Friday, June 10, 2011

David Tepper Tells CNBC QE3 Will Come Only if Stock Market Falls Substantially

It is quite pathetic that along with their supposed dual mandates of price stability and employment, the new era Federal Reserve believes manipulating the stock market upward is their new responsibility.  Rah rah free markets.   Appaloosa's David Tepper, now infamous for his QE2 rally call, [Sep 24, 2010: [Video] Appaloosa David Tepper - Ben Bernanke Will Make Everything Go Up in the Can't Lose Environment] says QE3 will come if the market falls far enough.   There are so many things wrong with this sort of actions and bowing to Wall Street, it begs about 10 posts, so I won't bother.

Of course being a smart guy, he can see as I have pointed out, the QE's are punishing Main Street at the expense of Wall Street.


The head of Appaloosa Management and source of the "Tepper Rally" that generated a huge run in the market last September said in an email to CNBC that stocks would have to fall considerably more before the Fed would start another round of quantitative easing, or QE.

"If (the S&P 500 falls) a couple hundred points and financial conditions tightened maybe they would reconsider," Tepper wrote. "But there is no logic to QE3 now and the only result might be more food and energy inflation."

Tepper made his influential call in a September CNBC appearance in which he said stocks were in a win-win situation: Either the economy would improve and drive a rally, or the economy would drop and the Fed would undertake another round of easing.

Two months later, the central bank announced the second round of its large asset purchases—known as QE2 in market jargon—that helped spark a 27 percent surge in the S&P which finally started to sputter in early May.

The market has been rife with speculation since a 6 percent drop in stocks on whether the Fed, faced with persistently high unemployment and a double-dip in housing prices, would step in with more easing.

But Tepper told CNBC that the fall in stocks since the May 2 post-financial crisis high was "not enough of a drop" to bring the central bank in off the sidelines. QE2 is set to expire at the end of June with the last of $600 billion in Treasurys purchases.

He also said that further easing might only spur more energy and food inflation, meaning the Fed has to "let it ride" for now.  As such, he expects tough sledding for stocks ahead.  "We (are) in a difficult investment environment," he wrote. "Short and Sweet."

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