Letter #101: David Tepper (2010)
Founder of Appaloosa Management and Owner of the Caroline Panthers and Charlotte FC | Legendary Squawk Box Interview
Today’s letter is a transcript of David Tepper’s legendary 2010 Squawk Box interview where he shares how he made ~$7bn in a single year (2009) and lays out his worldview and strategy for the coming decade. At the time, he had compounded capital at ~40% for 17 years (~30% for clients).
David Tepper is the Founder of Appaloosa Management, as well as the owner of the Carolina Panthers and Charlotte FC. David started his career at Equibank as a credit analyst, but quickly left to get an MBA. After graduating, he took a job in the treasury department of Republic Steel before being recruited to Keystone Mutual Funds. After less than a year at Keystone, he was recruited by Goldman Sachs to be a credit analyst in its newly-formed high yield group—he was promoted to head trader in six months. But after being passed over for partner twice in two years, David quit. He then borrowed a desk from Michael Price and started trading his personal account and trying to raise money for a fund. He founded Appaloosa in 1993. (Fun fact: just as he had borrowed a desk from Michael Price when trying to start his fund, he lent a desk to a young Dan Loeb who was starting Third Point.)
I hope you enjoy this conversation as much as I do!
(Transcript and any errors are mine.)
Related Resouces:
Transcript
Joe Kernen: Get this. You remember when Howard Hughes, no one had ever seen him and that guy met him in the desert and you didn't even know who he was.
Carl Quintanilla: Melvin.
Joe Kernen: Melvin! Melvin.
Carl Quintanilla: Melvin and Howard.
Joe Kernen: Melvin! Melvin and Howard. This guy--no one has ever seen--let me introduce him. Our special guest for the next half hour raked in a record $7.5 billion for his fund last year by investing in financials, returning an eye popping 132% for himself and investors. Joining us now in a rare exclusive interview, hedge fund heavyweight David Tepper, President and Founder of $12.4 billion Appaloosa Management, who I've talked to--David, thank you for coming out--talked about you a lot. Because the Short Hills Mall is the only thing anyone knows about Short Hills. And you, instead of being in the canyons of New York City, you manage this money out at--overlooking a parking lot near the Hilton at the Short Hills Mall. I've talked about you a lot, I've run into you, but didn't know who you were. You're kind of like Carlos the Jackal. No one has ever seen this man before.
Carl Quintanilla: What was said to you to get you to come here?
David Tepper: What was said to me?
Carl Quintanilla: Yeah.
David Tepper: Actually, I listened to Joe, said I was mysterious, elusive. At least this type of stuff. So I said, You know, why not come on?
Joe Kernen: So it worked. It worked good.
David Tepper: It did work. Although I'm a little concerned when you say you have chills when you see me. We're not going to the men's room together.
Joe Kernen: No, no no. It's only in the nicest way. We can talk…
David Tepper: Alright. I mean, that's okay, I mean I...
Joe Kernen: How much did you make last year? I mean, we can talk. I'll tell you what I think about it. Every time I've looked at a mutual fund prospectus, it says past performance is not indicative of future performance. I think about Paulson, and how he got famous, and how much money he made. And then I look at his performance this year. What does it feel like to have that pressure on you year after year? And are you just smart enough to know what to do every year?
David Tepper: For sure.
Joe Kernen: Really?
David Tepper: No, I mean, look, my long term record is actually pretty consistent. It's inconsistently consistent.
Joe Kernen: It compounded at what?
David Tepper: So, for me, or for my investors?
Joe Kernen: Either way.
David Tepper: For me, probably like at 40%.
Becky Quick: What about for your investors?
David Tepper: And for my investors, like 30%.
Joe Kernen: I mean, David, we are talking now about not being able to do 5% for pension plans, like not... people are accepting two and a half percent just to get their money back in 10 years. How do you do 40... how many years is that for 40%?
David Tepper: 17 years.
Joe Kernen: That's--I don't believe you. That's impossible.
David Tepper: You don't believe me?
Joe Kernen: I believe you, but it seems almost impossible to be able to do.
David Tepper: Well, actually, Joe, we have--in the office, we have three little pigs. And we shake the pigs to see which way to invest. If they land on their feet, we go long. If they're on their backs, we go short. That's it.
Joe Kernen: There's no... is there an octopus or something?
David Tepper: No octopus. Pigs, pigs. Three Little Pigs.
Joe Kernen: How many asset classes are in your universe? Will you do anything? And long or short anything? Long or short any asset class?
