Appaloosa Management said that the world is now in a cycle of volatility as economies adjust to a post-financial crisis interest rate regime.
It’s not just the US Federal Reserve facing a difficult decision about its raising interest rates for the first time since the global financial crisis. The European Central Bank is at a critical point as well, as is the Bank of Japan.
On top of that, you have China making “policy mistake after policy mistake after policy mistake” in an attempt to transition its economy from one based on investment to one based on domestic consumption.
“It’s good when it’s a $1 or $2 trillion economy on a learning curve,” Tepper said. “It’s kind of bad when they’re an $10 trillion to $11 trillion economy on a learning curve and they influence a third of the world’s economies.”
That said, Tepper doesn’t think that this is the end of the world. It’s just a new world order.
“We’re not talking systematic risk and the end of days like ’07, ’08 … we’re talking about the market having to come to certain new realities … and while they’re adjusting to those new realities, there will be blood,” Tepper finished with a chuckle.
That’s when Squawk co-host Andrew Ross Sorkin asked Tepper if there was anywhere in the world “where there’s so much blood in the water already that it actually looks good?”
Tepper thought for a second, and then put it like this:
“Here’s when I’ll tell you. What I like to see is when some of those big stocks with big emerging market components – their P/Es [price earnings ratios] come down. Show me that,” he said.
“Show me when hedge funds aren’t in these last two years with increased volatility … and they’re out of this last two year range. Show me that.
“Show me when mutual fund cash levels are a little bit higher the way they were the past five years before these last two years. Show me that.
“Show me those things and maybe I’ll jump back in the water again. I’ve got nice bathing suits, I think maybe I’ll get a new bathing suit,” said Tepper.
The opportunities are going to be there, he said, continuing the metaphor.
“I want to be ready for it … Because you don’t want me to lose my bathing suit.”
No. No we do not.
Tepper’s fund is up 11.5% for 2015 and lost only 1.83% in August when markets and managers around the world were getting slaughtered.
So we’re all safe from him losing his suit for now.