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David Tepper: Most Stocks Overvalued Since 1999, Prices Are ‘Nuts’
David Tepper, the billionaire who runs the Appaloosa Management hedge fund, joins a growing number of Wall Street veterans. These veterans are sounding the alarms that the stock market is overvalued at current levels.
Appearing on CNBC yesterday, Tepper said that the stock market became one of the most overpriced he has experienced. Only the market of 1999 is more overpriced than the one we have today.
“The market is pretty high and the Fed has put a lot of money in here. There’s been different misallocation of capital in the markets. Certainly you are seeing pockets of that now in the stock market. The market is by anybody’s standard pretty full,” he said.
For comparison, Tepper and his team went and looked back at some of the metrics from the 1999 tech bubble and at least for the S&P 500, the numbers are stunningly similar.
“We looked back at ‘99, just to get a gauge of it, and in ‘99 at sort of the peak the forward earnings were a 24-handle for the S&P and maybe 70-some handle for the Nasdaq. I think yesterday those numbers are probably 23 for the S&P, pretty high by the way, and for the Nasdaq it was probably in the 30’s, low 30’s. So I’m not saying the Nasdaq is cheap by any stretch like that at that valuation, I’m saying the overvaluation in ‘99 was more.”
Even if the Nasdaq isn’t as overvalued as it was in 1999, Tepper says the valuation of some of the companies in the Nasdaq are “nuts.”
“Some of the Nasdaq individual names are just nuts… people getting caught in a sort of a frenzy in this environment… I don’t think it’s a good risk/reward,” before adding, “People have to be very careful about some of these smaller Nasdaq names that are just nuts. I mean just ridiculously, ridiculously ‘99-type overvalued sort of names.”
Tepper joins Stanley Druckenmiller, the chairman and chief executive of Duquesne Family Office. Druckenmiller said on Tuesday during a webcast to The Economic Club of New York that “the risk-reward for equity is maybe as bad as I’ve seen it in my career.”
That career has spanned decades. It includes when Druckenmiller along with George Soros “broke” the Bank of England by shorting the pound in 1992.
He says the investors shouldn’t put their faith in the Federal Reserve to backstop the market.
“The consensus out there seems to be: ‘Don't worry, the Fed has your back,'” said Druckenmiller. “There's only one problem with that: Our analysis says it's not true.”
He also believes that the stimulus money printed by the Fed was a waste. The Fed gave out this money in the form of checks for individuals and businesses.
“It was basically a combination of transfer payments to individuals, basically paying them more not to work than to work,” he said. “And in addition to that, it was a bunch of payments to zombie companies to keep them alive.”
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