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 projects long-run growth could be 0.25-0.5% higher with deregulation, 3.5% in 2017-18.
“I'm saying I think the long run with in a deregulatory could be a quarter half point higher.”
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 believes stock market may have hit its yearly high due to interest rates around 3%.
“And it really has to do with interest rates. I'm not sure we're right on the cusp of breaking out on interest rates at this level, around 3%.”
Tepper is uncertain whether ten-year yields will break above 3% from current 2.98% level.
“I'm not sure we're right on the cusp of breaking out on interest rates at this level, around 3%. I think they closed at 2.98 on the ten year.”
Tepper thinks stocks are okay but may have reached yearly highs due to interest rate concerns.
“I think they're okay. I don't think it's great. I think we might have reached the highs for the year. And it really has to do with interest rates.”
Tepper notes market multiples were 11-12 in 2010, and 225 earnings at 16 multiple equals 3,600 S&P level.
“Coming out of 2009 and rates. I mean, to get to this multiple now is, if you had two twenty times, two twenty five times 16 is 3,600.”
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 questions high equity multiples on S&P 220 earnings estimates given current interest rate levels.
“I saw somebody else on your show the other day, they had a two twenty price to two twenty earnings estimates for the S and P.”
“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 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 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 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.”