David Tepper: Yeah, actually, Appaloosa and Palomino are one set of funds. And then we have Thoroughbred funds. So Appaloosa and Palomino will do anything. Stocks, bonds...
Joe Kernen: How much leverage?
David Tepper: None.
Joe Kernen: None?
David Tepper: None.
Joe Kernen: None.
David Tepper: What do you need leverage for?
Joe Kernen: You don't.
David Tepper: You don't.
Joe Kernen: You do 40%--when you've seen the outsized returns in the past, some of these guys have used leverage.
David Tepper: No. We don't have leverage in... we didn't have leverage in 2009. We don't have leverage this year.
Joe Kernen: You saw that, you know, Michael Lewis can write a book about a huge trade and it can be a bestseller. What did you see--how did you do it in 09? What happened with buying banks at the beginning of 09? What did you see? And...
David Tepper: It was easy.
Joe Kernen: It was easy?
Becky Quick: Why?
David Tepper: It was. It was real easy. The government told you what they were going to do. Basically, the government put out a white paper. I can't remember the exact date--
Carl Quintanilla: Kashkari's paper?
David Tepper: In March. It was a treasury paper. You can't put out a paper and say you're going to buy securities and not buy them. Even the government has to be subject to the laws. So they told me they were gonna buy Bank of America at a six handle. They told me where they were going to buy other stocks. Nobody believed them, and the market kept going down. We actually did. So what we did is, we didn't buy just stocks, we bought bonds. So we bought bonds at preferred at 12c on the dollar, 15c on the dollar, 20c on the dollar. And stuff went up.
Becky Quick: But couldn't it have been a situation where some of these banks had to get nationalized? That's why people feared so much.
David Tepper: Not at that point, not at that point. Because you have to believe that the government's not above the law. Now at that point in time, people were confused, and they thought... I don't know what they thought. Because what is--the habeas corpus in the Civil War? It wasn't that bad.
Becky Quick: Although the government did change its mind on many things. When it first said this is what TARPs for, it changed its mind and redirected a lot of that money, it changed it's mind when dealing with...
David Tepper: You can't put things in writing, and say you're gonna buy at a price and not to it. That is security laws fraud.
Becky Quick: Tell the shareholders at GM.
Joe Kernen: Yeah, tell the GM senior debt holders that they're not above the law,
David Tepper: You know, the GM... I was a GM debt holder. So the idea was either--and we owned a lot of bankrupt bonds versus other people who haven't been in that position. And we kind of helped strike that deal, because it was either nothing or something. And we generally like something better than nothing. And we're not going to do nothing just to make a point. What am I doing. My investors don't like that generally.
Carl Quintanilla: But you still must have had to deal with the uncertainty of Congress, right? I mean, there were some political variables that you didn't know, even with the white paper being out there, right?
David Tepper: Like what? They told me where they were going to buy. I knew where the capital was going to come in. The banks weren't going to be nationalized. The equity could have been diluted, to a certain extent, but I was buying equity at two and three bucks in Bank of America and they were coming in at six. So they're coming in at six, I got a big guy with a lot of money--I think they got a lot of money, right? They got a lot of money?
Carl Quintanilla: Well, they borrowed a lot of money.
David Tepper: They can borrow more, right? Yeah, okay. So then I know I'm gonna make money.
Carl Quintanilla: So it was not an emotional strain.
David Tepper: The point is, yeah, it wasn't emotional. It was easy. Sometimes it's just had easy. You don't have to be, you know what it is? Fear. That's F E A R. Is that how you spell fear? F E A R? See, I'm from Pittsburgh, so I've got a little bit of an accent. Yeah, we're pretty unemotional when we invest. So it is what it is.
Becky Quick: Although last year was a unique time, or two years ago was a unique time when you started looking through all of these huge changes that were coming through. You've done this consistently, year after year after year after year. So does that mean deals like this come along all the time and you can see them?
David Tepper: They do. Look, for better or worse, we're a herd leader, okay? We're at the front of the pack. We are one of the first movers. First movers are interesting. You get a good grass first, or sometimes a lion eats you. So sometimes we have negative years, but most years we do well. Look right now. What do you got right now? I just got a Fed, and what did they tell me? What'd they tell me?
Becky Quick: The FOMC?
David Tepper: Yeah. What did the Fed just tell me?
Joe Kernen: The spigots are open. And they're gonna stay open.
David Tepper: And what did they say? They say they want economic growth. Right? Is that what they said? And they said, We want economic growth and we don't even care--Not only do we not care if there's inflation, but we want a little bit more inflation. Have they ever said that before? Can you remember in your career, before this that they said this?
