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David Tepper on Bloomberg


dcollon
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He's a surprisingly charismatic person.

 

Interesting that he says he might be consider filing a suit (re Fannie) if the research leads to an additional investment -- I had no idea he had any sort of a position at all.

 

"We're gonna do a little more research and see where we stand in different courts. There's appeal processes for different lawsuits, so you're not done with this particular court. You also have different courts you're involved in -- the court of settlement claims or something like that. So you have different venues where you haven't brought a suit yet, and that will go on. And you want to see exactly what happened in this particular case in this judge's opinion right here."

 

"Appaloosa has been in plenty of lawsuits and bankruptcies, and, you know, we may get a little more interested in that in some fashion, but we don't have a position big enough to get involved in that fashion."

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Two things I don’t understand:

 

1) Why do Cooperman and Tepper continue focusing on the P/E ratio of the S&P500, when there is clear evidence that metric has no predictive attribute? I mean, if you are interested to understand how the markets in general are priced, and therefore what they could return during the next 7-10 years, the P/E ratio is practically meaningless…

 

2) They go on repeating the P/E ratio is around 16.5. The link below instead shows 19.3… Which is the correct number? Because there is a big difference between the two!

 

http://www.multpl.com/

 

Gio

 

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Two things I don’t understand:

 

1) Why do Cooperman and Tepper continue focusing on the P/E ratio of the S&P500, when there is clear evidence that metric has no predictive attribute? I mean, if you are interested to understand how the markets in general are priced, and therefore what they could return during the next 7-10 years, the P/E ratio is practically meaningless…

 

2) They go on repeating the P/E ratio is around 16.5. The link below instead shows 19.3… Which is the correct number? Because there is a big difference between the two!

 

http://www.multpl.com/

 

Gio

 

Without going into a discussion if it's indeed as you say, he mentioned P/E (or, rather, E/P) because what it's all about is "yield", this is why he was talking about interest rates, inflation/deflation and discount rates etc.

 

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Without going into a discussion if it's indeed as you say, he mentioned P/E (or, rather, E/P) because what it's all about is "yield", this is why he was talking about interest rates, inflation/deflation and discount rates etc.

 

Ok… Would you value a company based on what it is yielding today? And comparing that yield to the other choices available? I know I would never do so because: 1) today’s yield might simply not be there tomorrow, 2) I am not really a fan of relative valuations.

 

If what a company is yielding today is not a good way to value its business, why should yield be used to judge the future prospects of 500 companies?

 

Gio

 

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Without going into a discussion if it's indeed as you say, he mentioned P/E (or, rather, E/P) because what it's all about is "yield", this is why he was talking about interest rates, inflation/deflation and discount rates etc.

 

Ok… Would you value a company based on what it is yielding today? And comparing that yield to the other choices available? I know I would never do so because: 1) today’s yield might simply not be there tomorrow, 2) I am not really a fan of relative valuations.

 

If what a company is yielding today is not a good way to value its business, why should yield be used to judge the future prospects of 500 companies?

 

Gio

 

I think that there are plenty of books about "value investing", maybe you should try this investment method sometime, it actually works.

 

If you ask me personally, than yes, I always compare expected yield from an investment to any other reasonable option that is available to me.

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If you ask me personally, than yes, I always compare expected yield from an investment to any other reasonable option that is available to me.

 

Ok… 1/19.3 x 100 = 5.2%... Now get any book about Buffett and see if he would ever invest in a company yielding 5% (if he doesn’t think its earnings might increase substantially in the future)… only because interests rates are low…

 

Gio

 

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2) They go on repeating the P/E ratio is around 16.5. The link below instead shows 19.3… Which is the correct number? Because there is a big difference between the two!

Per your link: "Price to earnings ratio, based on trailing twelve month “as reported”

I believe the conversation centered around the "current year" (2014) 16-handle number which should be a composite of 2014 analyst estimates (and hence adjusted for one-offs etc).

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There are good books about valueinvesting?? WHERE?????

 

But seriously there seems to be a somewhat predictable cyclicality in earnings of the S&P.

 

http://www.multpl.com/s-p-500-earnings/table

 

They go up for 5-10 years and then go down again. And then they go up, except now a bit more then last time etc.

 

And it seems they have been going up for about 6 years now. But the correction in 08 and 09 was really sharp. So maybe there is more pent up demand, and it can keep going for a while. But i wouldn't put a lot of money in an index right now.

