Shaky September

Shaky September is the summary of what stock exchange legend David Tepper just said in a long interview on CNBC on the occasion of the inauguration of the building complex at Carnegie Mellon University in Pittsburgh donated by him.

David Tepper is an American hedge fund manager, multi-billionaire, and in 2012 and 2013 was the highest-earning hedge fund manager (Source: Reuters). His recommendation for buying stock in February 2010 went down in the history of stock exchange coverage as “Tepper moment.”

David Tepper has said about himself that he has no standard stock quota. In 2010 it was 100%, and currently it’s 25%—but still long, not already short. But sometimes he’s net short, and he may change his positioning very quickly.

He has said the following about the stock market:

  • The stocks have risen far, and if there are no additional tariffs in relation to China, then the U.S. stock exchange is valued fairly. Valued fairly means for him that the yield on stocks is at 8% in the coming year, the longstanding average.
  • If an additional 25% in tariffs are imposed, then the market is valued too highly at this time. It could still rise but starting from a lower level than it currently is at.
  • Rising tariffs would result in a change in the currencies. A falling yuan compared to the dollar would be the inevitable consequence, no matter what politicians may say at the time. It’s just math. So are the reduced profits of the U.S. companies due to a rising dollar. This would be due not least to the euro falling in such a situation at 5 to 10% compared to the dollar.
  • He still believes that Trump has to try out this strategy since he’s always wanted to do so. To come out ahead in the conflict about technology with China, one has to be ready to pay a price short-term. This is about the future after all.
  • Tepper is a prominent investor in the area of semiconductor and continues to stand by his investments—despite the currently bad performance. Unlike in the past, the chip manufacturer Micron has now been operating together with his two competitors Hynix and Samsung within a rationally operating oligopoly. He believes that the significant rises in price of the U.S. airlines that have occurred for the same reason will occur for the chip manufacturers.

II. Risk indicators

  • The risk indicators which Mellinckrodt uses still don’t show an imminent crash. At the same time, one of the indicators that illustrates whether stocks or bonds are more attractive, has recently for the first time this year switched from stocks to bonds.
  • The fact that the indicators are not showing a crash doesn’t reveal whether or not the correction, which has started, will continue in September. A setback at around 10% (DAX under 11,000) is very well possible in these weeks.
  • Some American stock exchange brokers have been repeating something different for weeks in mantra-like fashion. They believe that The Donald will simply tweet right on time before the midterm elections that the trade wars have been won. It’s your best guess whether prices would then immediately rise by 5 or by 10%. Each version has its serious protagonist. But it’s also possible that the stock market falls rather than rises at the possible end of the trade conflict—it’s called “sell on good news.”
  • Just think of Paul Tudor, who became a billionaire on the stock market. He anticipated many weeks ago that prices will rise significantly more in Q4 than most market participants expect. We don’t know whether or not he has made this prediction to promote a new fund that will go short big style at the end of the year. We don’t put it past him. He’s also adding that the bull market will probably be over after Q4/2018. No one knows whether this will be true. But people and especially stock brokers are gregarious animals and like to follow those who they believe to be successful. Tepper and Tudor Jones are special specimen of this species—and what they have said independently of one another isn’t a contradiction and, as a result, deserves special attention.

Georg Oehm

Georg Oehm founded Mellinckrodt & Cie, in Zug, Switzerland, in 2008. He served as general manager and partner in a financial communications boutique in Frankfurt am Main, founded the CFD Association e.V. and served as its first general manager. He worked in business development and in the M&A business at the Metallgesellschaft AG for five years, followed by a five-year tenure in the field of special restructuring projects. From 2011, he was a member of the administrative board at the Zenergy Power Plc and at the Synety Group Plc from April 2011 to January 2016. Dr. Oehm serves as chairman of the advisory board at InCity Immobilien AG. He completed his Ph.D. at the University of Kiel, department of economics and social sciences. He started his career as a banking apprentice at the Dresdner Bank in Frankfurt am Main. Subsequently, he earned a degree in business administration in Mainz and Kiel.

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