Joe Kernen: No.
David Tepper: No. They said they want the market up. Okay, so what am I--I'm gonna say No, Fed, I I disagree with you? I don't want to be long? I don't wanna be long equities? We're a bond place, but we changed up to a little bit more equities. Recently.
Joe Kernen: Couldn't you be long everything?
David Tepper: You have to be careful, because...
Joe Kernen: Except the dollar?
David Tepper: Yeah, everything but the dollar. Well right now, what's going to happen? Two things are happening. It's that easy, sometimes. So either the economy is gonna get better by itself in the next three months... And what assets are going to do well? You can guess the assets that are gonna do well. Stocks are going to do well, bonds won't do so well, gold won't do as well. Or: the economy is not going to pick up in the next three months. And the Feds gonna come in with QE. Then what's going to do well? Ev-ery-thing in the near term. Everything. Not bonds, the bonds will... we're going to be buying bonds. Not in the long term, but the near term. Gold, stocks. So let's see. So what I got is, I got two different situations. One, the economy gets better by itself. Stocks are better, bonds are worse, gold is probably worse, if you want to talk about those three assets. The other situation is the Fed comes in with money. Now, up to the point the Fed comes in with money, the stock market can go down a little bit. But not that much, because I got a put. You gotta love a put, especially when the government's issuing it. So I can't go down that much. It doesn't mean I go up to that point, but after that, I'm going up. So what do I do? I gotta buy. I can't take the chance of not being a little bit longer now. That's not to mean I'm going balls to the walls--can you say that?
Carl Quintanilla: I think so.
Joe Kernen: You can say that.
David Tepper: I can say that.
Joe Kernen: Balls to the wall. I’ll say it for you. I’ll say it a couple of times for you.
David Tepper: So you know, it's that easy. That's how easy it is right now.
Becky Quick: But doesn’t that mean that people who are investing in gold right now are stupid? Because it's not a sure thing? It could go down.
David Tepper: They're not that they're stupid. If you're gonna build a portfolio, now, I don't own gold, but I can understand why you might. Because it's a question of how much it will go up versus how much it will go down. And you're not gonna get crazy growth on its own. So you're gonna get a better growth. That doesn't mean gold is gonna plummet, because interest rates are gonna go sky high. That means gold won't perform, and it'll probably will go down a little bit. But it doesn't have to go up. So I mean, it's, you can't be that negative. And you can't be that po--who knows? The government doesn't know, we don't know.
Carl Quintanilla: Is going short the dollar part of the equation? Or do you need to do that?
David Tepper: Again, if you get stronger on your own, it's probably okay because generally, if the world's stronger, the Euro gets stronger. But it's not--again, are you trying to figure out, is the economy going to get better by itself or not? And frankly, I don't know. It's either going to get better, or it's going to get worse. So you talk about--you asked a question, When you get moments? Well, kinda, this might be one of those. Kinda. Cuz you're sitting in a situation where your downside is not that big--you guys like to talk equities, we do a lot of bonds--but your downside is not that big in equity and you have this potential, either economy gets good and you make a lot of money--I was gonna say a bad word…
Joe Kernen: A boatload.
David Tepper: A boatload, yeah. I was gonna say--
Joe Kernen: Or a shitzuload.
David Tepper: A shitzu load of money! You can make a shitzu—yeah, could say that.
Joe Kernen: It’s a dog!
David Tepper: That almost came out of my mouth. Well, I have a little yorkie named Benjie.
Joe Kernen: You know what, worse comes to worst, it’s cable.
David Tepper: Oh, you know what? I told my mum I'd say hi to her. So, Hi mum.
Joe Kernen: Good. That's just fine.
Carl Quintanilla: She's got to be loving this right now.
David Tepper: Well, I'm sure she doesn't hate it.
Carl Quintanilla: Hey, but when you say a moment, you mean this past Fed statement?
