When Fed Signals Stimulus, It's 'Balls To The Walls,' Says Hedge-Fund Manager (VIDEO)

When the Treasury Department announced one of its bank rescue plans in early 2009, few investors besides David Tepper believed the government would actually provide the capital that banks needed to rise from the wreckage. Most ran for cover while Tepper, president of Appaloosa Management, bet the farm the government wouldn't let the big banks die.

His bet paid off. By snatching up billions in Bank of America, Wells Fargo and Citigroup shares early last year, the former Goldman Sachs junk bond dealer, who reportedly keeps a brass replica of a pair of testicles affixed to a plaque in his office, made his clients $7.5 billion in 2009.

"It was easy," crowed Tepper in a rare television interview on CNBC's "Squawk Box" Friday. "The government told you what they were going to do."

Now, as the government weighs a second round of stimulus, Tepper maintains the same robust faith in the Fed. "Either the economy is going to get better by itself in the next three months" or the Fed is going to come in with more money, said Tepper in the CNBC spot. (Video below.)

"Then what's going to do well? Everything, in the near term, though not bonds... So let's see what I got -- I got two different situations: One, the economy gets better by itself, stocks are better, bonds are worse, gold is probably worse. The other situation is the Fed comes in with money."

Tepper's forecasts come on the heels of last week's meeting of the Federal Reserve Open Market Committee in which the Fed said it might "resume buying vast amounts of government debt to spur the recovery," reports the New York Times.

"You talk about when you get moments," Tepper said, referring to the Fed's announcement. "This might be one of those -- kind of."

Watch the David Tepper interview on CNBC below:

Comments

[olephart]

12:13 PM on 09/29/2010

If mortgage rates of 4.5% won't do it then how hard must they push on the rope to move the other end? This is not a question of supporting expansion; it's a question of replacing demand. Our economy was propped up through the creation of phony assets. First it was internet stocks and then it was housing. There was no underlying productive value to maintain our economic activity. Our productive value (jobs) have been crated up and shipped to Mexico and China. People can't spend what they don't have. The Bush years were based on borrowed monies and for ordinary Americans that has run out. Now the only thing propping up the economy is the Federal deficit. Neither Party has a clue of how to fix things. The Dems supply band aids and aspirin for the bottom while the Rethugs supply Champaign and caviar to the top.

[deepfreezevideo]

02:22 AM on 09/29/2010

When do we get to see his share of the bailout money?

[ylobrkrd]

11:51 PM on 09/28/2010

I have three questions: what is the definition of monetizing (it appears there may more than one)?
Is this practice a new one in the last 50 or 60 years? Does anyone think that the current method of mortgageing a house is useless? thx

[desertman]

03:31 PM on 09/29/2010

QE2 is the present term for monetization I think.

Bernanke must - and will - follow his convictions through to their inevitable end. One turn of the lever begets another. A tinker here, an adjustment there, each movement grounded on the fallacious assumption that one man, one panel of experts, can truly know and set the price of money itself...and before you know it you've got the credibility of an entire currency weighing on your back...and debtors from around the world knocking on your door. Like a spineless man in a bad marriage, Mr. Bernanke will follow his promises to the grave, from health to sickness, from better to worse, forever and ever. Amen.

[ecrichert12]

07:35 PM on 09/29/2010

A quick explanation of monetization:

Debt, wheether issued by governments or companies, is for the most part fixed (hence Fixed Income). For example a 30 year bond issued at 4% pays off 4% of the principal each year until the end when the principal is repaid. If the FED is to flood the market with money, the amount of dollars out there increases but the value of the underlying asset (our national production) is unchanged - meaning each dollar is worth less.

Since we are paying off a significant amount of debt at fixed rates, when the dollar weakens we get away with repaying less value. The downside of this is that the market realizes it and people demand higher rates for bonds issued after that. If it is done too much (or perceived to be done too much) the market can question the credibility of the central bank and avoid buying the debt at ANY price. This is what happened in the late 70's/ 80s until Paul Volker raised the funds rate to all time highs and restored credibility (while causing a recession in the short term).

What you had in Europe earlier this year was substantial debt and the market got scared all at once and is an example of the worst case for the US (the US can't be bailed out like Greece and the UAE). The one thing in our favor is we control our own currency unlike greece, but credibility is a privilege not a

[Daniel Malo]

04:31 PM on 09/28/2010

How about public banking?

Low interest college loans
Alternative to check cashing stores
Home loan re-modification
Jobs
Alternative credit repair
Less volatile pension plans
Capital for small business

Bank revenue kept in state, invested in the state

facebook.com/aPublicBankforCT

[agxphoto]

04:08 PM on 09/28/2010

Gambling may make these guys a few bucks, but that's not going to cut it for everybody.

[Jerry Lammers]

03:54 PM on 09/28/2010

The economy WON'T heal on its own. The Federal Reserve's ice cold inhumanity has been simply awe inspiring while it does nothing in the face of 10% unemployment. The Fed. could have fixed the economy at the end of 2008 (or not even derailed it in the first place), but has been too obstinate and heartless to act. Never have so few done so much harm to so many should be the motto of the Federal Reserve.

