Tepper says the Fed's 1% real rate target is dead wrong if tax cuts happen and French election goes well.
“It's not wrong if there's no tax cuts necessarily. Certainly, if the French election goes the wrong way, not wrong. Not wrong. But it's gonna be dead freaking wrong.”
Tepper says real rate should be three and a quarter but Fed will only reach 91 basis points.
“I think the real rate should be higher sooner because you have all these things happen. Maybe it should be three and a quarter.”
Tepper warns markets must prepare for Fed hikes in June, September, December and possibly more.
“You're gonna bet against these tax things. You're gonna bet against the French election. You better be you better be ready, and the market has to get ready for June increase Yeah.”
Tepper argues Fed is far behind where it should be given projected 2.25% inflation by year-end.
“They'll go a lot because they're so far behind where that 1% real if you're running two and a quarter percent inflation by the end of the year and and you have all these things happen, I think the real rate should be higher sooner because you have all these things happen.”
Tepper argues Yellen's 1% real rate guidance is wrong if good things like tax cuts happen.
“Janet Yellen was saying three years again to 1% real. That's just wrong. It's wrong if you get the good things happening. It's not wrong if there's no tax cuts necessarily.”
Tepper dismisses the view that Fed won't hike in non-press-conference meetings as fallacy.
“September increase, December increase, and maybe more than that. This is fallacy that says the Fed won't go in on, press conference.”
Tepper says three more hikes this year is more likely than two, questions if fourth should be priced.
“So I'm sure that the Fed funds odds are going up as we're speaking, and there's a better chance that they'll go three times more this year than two times more this year.”
Tepper says market must prepare for Fed rate hikes in June, September, December and possibly more.
“You better be you better be ready, and the market has to get ready for June increase Yeah. September increase, December increase, and maybe more than that.”
Tepper says stock market up nearly 10% from 3,600 lows doesn't help the Fed.
“All these different things being easier since then, obviously, the stock market says those 3,600 lows up near 10%. Well, that doesn't do much for you if you're the fed.”
Tepper says ten-year Treasury down 60 basis points doesn't help the Fed either.
“The ten year treasury, which you see every day down 60 basis points. Well, that doesn't do a lot for you if you're the fed.”
Tepper says junk spreads down 150 basis points since fall peak, which doesn't help Fed's tightening goals.
“Junk spreads down 150 basis points since their peak in early October, late September. That doesn't really do a lot for you if you're the fed.”
Tepper emphasizes coordinated global tightening is rare and central banks are signaling further tightening ahead.
“I mean, we don't have coordinated tightening around the whole world and everybody tightening at the same time too often. You just don't. And I don't have people telling me they're gonna go further tightening.”
“But the truth is that was in November where rates peaked, mortgage rates peaked in early November. Well, they're down 90 basis points since then. Okay. That doesn't really help you a lot.”
Tepper notes mortgage rates have declined 90 basis points since peaking in early November.
“But the truth is that was in November where rates peaked, mortgage rates peaked in early November. Well, they're down 90 basis points since then.”
Tepper says he is leaning short on equities because risk-reward doesn't make sense given central bank guidance.
“I would probably say I'm leaning short on the equity markets, you know, so right now, because I think they're, you know, I think the upside downside just doesn't make sense to me when I have so many people telling me, so many central banks telling me what they're going to do,”
Tepper says he's constructive on Fed easing but concerned about current market valuation levels.
“look, I'm constructive because of the easing right now, but I'm also miserable because of the levels.”
Tepper says US rate cuts enable China to ease, making Chinese assets more attractive.
“our easing is a big deal for them because it gives them more room to ease. So that would be the other reason. Our easing is their easing.”
Tepper says big stocks aren't cheap but he won't fight the Fed in the near term.
“The big stocks are not cheap. I mean, so you don't have cheapness here, but you do have a constructive you know, like, you know, I'm not fighting the Fed.”
Tepper warns that easing beyond two or three cuts risks a weaker dollar and higher inflation.
“Beyond that, I think it can, you know, then you're really risking a lot of things. A weaker dollar, more inflation, and those sort of things.”
Tepper won't fight the Fed with market pricing 1.75 more cuts before year end.
“I'm not ever fighting this fad, especially when the market's telling me I have I don't know what it is today, but 1.75, more cuts, you know, before the end of the year.”
Tepper is constructive on Fed easing but concerned about high market valuation levels.
“I'm constructive because of the easing right now, but I'm also miserable because of the levels.”
Tepper says one or two more rate cuts won't be too easy, but beyond that risks repeating the 2000-2001 crash.
“I don't think another ease matters, you know, as far as being too easy. This is gonna be a little bit restrictive.”
Tepper says too much more Fed easing on interest rates enters danger territory for the economy.
“to go too much more on interest rates, depending what happens with the economy, you know, is is it gets into the danger territory.”