David Tepper: Yeah. Well, you have things leading up to it too. Think about where we were back in May. I mean, this was May-June. It was ugly. I mean, we were in deep, dark shitzu. So what do you have? You had--you didn't know if--where the European situation is. You had all kinds of refinancings coming up. Spain, etc. Well, guess what? What happened? They actually refinanced their debt. Well, okay, that's pretty good. Not bad. So we're worried about China crashing. Now, China may crash in the future, but we're worrying about it now, with the PMI, and there's still currency stuff going on. But generally speaking, China's strengthened their currency. The PMI in China hasn't been a hard landing, that bad. So that's not so bad. Still may be, but it's a little better. Okay, taxes. I was worried about taxes. What are they going to do? Well, now I know. I mean, either they're going to extend it this year, or they're going to definitely extend it for below 250 next year. There's no question. It's done. Okay, so that's done. Basil, basile, however you want to say it. Done. Actually, M2. I don't know if you guys look at M2--M2 has been growing. For the last 10 weeks. Growing. Now, it's growing before QE--that's kind of a good thing. If you looked what happened when the market went up--March, it started going up in March of 09. Guess what happened before that? The money supply went up. The money supply always goes up and the markets move afterwards. The market doesn't necessarily go up when the money supply is moving up, but at some point, it does push it up. That's kind of not bad. Politics. Well, I don't know if the Republicans are winning. I don't care. Because it's going to get closer. So the uncertainty that everybody's talking about is going to be less. Is it going to be none? Of course not. But it's going to be less. So that's better. Japan. Well, I noticed that they're doing a kind of QE right now. Because they're not sterilizing their currency. Can't be bad. And then what do I get? All that stuff. And that's all nice stuff. And all those things: Boom, boom, boom, boom, boom. Could have been all negative. Not negatives, all positives. And then what do I get afterwards? I get this Fed statement. And people say Well, I don't know duh duh duh duh duh. Well, that's what it is. That's the easiest part of it. It's either going to work, or it's not going to work. And if it doesn't work, what happens? That's how easy it is. So you ask sometimes where it's at. So what's my biggest worry now? Now I don't own 100% equities in Appaloosa, but we have increased our equity allocation.
Joe Kernen: Individual stocks, or do you do it some other way?
David Tepper: We do it every way, Joe.
Joe Kernen: You do it every way?
David Tepper: Well, not stocks I'm talking about. Not what you do everyday, Joe.
Carl Quintanilla: Nobody does it the way Joe does it.
Joe Kernen: But you would buy individual issues... or you would buy futures... would you buy S&Ps?
David Tepper: Oh, let me see. Yes. And yes. And yes.
Joe Kernen: Because you said you bought those esoteric preferreds at 17.
David Tepper: Esoteric?
Joe Kernen: A little bit, if you're buying them at 17 cents on the dollar.
David Tepper: They're not--they're on the board!
Joe Kernen: They're on the board.
David Tepper: 12c Joe, on the board! Is the NYSE esoteric?
Joe Kernen: I thought you might just decide to go ETFs or S&Ps or something like that.
David Tepper: We don't do a lot of ETFs. But we do S&Ps. But look, I mean, I don't want to--I don't like to talk about...
Carl Quintanilla: Before you start that though, let's sneak in a quick break--
Joe Kernen: Unless you want to pay for the commercials--
David Tepper: Who’s advertising?
Carl Quintanilla: I think EveryCat.
Joe Kernen: EveryCat.
David Tepper: EveryCat?
Joe Kernen: You have a cat?
David Tepper: No. I have a dog. I told you. Yorkie. Benjie.
Joe Kernen: Chihuahua here.
Carl Quintanilla: We’ll sneak in a quick break. A lot more with our exclusive interview with David--… I don't know if it's because of what Tepper has been saying, but let's pretend for the moment that it is. We are back with our rare exclusive interview with a hedge fund legend David Tepper, the President and Founder of Appaloosa Management, $12.4 billion under management. Right where we left off, you sort of established the framework for the near term. But is this healthy, long term? If the economy gets worse and the Fed steps on the gas again, is that what we really need? Or is that what traders need?
David Tepper: Is that what traders need? Well, what you need is, you need the economy to start get going again. Okay, so, I don't know, the long-term, well if the Fed does quantitative easing for the next five years, that's not good. But if the Fed does quantitative--if it doesn't get better on its own, right, we're talking about that scenario. If it doesn't get better on its own, and the Fed has to do quantitative easing for a bit of time? No big deal. But if it was a continuous thing, it wouldn't be good.
Becky Quick: If it’s Japan?
Carl Quintanilla: Do you see us as Japan?
David Tepper: No, we're not Japan. We're not Japan. We're not Japan because, What's your mortgage rate? You have a mortgage?
Carl Quintanilla: I do.
David Tepper: What's your mortgage rate?
Becky Quick: Mine's five and a half.
Carl Quintanilla: Five and change.
David Tepper: So if it's 4%, you save money, right?
Carl Quintanilla: Yeah.
David Tepper: You spend some of that money you save?
