Today should be a quieter day in the US markets due to the stock market being closed for Jimmy Carter’s funeral. It gives me a chance to revisit one of the most memorable TV appearances in the financial markets last year.
The date was September 26, and the guest was the founder of Appaloosa Management, David Tepper. Since the beginning, it has returned about 25% per year, without fees, which is spectacular. He used his fortune to buy the Carolina Panthers NFL team and has largely avoided controversy.
He deserves the benefit of the doubt.
However, he made a high-profile appearance in September when he went on CNBC and said he had gone beyond his usual limits to load up on Chinese stocks, and had bought even more in the previous days after the bullish China stimulus announcement.
“This is an incredible thing for the country,” he said of the stimulus. “This has implications for bonds, currencies and stocks.”
“I thought what the Fed did last week would lead to China easing, and I didn’t know they were going to bring out the big guns like they did,” he said. “I think there’s been a whole change.”
What to buy, he did not discriminate.
“Everything,” he says. “ETFs, I’d do futures — everything. Everything.”
However, in mid-November, when the 13F filings were revealed, they showed that he trimmed its Alibaba position, sold some Baidu shares and reduced its stake in the FXI China ETF. At the moment of his barking, I warned, “The intensity of that tone makes my spider-sense tingle a little that it might be looking for exit liquidity.”
Critically, it was not good buy-and-hold advice. FXI traded at $32 at the open on September 26, as its bullish sentiment helped open the gap that day. It’s down 7.8% since then (although it was certainly a great first week trade).
Now maybe I’m not being entirely fair as it almost doubled its Q3 position in PDD Holdings to between $89.17 and $151 (it’s now $100.59) along with big purchases of JD.com, while Alibaba continued to the largest part of his portfolio at 15.76%, despite some selling.
The real test will come on February 14, when Q4 13F returns are due. Then on December 31st we’ll see what his holdings were or if he sold out on the rally he helped create.
Again, I wouldn’t entirely blame him if he did, not just from a Machiavellian perspective but because facts change. There was much enthusiasm for the stimulus in September as China finally seemed to get the message. Over the next few weeks, it became increasingly clear that Xi was not bringing out the bazooka.
Eternal hopes that Beijing will finally deliver in March (and I think there may be an opportunity to advance that closer to the date), but it’s getting hard to overcome the gloomy mood in China and tariffs won’t help.
What is the lesson here?
Now I don’t know what Tepper’s motives were for coming on CNBC in September and he’s been silent ever since. I give him the benefit of the doubt that he was sincere and that his portfolio positioning certainly indicated a belief in China. Those stocks he bought are cheap and rising so there was a reasonable basis for him to buy them, despite the growing rift with the US.
The lesson for everyone else is to be wary of anyone on TV or social media telling you to buy something, especially someone with enough power to move the market. The latest is from Bill Ackman, who certainly has a checkered promotional record.
For every man with honest intentions, there is one looking for exit liquidity. The thinner the market, the greater the risk. Given the meme-like nature of the market now, these risks are growing. Take care.