Finance

David Tepper says the Fed has to cut rates at least two or three more times to keep credibility

Published

8 months ago

September 26, 2024

Business Finance News

David Tepper, founder and president of Appaloosa Management.

David Orrell | CNBC

Appaloosa Management’s David Tepper said investors should believe the Federal Reserve when it says it will lower interest rates because the central bank has now to keep credibility.

“You just read what these guys are saying,” Tepper said on CNBC’s “Squawk Box” Thursday. “Powell told you something… He told you some kind of recalibration. He has to follow through somewhat. I’m not that smart. I just read what they say and do they have conviction. They usually do what they say, especially when they have this level of conviction.”

The Fed last week sliced half a percentage point off benchmark rates, starting its first easing campaign in four years with an aggressive move despite a pretty stable economy. In addition to this reduction, the central bank indicated through its “dot plot” the equivalent of 50 more basis points of cuts by the end of the year.

Fed Chairman Jerome Powell said the cut was a “recalibration” for the central bank and did not commit to similar moves at each upcoming meeting.

“Probably two or three interest rates, 25 basis point cuts, they have to do, or they lose credibility,” Tepper said. “They’re going to do something besides the 50. You know, another 25, 25, 25 seems like it’s going to have to be done.” (1 basis point equals 0.01%)

‘I don’t love the U.S. markets’

Still, Tepper said the macro setup for U.S. stocks makes him nervous as the Fed eases monetary policy in a relatively solid economy like it did in the 1990s. The super-sized rate cut last week came despite most economic indicators looking fairly solid.

“It was around the 90s in that market where the where the Fed cut rates into Y2K in a good economy,” he said. “Rich in ’97 ….richer after long term credit, and bubble mania in ’99 early 2000 so I don’t love this. I’m a value guy.”

Gross domestic product has been rising steadily, and the Atlanta Fed is tracking 3% growth in the third quarter based on the resilience in consumer spending. Meanwhile, most gauges showed inflation is still well ahead of the Fed’s 2% target. However, there has been a slowdown in the labor market, which partly prompted the oversized rate reduction.

‘Sure as heck won’t be short’

The widely followed hedge fund manager said while the central bank’s move gave him hesitation, he certainly is not betting against U.S. equities because of the immediate benefits of easy policy.

“I don’t love the U.S. markets on a value standpoint, but I sure as heck won’t be short, because I would be nervous as heck about the setup with easy money everywhere, a relatively good economy,” Tepper said. “It would make me nervous, not to be somewhat long the U.S.”

Tepper, who is also the owner of National Football League’s Carolina Panthers team, revealed that he’s going all in on China on the back of a rate cut and a flood of support measures the government recently announced to shore up a flailing economy.

He added that he prefers Asian equities and European equities to U.S. stocks.

Finance

Stocks making the biggest moves midday: WOOF, TSLA, CRCL, LULU

Published

1 day ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

1 day ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”