Carl Quintanilla: You got it.
David Tepper: Damn, that will work. The Fed can buy mortgages. They can make it work. We're not a zero, are we, in mortgages?
Carl Quintanilla: No.
David Tepper: No. So we can go to 1%, 1.5%, 2%. On that way, you're buying stuff, right? You're buying stuff too, Joe, right? You have a mortgage too, right? I heard you're the wealthiest one of the set.
Joe Kernen: Yeah, well, you saw me buying a bicycle. Uh… wealthy. I don’t feel--
Carl Quintanilla: He's had more years in which to accumulate...
David Tepper: More years?
Carl Quintanilla: Many more years.
Joe Kernen: I think we're all equal in terms of our family, which is the true measure of wealth.
David Tepper: Okay, that is, I agree with that. I'm a big believer in that.
Joe Kernen: You know, the Fed is going to have trouble with an exit strategy. I'm trying to figure out your exit strategy, in terms of, you had bank America, you had Wells, now you're friendly towards equities. How long do you stay at the party? How long will you stay at Bank of America? And Wells?
David Tepper: Well, we're not that big in financials right now. I think they're probably about--the equities you're speaking of, they're about 10% of our portfolio.
Joe Kernen: How much at your biggest point was it?
David Tepper: More.
Joe Kernen: More than 10%. Was it 90%?
David Tepper: No. No, we owned a lot, as I told you, we owned a lot of bonds and preferred, and the preferreds got converted into equities. So, I don't know, in the equities of financials, maybe we were at 20%, or higher.
Joe Kernen: So you're not crazy about them now?
David Tepper: I don't hate them. I just think they're as good as anything else in the market stock market.
Joe Kernen: In the stock market. Alright, fine. How much--can we still be in a secular bear market in the stock market since it can go up enough to give you another 40% return this year?
David Tepper: Can you be in a secular bear market? Well, if the Fed starts moving, I don't know what you mean--you mean in the stock market versus the economy--
Joe Kernen: Because it's already been 11 years and we've made no headway. Do we ever make any headway again in the averages?
David Tepper: Yeah, of course. Of course.
Joe Kernen: Really? How long from--will it be 5 years--
David Tepper: Well, Joe, you may not be living, because I just heard you're pretty old. I mean, I don't know.
Carl Quintanilla: Too soon.
Joe Kernen: I'm trying to stay healthy.
David Tepper: Well that's good, that’s good. Look, what you--if you, for people watching the show I mean--you have to know that the market's gonna go up? Well, I think that the market will probably go up some way or another in the near term. And in the longer term, you know that we'll have our cycles. Is it going to be a secular bear market? I think we're at--look where we are right now, okay? Next year, if you believe the estimates, I don't know where we are exactly this moment, but I think on the estimates on the Bloomberg, you allowed to say Bloomberg on this TV, is that--
Joe Kernen: You are, as long as you're talking about the mayor.
Carl Quintanilla: The mayor.
David Tepper: The mayor, okay.
Joe Kernen: What's he estimating?
David Tepper: What's he estimating? Well, I think the S&P, you're trading at like, just under 12 times, for next year. You got two and a half percent 10-year, I don't know where it is in the screen today. And let's say that the market, it does get better on it's own. It's not gonna get too much above 3%. Okay, where should multiples be if you're at a 3% 10-year? Not 11, 12. Should you be at 14?
Joe Kernen: No.
David Tepper: But can you get to 14? And still be kind of really conservative? Can the market be like kind of still kind of shaky at 14? Absolutely. Abso-fricking-lutely.
Joe Kernen: Really.
David Tepper: Is that okay to say? Abso-fricking-lutely?
Becky Quick: That's okay.
David Tepper: I gotta get the list of things okay to say.
Joe Kernen: We talk with natural gas, fragging, a lot.
Carl Quintanilla: Fracking.
Becky Quick: Fracking.
Joe Kernen: So if you want to use fracking--
David Tepper: Well that sounds a lot worse though, frack--
Joe Kernen: It does, it does. Okay, so what is reasonable? Where do you think multiple should be? So somewhere above 12 but below 14?
David Tepper: Well, look, I mean, you have to tell me what you think is gonna happen. I think right now, where we are, they're probably low. Because we're set up for a situation where the markets not going to be that bad. And the economy's probably not going to be that bad. And Carl's going to spend a lot of money if he has a 4% mortgage.
Carl Quintanilla: And twins.
David Tepper: Well, twins. That makes us spend money no matter what he--can't help himself!