[green95gt]

01:34 PM on 09/28/2010

WOW...another hedge fund guy claiming awesome returns. Guys please remind me where i've heard this one before???

[cgeorgan]

03:58 PM on 09/28/2010

I've actually met Mr. Tepper.  A stand up individual.

[KennyFox]

11:34 AM on 09/28/2010

Talk about a bet. He could have lost his shirt on financials. Wow.

[cgeorgan]

03:58 PM on 09/28/2010

If he had lost his shirt on that bet, we'd all be in a situation where we'd be chipping away flint rocks to create knives...

[msjimmied]

09:23 PM on 09/27/2010

Sure, the banks gets the money to play the market, just like the situation now. The are going to monetize all that debt...it's a disaster.

http://www.zerohedge.com/article/why-qe2-qe-lite-may-mean-fed-will-purchase-almost-3-trillion-treasurys-and-set-stage-monetar

[JShankel]

09:08 PM on 09/27/2010

http://www.youtube.com/watch?v=BqHnFK8PK20&p=5A5366F89C5BC1D5&playnext=1&index=37

[keepyourheaddown*]

08:59 PM on 09/27/2010

"lie cheat and steal"
what do you think is going to happen???

[FogBelter]

08:59 PM on 09/27/2010

The Government doesn't have a bottomless pit of money available. This guy better keep his balls in his pocket,

[JShankel]

09:08 PM on 09/27/2010

Actually, they do.  They just can't keep issuing it without inflating, but there is no limit on the amount of money the government can issue.

[rak6748]

05:53 AM on 09/28/2010

WOW, so tragic but this is the liberal world-view. They just do NOT understand we are broke and how continuing to "print" money dilutes it's value. When China and OPEC and the others push through changing the world's reserve currency to OTHER than the U.S. Dollar we are so screwed...we will become a third-world country virtually overnight.

[whynottellthetruth]

09:21 PM on 09/27/2010

Uhh, yeah they do... It's called a printing press.

[FogBelter]

09:31 PM on 09/27/2010

Even so, it is a finite game. The rest of the world isn't obligated to maintain the US Dollar as the reserve currency if it is worthless, nor do they have to buy US Junk Treasuries. We'll see what kind of leverage the US has going forward ... not as much as we imagine I bet.

[northstar11]

07:11 PM on 09/27/2010

Tepper's forecasts come on the heels of last week's meeting of the Federal Reserve Open Market Committee in which the Fed said it might "resume buying vast amounts of government debt to spur the recovery," reports the New York Times.

"buying debt"----what an interesting way to say the are going to take blank paper --put some ink on it and call it money ------lend it to the government at a profit .

now thats a business model ----alchemy

[OSCPJ]

08:43 PM on 09/27/2010

Fanned and Faved.  8B in less than a week.  They want 100B a month.  What is that going to do to the only thing that makes us special in the world?  The USD?  I would count the US Military, but that isn't acknowledged here that they help the USD and Foreign Policy.

[yappnmutt]

06:51 PM on 09/27/2010

the debt bubble is on the vertical side of the curve. if they keep it up(and they will) the end game is here. in nominal dollars everyhting will go up until the bond vigilantes realize the dollar is dead as the world reserve currency, then everything will hyperinflate in dollars and go down when priced for gold and silver.

[elimenez]

08:41 PM on 09/27/2010

What??! What do you mean by the debt bubble is on the vertical side of the curve? Which curve? What's a vertical side? How is it that the dollar is dead as the world reserve currency when it is the only thing most massive institutions and entities trust? How will everything hyperinflate? You mean like in Japan in the 1990's. With their debt? How do you hyperinflate and go down at the same time? What kind of psychotropic medications are you on?

[cgeorgan]

04:08 PM on 09/28/2010

Step 1:  You should breathe into a paper bag.

Step 2:  Ask one question at a time, perhaps you'll get an answer.

[Bunny007]

06:45 PM on 09/27/2010

They are actively engaged in DEBT MONITIZATION that Geithner said would NEVER HAPPEN--

We are being governed by a Crime Syndicate. Anyone who doesnt see that now is BLIND.

http://www.zerohedge.com/article/bullard-confirms-qe-over-1-trillion-would-result-outright-debt-monetization-which-geithner-s

[jcaunter]

08:38 PM on 09/27/2010

Yep, we are. And it's a fact that most hp readers/true progressives/Americans are too servile/partisan/dumb to see how their Democrats/Republicans are fleecing them every days so Wall Street executives can get their giant bonuses.

[BBackSoon]

01:55 PM on 09/28/2010

That is a lot of name/calling you got going on there.

[Greg Logan]

03:38 PM on 09/28/2010

Hey Troll -

You are an idiot - most HP readers and progressive speak about the plutocracy ripping us to shreds while the you baggers are their front group all the time.