Tuesday, May 20, 2014

The Rise of David Tepper?

William Watts of MarketWatch reports, The rise of David Tepper:
David Tepper is arguably the most influential “smart-money” voice in the markets right now.

While hedge funds have persistently underperformed the market of late, there are at least a handful of talented money managers with some undeniably jaw-dropping track records. Tepper is in that category.

SkyBridge Capital’s Anthony Scaramucci, the host of the SALT hedge fund conference in Las Vegas, says that $1 million invested with Tepper’s Appaloosa Management when it was founded 20 years ago would be worth $149 million now, net of fees.

Tepper’s public pronouncements remain rare.

So it was a nice coup for the well-connected Scaramucci when he got Tepper to agree to an on-the-record chat Wednesday at this year’s conference.

Tepper, who had previously been adamantly bullish, struck a decidedly cautious tone. He didn’t advocate a stampede for the exits, but he notably warned that it’s probably not a good idea right now to be “so freakin’ long.” The interview was the signature event of this year’s conference. The nervous tone may have helped sink stocks on Thursday.

Josh Brown of The Reformed Broker blog argues that Tepper has now earned a spot in the pantheon of elite market-moving investors:
David Tepper is becoming today’s Hedge Fund God. He’s younger than Soros and Cooperman, less cantankerous than Loeb and Icahn, can claim higher returns than Einhorn and Ackman, carries none of the regulatory taint of Steve Cohen and has all of the garrulous authenticity that almost none of his peers possess when in a public setting.
This is his moment, whether he wants it or not. The apotheosis of David Tepper is now complete.
Indeed, Andrew Wilkinson, chief market analyst at Interactive Brokers, wondered in a note if Tepper’s remarks at SALT were serving as something of a bookend to a market rally tied to Tepper’s bulish comments around this time last year:
It was May 14, 2013, when Appaloosa Management LP founder David Tepper appeared in pre-market trading on CNBC‘s “Squawk Box”. Before Tepper spoke on that day futures were trading lower; as he pounded the table about how the economy was improving the market turned around. The S&P 500 index jumped by 17 points that day in what was dubbed “the Tepper Rally.” Prior to Mr. Tepper’s appearance the S&P closed at 1633 and has since surged over the past year by 16.35% to 1900 earlier this week.
Still, investors should always treat pronouncements by market gurus carefully. It may be better to treat their opinions as valuable data points, but not as triggers to blindly buy or sell. Here’s options strategist Bob Lang, writing at Trader Planet:
“We know there are a million reasons to sell but only one reason to buy. Markets were modestly overbought by early Wednesday as the SPX  reached the 1900 milestone for the first time ever. With no buyers left, why not take some money off the table? Did we really need to hear from Mr. Tepper to make that happen? Of course not.”
There is no doubt about it, Davd Tepper's Appaloosa Management is one of the best and most closely watched hedge funds in the world, which is why I track his fund along with a number of other top funds every quarter (see my last comment on Q1 2014 activity).

But whenever I read these articles glorifying hedge fund gurus, I remind my readers of the rise and fall of hedge fund titans. Tepper is no hedge fund "god," he's a beta god who knows when to go in heavy and has been calling the markets right since the crisis erupted (if I followed my own advice back when I wrote my outlook 2009: post-deleveraging blues, and just put all my money in Priceline, I'd be a "god" too!!).

I've said it before and I will say it again, there is only one true hedge fund king, George Soros. When Tepper and other gurus reach the stage of managing their own multi billions like Soros and are still able to post the numbers he is posting over a long career, they will earn my respect. All these guys are a bunch of overpaid hedge fund gurus charging alpha fees for leveraged beta. They are what I call 'accidental billionaires' who are the chief beneficiaries of the big alternatives gamble.

But the great hedge fund mystery is unraveling fast as is the great private equity mystery. The alternatives gig is up! Dumb public pension funds praying for an alternatives miracle are only fooling themselves, it will never happen. Some of the larger pension funds are now chopping their hedge fund allocation and I suspect more will follow in the years ahead when people realize all they are doing is making the 1% richer, doling out billions in fees, without any material benefits to their pension beneficiaries. This is Wall Street's secret pension swindle but people are catching on to the hedge fund curse.

Or are they? As useless investment consultants enter the hedge fund game, competing with funds of funds, billions more are being funneled into hedge funds despite their poor performance. The collective stupidity of the pension herd never ceases to amaze me, which is why I wrote for the New York Times the biggest problem plaguing U.S. public pensions is governance. Until you get the governance right, everything else is cosmetic and these pensions will remain a big cash cow for the alternatives industry.

And for Pete's sake, stop listening to the public proclamations of hedge fund gurus and start drilling down into their portfolios. For example, if you look at Appaloosa's Q1 13-F filings, you will see their major portfolio moves (with a lag) for Q1 2014 (click on image below):

You'll notice Tepper cut his holdings in the S&P 500 (SPY) in Q1 but he took some sizable bets on the Nasdaq (QQQ) and shares of Citigroup (C), Haliburton (HAL), American Airlines (AAL), Google (GOOG), Apple (AAPL), and Priceline (PCLN). And then he has the gall to tell us not to be "too freaking long" so he and his big hedge fund buddies can capitalize on the fear they create.

This reminds me of what the late great George Carlin kept repeating,"it's all bullshit folks and it's bad for you." Below, one of my favorite clips from Carlin on child worship. I wonder what he would say of hedge fund and private equity worship running amok out there. Wake up folks, you're all getting raped on fees by a bunch of slick alternatives gurus who are masters at marketing themselves!