Carl Quintanilla: Married, there's that.
David Tepper: Well, that's your fault. I didn't do that to you. I love being married, by the way, Marlene. I love it.
Joe Kernen: Yeah, exactly. You keep coming--you say something, then you got to take it back. I like--
David Tepper: Are you married?
Joe Kernen: I'm used to that. Yes.
David Tepper: Okay. Just wanna make sure--
Joe Kernen: Yeah, absolutely.
Carl Quintanilla: Does it matter to you if trading volumes come back in a big way? Do you even think about that stuff?
David Tepper: Well, I don't know. It's quite a question. What does that mean? In this world, what's real trading? And what's funky trading?
Becky Quick: But there are some people who have had serious concerns about the American investor, the idea that baby boomers have been through a terrible period and some horror and they're never getting back into stocks, and that younger people have been scared off by what they've seen, and that that's going to kill equity prices for the next decade or two.
Carl Quintanilla: The marginal buyer, gone.
David Tepper: I don't think so. I think, maybe the marginal buyer, the young guys buying, I think my son's just bought Apple and Google, which, he's doing better than me in the last month, I think. So, this is upsetting me. Not really. But anyway, no, I think those people still interested in--I mean, I don't know, what's your viewership? How much--is it up? Down? Sideways?
Joe Kernen: I would say, in recent weeks, I've noticed in total viewers, that it kind of is reflective of the weaker volume. And that's--out of all the things over 20 years having been here, watching what correlates, the only thing that correlates with viewership. We can tighten up our teases and sit up straight and act like we're happy, and it does nothing. But if there's volume on the New York Stock Exchange, suddenly we're doing things right again on the show.
David Tepper: I think, look, like we were talking about before. Either the economy is gonna start getting better, or it's not, and the Fed's gonna come in and then it's gonna get better. Or at least it's gonna get--you'll get richer in some fashion. One of those things will make things start percolating. I'm the animal at the head of the pack.
Joe Kernen: You try.
David Tepper: I generally am. And like I said, I either get eaten, or I get the good grass. Okay. So, my animal spirit, you guys talk about him, is awakened. Okay? My animal spirit’s awakened. So I'm--
Joe Kernen: You're looking right at me, saying that. Now, I'm nervous.
David Tepper: Okay. No, I'm one of the first animals to have their spirit awakened. Now, am I sitting there, running into the lion's pack? No. But I'm moving in. Okay. So my spirit is awakened. So, if historically, I can look behind me and I see, Well, there's other animals following me. They don't necessarily follow me that fast. Sometimes there's no other animals around when we do things. Like in March. In past times like that, we could see other animals around, maybe there was a Buffett Tiger around, or some other kind Tiger. That time, in March, there was no Buffett Tiger because he had his own problems.
Becky Quick: Does that make you nervous though? To be looking right and left and see nobody--none of the rest of the pack following?
David Tepper: I don't give a shitzu.
Carl Quintanilla: One more. You talk about the March trade being relatively easy. Yes?
David Tepper: Yeah.
Carl Quintanilla: Is the one you're describing now--is it as easy? Or is it more clouded?
David Tepper: Look, it's not as easy, in the near term. Because, what we talked about before is--the economy, I'm not sure which way it is right now. I think it's getting better. I'm not absolutely sure. And if it's not getting better, the market can go down a little bit. What does that mean? You know, can it go down to 1100? Sure it can. Can it go down to 1000? No. I don't believe that. I mean, then--it can. I'll tell you what, we'll be 100% equities.
Carl Quintanilla: Really?
David Tepper: Okay, maybe 90%. I'd like to keep some cash around.
Joe Kernen: I love your analogy with the grass and the lions. What's the other one? You go in, and you get the beach front--I'm not gonna get the beachfront property when I buy, but I'm gonna make sure that it doesn't get absolutely flooded. And then buy like two blocks over something. A lot of people are more conservative, they'll follow you.
David Tepper: I was confused what the heck you just said.
Joe Kernen: You say either the lion gets you because you're in the grasslands and there's no one else there. Either you get to feast on the grass, or the lion gets to feast on you. The other person says, I'm not going to be in there and get the beachfront property when it goes on sale, because that's the first thing that gets hit in South Carolina when the hurricane--but it's fascinating to hear all this stuff. But what's the biggest bad trade you made in the last five years?
David Tepper: Five? Or of my career? I've made a lot of bad ones.
Joe Kernen: Like, how did it happen? What was the flaw in your thinking usually? Is it the same flaw?
