Table of Contents
David Tepper, founder and president of Appaloosa Management.
David Orrell | CNBC
David Tepper of Appaloosa Management said investors should believe the Federal Reserve when it says it will cut rates because the central bank now needs to maintain its credibility.
“You just read what these guys say,” Tepper said Thursday on CNBC’s “Squawk Box.” “Powell told you something. … He told you some kind of recalibration. He has to follow through somewhat. I’m not that smart. I just read what they say and see if they’re convinced. They usually do what they say, especially if they have this level of belief.”
The Fed cut rates by half a percentage point last week, kicking off its first easing campaign in four years with an aggressive move despite a relatively stable economy. In addition to this cut, the central bank indicated through its “dot plot” the equivalent of another 50 basis points of cuts by the end of the year.
Fed Chairman Jerome Powell said the cut was a “recalibration” for the central bank and vowed not to take similar steps at every upcoming meeting.
“They probably need to cut two or three interest rates and 25 basis points or they will lose credibility,” Tepper said. “They’re going to do something besides the 50. You know, another 25, 25, 25 looks like it needs to happen.” (One basis point is equal to 0.01%.)
‘I don’t like the American markets’
Still, Tepper says the macroeconomic environment for U.S. stocks makes him nervous as the Fed eases monetary policy in a relatively solid economy, as it did in the 1990s. Last week’s massive rate cut came despite most economic indicators looking fairly solid.
“It was in that market around the 1990s that the Fed cut rates in the second millennium in a good economy,” he said. That turned into ‘bubble mania’ in ’99, early 2000, so I don’t like this. I am a man of values.’
Gross domestic product has been rising steadily and the Atlanta Fed expects 3% growth in the third quarter based on the resilience of consumer spending. Meanwhile, most indicators showed inflation still well above the Fed’s 2% target. However, there has been a slowdown in the labor market, which partly prompted the excessive rate reduction.
‘It certainly won’t be short’
The widely followed hedge fund manager said that while the central bank’s move made him hesitant, he is certainly not betting against U.S. stocks for the immediate benefits of easy policy.
“I don’t like the US markets from a value perspective, but I certainly won’t be shortchanged because I would be nervous about the setup of easy money everywhere and a relatively good economy,” Tepper said. ‘It would make me nervous not to stay in the US for so long’
Tepper, who also owns the National Football League’s Carolina Panthers team, revealed he’s going all in on China thanks to an interest rate cut and a flood of stimulus measures the government recently announced to shore up a faltering economy .
He added that he prefers Asian and European stocks to US stocks.