 

If there is a correction to 70 then the S&P is trading at almost 30x earnings at close to 2k. In that case you will probably see a market drop of 20-30%.

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I mean, if you are interested to understand how the markets in general are priced, and therefore what they could return during the next 7-10 years, the P/E ratio is practically meaningless…

 

I guess the first question is which PE? 10 year cyclically adjust PE or CAPE, Forward PE or Trailing PE. I might agree with you that Forward or Trailing PE are fairly useless in predicting returns whenever PE is within a reasonable range: 10-20. But I would argue both are fairly predictive at extremes like 4 P/E or 35 P/E especially over 10 year time frames.

 

But my question is what proof do you have that PE is not predictive?

 

I do know that CAPE is predictive of returns over 10-20 years. You can look at the Wikipedia page which demonstrates this in a graph near the bottom: http://en.wikipedia.org/wiki/Price%E2%80%93earnings_ratio

 

Also the Wikipedia page states that the highest SP500 PE was 44.20 in Dec 1999 and the lowest was 4.78 in Dec 1920. This high PE was of course followed by a massive crash and the low PE by a massive bull market. A find it difficult to understand based on these facts why you believe PE has no predictive value.

 

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That interview was ridiculous. The two hosts were 30 seconds away from publicly shaming Tepper for not being apart of the giving pledge. Is there no tact left? I felt embarrassed for everyone who was a part of that.

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But my question is what proof do you have that PE is not predictive?

 

Well, I know very few people on this board are John Hussman’s fans… And after his dismal performance of the last few years I would be very surprised if it were any different…

 

But, listen, the fact he might not be a very good investor (a judgment that imo is yet to be proven), doesn’t automatically mean that all his research is flawed, useless, and meaningless… Far from it!! Instead, the data he provides are very carefully put together.

 

If you have read some commentaries of his, you’d know very well how during the last 50 years the Shiller P/E ratio, the P/S ratio, and the Q ratio have been reliable indicators of future stock market returns. Moreover, those three ratios always lead to very similar results.

The TTM P/E ratio, instead, isn’t a reliable indicator… Hey! In 2008 the TTM P/E for the S&P500 was over 60… What other proof do you need?! ;)

 

Hussman always provides his readers with interesting graphs spanning 50 years, in which you can see an overlapping of the Shiller P/E ratio, the P/S ratio, and the Q ratio, with subsequent market returns. And they might not be perfect, but they fit pretty well! The same graph with the TTM P/E ratio, instead, is just a mess…

 

Gio

 

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Gio i think they use this because this is probably what the audience wants to hear. Nobody on TV wants a pessimistic view on the market, perhaps only to have something to laugh about. They just want to hear that when the market is already crashed. And the P/E ratio is probably the only thing a typical american will understand as a measure of valuation. (Even if its nonsense to predict the market behaviour that way.)

I always have a smile on my face when i see Tepper, i want to see him more regularly. Can`t they just start a comedy series with him? :)

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Gio i think they use this because this is probably what the audience wants to hear. Nobody on TV wants a pessimistic view on the market, perhaps only to have something to laugh about. They just want to hear that when the market is already crashed. And the P/E ratio is probably the only thing a typical american will understand as a measure of valuation. (Even if its nonsense to predict the market behaviour that way.)

I always have a smile on my face when i see Tepper, i want to see him more regularly. Can`t they just start a comedy series with him? :)

 

Well, maybe… But I think that’s only part of the story… I mean, the last time I saw Cooperman on Bloomberg (a few days ago) he shared the stage with Howard Marks. Obviously, Marks wasn’t sounding pessimistic on the markets… But at least he expressed some caution.

 

A bear might be too unpopular to appear on TV, like you suggest… But is it really necessary to throw caution to the wind? Both Tepper and Cooperman seem serious investors to me. Certainly they both have been extremely successful! What need do they have to appear on TV and express views contrary to their true beliefs?

 

Gio

 

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If you ask me personally, than yes, I always compare expected yield from an investment to any other reasonable option that is available to me.

 

Ok… 1/19.3 x 100 = 5.2%... Now get any book about Buffett and see if he would ever invest in a company yielding 5% (if he doesn’t think its earnings might increase substantially in the future)… only because interests rates are low…

 

Gio

 

Buffett..Buffet... ah, right, yeah, I know the guy, he's interesting.

 

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