David Tepper: Well, I mean, the worst trade we probably made was--
Joe Kernen: Becky has a series about this coming up. Maybe Dave can--
David Tepper: 98 was the worst trade we made. I think--it was Russia. And we thought that Russia would--they got an IMF deal. And we thought that Russia could devalue, but they shouldn't default. But they did both. So we kind of miscalculated that. And we were too long, and I couldn't get out of that trade.
Joe Kernen: But what'd you do that year? In 98?
David Tepper: We were down, I don't know, 20some percent. But what we did, right away, is once we recognized what was going on, we got out of all the rest of our--we couldn't sell Russia, because there was no bid. We sold the rest of our emerging market, we sold down our junk portfolio, just to get the cash. So by September, that was a really funny a year. By September, we were in cash. We actually had some leverage back then, we haven't had leverage probably in last 3, 4, 5 years. And we were probably like 1.4, we're never a high leverage place. But we paid--it was a funny thing. We had cash. And we were waiting for Deutsche Bank and some of these Merrill Lynches, some of these other guys to give us a call and ask for the money back that we owed them. But we were so down their list of people with problems, we couldn't get the money back. They were so messed up in the back office. Now they're all a lot better now, whether they are or not, I'm gonna say that. They're all a lot better now. And so I don't think you'd have that same situation, but then it wasn’t very funny.
Becky Quick: He's the president and founder of Appaloosa Management. And, David, we listen to numbers like these, you've talked about how some of your calls do come from a macro perspective. You listen to what the government says, you listen to the cues. When you see something like durable goods, this is just one of many numbers we're getting this week, do you not pay attention on those small levels like that, you're just looking for the big calls from the government?
David Tepper: Yeah, I mean, this is a one month number and--
Becky Quick: The jobless claims? How about jobless claims and unemployment?
David Tepper: Jobless claims, I'm kind of listening--watching the trend. So it gets hard when you have week in and week out, and even month in and month out. But you're trying to figure out what the trend is. I mean, look at this number. It was not a bad number, and the market, I don't know if it went up, down, or sideways--
Becky Quick: It's been still sideways at this point. It was up--
David Tepper: So, like, if I was in the office, I'd be, probably calling a friend or something right now.
Becky Quick: But yesterday, jobless claims were a little disappointing.
David Tepper: Yeah, they were.
Becky Quick: The trend was not great. We've been watching the monthly numbers. Where do you think we're headed?
David Tepper: I think we're still in the same place. We're still moving slow. But I think we're moving. And the question is how much speed we're going to pick up. And you just have to--look, a lot of times, you've got this data that's backward. I can't worry about backward. I gotta look for the future. So if I worry about every bit of backward data, particularly when I have things that have changed, and a different environment--and maybe people don't even realize the environment's changed. Sometimes they don't. Sometimes it takes weeks, months. But it has, it has changed a little bit. So you know, start to pick up, get the animals running a little bit--
Joe Kernen: David, balls to the walls, on a steam engine, there's a speed-governing device, two ball weights attached to it. As the power increases in the steam engine, the balls move outward toward the wall and it has absolutely nothing to do with anything else. So you, if you need to say balls to the walls again, you just--
David Tepper: I can say that?
Joe Kernen: As many times--it's a steam engine.
David Tepper: I gotta get a monitor if I ever come on the show so I can look smart too.
Joe Kernen: Yeah, yeah, yeah. No no, that's from a viewer!
David Tepper: That's from a viewer?
Joe Kernen: Yeah.
David Tepper: That's really cool.
Joe Kernen: That’s from a viewer.
Becky Quick: Squawk-a-pedia.
Carl Quintanilla: Do you want to--you got more? I was gonna ask you about the Steelers before we go.
David Tepper: Oh, well, you know, the Steelers. Oh, I gotta do one other thing. The Steelers are just doing fantastic. I mean, two weeks with not our starting quarterback, can't be better. Defense is probably the best defense since the 70s. Did you watch the game at all? Did you see it?
Carl Quintanilla: I've seen I've seen highlights.
David Tepper: Ah, just killing it.
Joe Kernen: Is it two games against Cincinnati this year, as usual? I'm from Cincinnati.
David Tepper: I know you're from Cincinnati.
Carl Quintanilla: Alright, yeah, so I, we're kind of--
David Tepper: They played well last year, didn't they?
Carl Quintanilla: Yeah, they did. I think we beat you twice last year.
David Tepper: How'd they do against the Pats this year?
