'A good time to take some money off the table'... Why David Tepper is no longer a 'bull'... What Jim Chanos is shorting today... The world's greatest investors agree on this stock...
"What, I'm going to say, 'No, Fed, I disagree with you, I don't want to be long equities'?"
Longtime Digest readers may recognize that quote from David Tepper, the billionaire founder of the Appaloosa Management hedge fund. No one – except perhaps our colleague Steve Sjuggerud – has been more bullish on U.S. stocks over the past few years.
Nearly five years ago today – on September 24, 2010 – Tepper appeared on CNBC. The Federal Reserve's first quantitative easing ("QE") program was winding down. The market was worried... But Tepper wasn't.
While controversial at the time, he predicted stocks were in a "win-win" position...
If the economy was actually recovering, stocks would head higher. But if it stumbled again, the Federal Reserve would step in with a second round of QE... and stocks would still head higher.
And that's exactly what happened...
The Fed launched QE2 that fall. And Tepper's bullish "Don't fight the Fed" comments that day are credited with kicking off the big rally that followed.
He reaffirmed his bullish call in December 2013, saying that his biggest fear was not being "long enough" in stocks.
Tepper has been right nearly every step of the way since the bull market kicked off in 2009... And he has made billions of dollars as the rally continued longer than most folks expected.
But now, he's getting cautious, too...
Tepper appeared on CNBC's "Squawk Box" again this morning. And while he wouldn't say he was bearish, he admitted that he can't call himself a "bull" today.
He noted that he isn't "talking about crashes," but rather "a market that should correct" further.
Tepper suggested that this is a good time to "take a little money off the table" if you're heavily invested in stocks. He said his firm doesn't have a "huge" amount of money in stocks any longer, and they've "hedged" by selling stocks short to balance their remaining long positions.
Tepper said he expects stocks will continue higher over the long term. He thinks investors buying stocks today are likely to make money over a five-year period. And if the market fell another 15% or 20%, he would probably be tempted to buy.
But he also expects continued volatility and "challenging" market conditions in the near term.
As he said in the interview, "there's a time to make money, and there's a time to not lose money."
He believes today is the latter... And we agree. We continue to recommend a cautious stance on the market...
Consider "lightening up" on risky or expensive stocks. Stay long your "winners," but keep a close eye on your trailing stops. Invest new money only in high-quality stocks or high-conviction speculations. And consider shorting a stock or two to protect your portfolio.
Tepper wasn't the only hedge fund "titan" speaking out this week.
If you're looking for some potential "short candidates" to protect your portfolio, renowned short seller Jim Chanos – president and founder of hedge fund Kynikos Associates – has some suggestions...
Chanos – best known for correctly predicting (and profiting from) the collapse of Enron – also appeared on CNBC yesterday. And one of his biggest targets today will sound familiar to regular Digest readers...
Chanos said he's "doubling down" on his short positions in two of billionaire entrepreneur Elon Musk's companies: electric-car maker Tesla and solar-panel maker SolarCity.
Regarding Tesla, Chanos said the company is still extremely overvalued...
Tesla is being valued, according to 'our friends' at various different brokerage houses, on 2025 earnings and cash flow that may or may not happen. It is sort of silly.
But he thinks SolarCity is an even bigger disaster...
Of all of his companies, I think the one that's most problematic is SolarCity because they're burning $300 million to $500 million a quarter putting up solar panels that may not be worth anything in 20 years.
Chanos also revealed a new short position in liquefied natural gas company Cheniere Energy (LNG).
The news was especially controversial because it's a direct bet against another person who's highly respected on Wall Street: billionaire activist investor Carl Icahn. From an article in Bloomberg...
Jim Chanos is locking horns with Carl Icahn over liquefied natural gas. Chanos said he's betting against Cheniere Energy Inc., the U.S. natural-gas exporter whose biggest shareholder is Icahn. The liquefied natural gas, or LNG, industry is a "looming disaster" and demand isn't growing anymore, Chanos said Wednesday in an interview with CNBC.
The outlook for multibillion-dollar natural gas export projects around the world has soured amid concern over the Chinese economy and falling oil prices. Liquid gas contracts have generally been linked to crude, meaning the price crash over the past year has taken a toll, said Fadel Gheit, an analyst at Oppenheimer & Co. in New York.
"The LNG market will continue to grow, but obviously it's going to be a lot slower, and a lot of companies now will think twice before investing in these facilities," he said. "There is very little margin for error. About half of the projects proposed now probably won't go through."
It's rare to see two "titans" bet directly against each other. Keep an eye out for a closer look at both sides of this trade in a future Digest.
In the meantime, you may be interested to learn Tepper, Chanos, and Icahn are all bullish on the same stock: Apple (AAPL).
But it's not just them. As our colleagues Brian Hunt and Ben Morris explained to DailyWealth Trader subscribers last month...
Every quarter, 45 days after the end of the previous quarter, large money managers are required to reveal their portfolios to the public (in forms called 13Fs). These guys have decades of experience, high-level contacts, huge research budgets, and long track records of success.
We'd be fools not to "look over their shoulders" for ideas.
Apple's guru shareholders include Jim Chanos, Ray Dalio, David Einhorn, Joel Greenblatt, Carl Icahn, Julian Robertson, Jeremy Grantham, Ronald Muhlenkamp, and Jim Simons. They were joined this quarter by David Tepper. This is a "who's who" list of brilliant investors.
