Friday, September 24, 2010

Sell The Tepper Sucker Rally

As I write this, the Dow Jones Industrial Average is up 177 points or 1.67%, today.

Gold is up $3.00 to $1,299.00 per ounce.

This rally can be directly traced to the appearance on CNBC of the generally reclusive, very successful, hedge fund manager David Tepper.

When a mysterious guy with a great track record, like Tepper, takes to the air waves and declares that "everything is going to go up", the second tier, non-original thinking money managers rush to buy whatever is advised to be bought. In this case, "everything".

Here's the video of Tepper's appearance

Here are a few problems with Tepper's comments.

1. The economy is not going to recover on its own in the next three months. Tepper clearly doesn't get what a burden is going to be put on the economy by higher taxes and more regulations.

2. The Fed has never in their history aggressively eased except in the face of a crisis. They will not ease simply because of a sluggish economy. Not that a crisis couldn't occur, but you want to be short going into such a panic.

3. Tepper uses the money growth of late-2008 to early-2009 as an example of how money impacts the economy and comapres it to the current period where M2 is growing again. (He even mentions M2.) All true, but for a good chunk of that period M2 was growing  2008/2009 it was on an annualized basis of 20% plus.

M2 is growing again now, but just slightly at a 4.7% annual rate. This is  not enough to get the economy going. If the growth rate climbs to over 10%, then a buy everything (or at least stocks, gold and real estate)makes sense but not before.

As a matter of fact, given the slow money growth right now, from my perspective, it is "sell everything" period: sell bonds, the stock market and, if you are a short-term trader, gold. Use the Tepper Sucker Rally to unload aggressively.


  1. It appears his motto is "Front-run the Fed" and/or other coercive financing agencies (govt bodies).

  2. And here I thought it was the outperformance of Durable Goods at -1.3% MoM. Even if you're a equities bull, next week has some headwinds with big Treas supply coming on deck and big fund managers taking profits for the month and quarter. They do this like clockwork the last three days of 3%+ up months.