Carl Quintanilla: Uhhh. The Patriots. Yeah, that was a long--but they beat the Jaguars--
David Tepper: No, Baltimore--
Joe Kernen: Baltimore Ravens! Yeah, that's right.
David Tepper: That wasn't a bad game.
Joe Kernen: No. And the Reds.
David Tepper: The Reds, well I…
Joe Kernen: Where are the pirates? [pointing down].
Carl Quintanilla: Do you talk to Roethlisberger personally? Or do you let the coaching staff handle Ben?
David Tepper: No, I don't talk to Roethlisberger personally.
Carl Quintanilla: Okay, just curious, just curious.
David Tepper: No, no. I'm a 5%--I mean, the Rooneys are the game in town, so... It was fun to go there, go on the field, see the players, almost get run over by them.
Becky Quick: David, real quickly, before we let you go, we asked you in a commercial break but haven't mentioned it on air. What do you think about the carried interest tax?
David Tepper: Alright, I'm gonna--just before I go off, I gotta tell my daughter that I don't think I'm going to sing today, because I have a bet with her that I'll sing before the end of September. One of the reasons why I'm really on TV. So I don't want to sing, but I still want to win the bet. So I did write a song that I'll give it to you so you can play it.
Joe Kernen: Were you gonna sing the song today?
David Tepper: I was! I wrote two songs. I wrote one by the--to Heartbreak Hotel, which, I always love to sing Elvis. And then the other one I wrote was, what's the new song? Billionaire. I wrote to that tune.
Carl Quintanilla: Oh, yes. So frickin bad.
David Tepper: I can tell you the words. I feel so frickin bad, so I like--I wrote, I'll tell you, because this is more important than--
Becky Quick: Sing it! And then you'll win.
David Tepper: I'm not going to sing it, because I--you know, it's just, this song's so hard. I went, I want to be on CNBC, so frickin bad, talking every new investment fad. Imma be on the Squawk Box show on the TV screen, smiling next to Carl, Joe, and the Queen.
Becky Quick: I like it!
David Tepper: I hope I get credit for that. So I do want to win the bet with my daughter.
Becky Quick: That sounded like singing. I think you get credit.
David Tepper: You think I got that? Even though--
Joe Kernen: But we're not out of time, so you can still answer the carried question.
David Tepper: Oh, the carried interest question? Dang it! Look, I think, carried interest, I don't have a long run problem with carried interest, myself. I would like to see carried interest--have a plan for carried interest. So to me, if they want to do carried interest in 2012, God bless them. I would just like to see it done so that I can make some plans. I get all these taxes, no, carried interest is here, they're not. Versus the other tax policy, which we kind of know what's going to happen. I mean, I don't know and Joe doesn't know what's going to happen, because he's probably, definitely over 250,000 from what I hear.
Carl Quintanilla: Yeah.
David Tepper: But here in jersey, I think that's two school teachers, so--
Joe Kernen: You're absolutely right. It is.
Carl Quintanilla: Here's a letter from some congress people to Steny Hoyer and Sander Levin. A carried interest tax hike would directly impact the incentive for creating capital and helping companies grow over time. Is that true? If so, does it bother you?
David Tepper: You know what? I'll adjust. And I'm still going to be--I'm not moving to the Caymans. I'm going to be in Short Hills, New Jersey, still... Joe now will know me if he sees me in the bike store. I'm not going anywhere. So, look, is it a positive for--on the margin, in that respect? It can't be. Is it that bad? Probably not. Do people need some time have a plan? Absolutely. So I mean, 2012, 2013. Now I got--I don't know what's going on. I really, truly don't. So it causes too much disruption and that can. So give me a plan. You know, Mr. Baucus, give me a plan. Just don't spring it on me now. I'm happy--I'm not happy--to pay it, but I'll pay it.
Joe Kernen: Alright. Next time that you come on, I figure--what is it? What month is it?
David Tepper: Can I get a wig like yours next time.
Joe Kernen: Get a what? You want to put a wig on?
David Tepper: I was watching everybody do the hair in the back. I wish I had hair to be done.
Joe Kernen: You know, people do think it's a wig, and now you've just made them--
David Tepper: It's not a wig!
Joe Kernen: No, it’s really--but next time you come on, maybe come on a little bit longer.
David Tepper: I could do that.
Joe Kernen: Okay, good.
David Tepper: It'll be in about 10 years, but that'll be alright.
Joe Keren: No no no. Alright. It was good, it was great. Don't leave yet. You got your mic on--and then we’re gonna--we got to get the mic off--
Becky Quick: David, thank you.
Wrap-up
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