We've covered the bullish case for Apple many times. In short, it's one of the world's best companies, it "gushes" cash, it treats shareholders well, and it's incredibly cheap.
Shares sold off along with the rest of the market in the recent correction. This means investors now have the opportunity to join some of the world's best investors, but at an even better price.
But some folks are worried... And yesterday's new product announcements did little to ease those fears...
In a presentation yesterday, Apple CEO Tim Cook unveiled the company's newest slate of products, including the iPhone 6S, a new stylus (called the Apple Pencil), and a larger version of the iPad called the iPad Pro.
The new products and features were impressive as always. The new iPhone comes with a feature called "3D Touch" which allows users to open up more options and information within apps, as well as its highest-resolution camera to date. The Apple Pencil, available for $99, is designed to work with the iPad Pro – Apple's largest iPad yet, with the ability to add a keyboard.
But the market wasn't as impressed... as viewers compared Apple's newest innovations with features that already exist in Microsoft's Surface tablet.
Shares ended the day down nearly 2%. As USA Today noted, it was the worst one-day fall on the day of an Apple announcement since 2013, when the company introduced the iPhone 5C and 5S.
As we noted, some investors are worried Apple's best days are behind it. But those folks are missing the point. And our colleague Dr. David "Doc" Eifrig explained to his readers in the September issue of Retirement Millionaire...
Last year, Apple returned $56.2 billion to shareholders. Dividends accounted for $11.2 billion, and share repurchases added up to $45 billion. That's twice what second place – IBM – returned at $24 billion. Now, let's say Apple doesn't grow any more. Just that $56 billion a year is equal to a yield of 8.8% on its current market cap.
Apple's got so much cash already collected and so much more flowing in, that the $56 billion number will only rise from here. But if Apple stops growing sales and merely maintains its current size, we'll be glad to "collect" 8.8% a year on our investment. If that yield rises even more, all the better.
While others fret over the short-term ups and downs of iPhone sales, concentrating on Apple's ability to pile up cash reveals the true opportunity.
We agree. If you're looking to put new money to work today, we believe Apple still is a great opportunity to consider.
New 52-week highs (as of 9/9/15): Inogen (INGN) and Lancashire Holdings (LRE.L).
In the mailbag, more subscribers write in about Porter's response to subscriber Joe, one shares his journey to becoming a Stansberry Research subscriber, and another weighs in on our short-selling advice. Send your notes to feedback@stansberryresearch.com.
"I just wonder how many so-called investment professionals out there have become Alliance members (wouldn't the cost be a tax write-off for them?), and are getting very wealthy by re-selling all of your best advice and ideas to their own customers... as well as taking all the credit for their successes..." – Paid-up subscriber Terry K.
"Excellent response to the worries brought up by Joe Hanna, Porter. Thank you for explanation, honesty and for the one and only Stansberry Research." – Paid-up subscriber Krzysztof Klimaszewski
"Dear Mr. Stansberry, I just read your response to the letter from Joe Hanna. It occurred to me that you might value some feedback from a brand new customer. My wife and I were celebrating our 35th wedding anniversary on Amelia Island when we saw Ron Paul on TV. Since we were on vacation we decided to take the time to go to the web site, and we decided to sign up. I got the America 2020 book and read it. Then I got the mailer about the Dr. Eifrig's demo and watched it. I signed up for that service for 6 months.
"To me, the free trial is worthless unless I actually take the advice, so I went to my bank's web site and signed up for a brokerage account. I transferred $20K into it but when I tried to trade I discovered I needed options services. I got those, but then when I tried to sell a put I discovered I had to call it in (can't do it on the web site). I was confused about a covered put vs. a margin put, but the webinar yesterday helped. From a timing standpoint, I am now prepared to make my first trade, and the first free-trial newsletter is due to come out in two days. Perfect.
"Here is my investment profile: 57 years old, male, I make $120K per year, stay-at-home wife, one daughter away from an empty nest. I own my home outright, have about $300K in investments, and have stock in the startup I work for. (How much that is worth is undefined as yet, but probably about $100K today.) When I retire I will get Social Security plus a little from my 14 years at IBM ($1000 per month or so). I have put three kids through college, two are there now, one to go. I am active in my church and have been tithing all my life.
"I like Dr. Eifrig's approach a lot, because it seems to match the principle in the book of Proverbs about gathering 'little by little'. Also, I get it: making 85% in 50% of the time means you can get out and do it again. Quicker means higher returns. Makes perfect sense to me. Reducing the risk either way... the whole package... I get it and I like it. I am looking forward to following his advice word-for-word for six months to see what happens. I think it will be fun. So there you go. I'm not a happy ten-year subscriber yet, but I hope to be." – Paid-up subscriber Phil J.
"Porter, I think it was last New Year's that you suggested a New Year's resolution to learn how to, and get comfortable with, shorting stocks. I took your advice, about broke even (on a then-still-rising market) and so I am today quite comfortable holding a couple small short positions. They aren't making me a ton of money, aren't even keeping me even in this decline we've been experiencing, but combined with my previous reductions in my long positions, the short positions are keeping my losses minimal and on one of the 'down days', I even came away with an overall profit for the day. So, again, thanks for the advice to learn how to be comfortable with short positions. Good new tool." – Paid-up subscriber Dave J. Fladlien
Regards,
Justin Brill
Baltimore, Maryland
September 10, 2015
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