DAVE TEPPER, THE BOND MARKETS, INFLATION, AND THE FUTILITY OF CALLING MARKETS

9/5/14

Dave Tepper, the former Goldman trader who runs Appaloosa, one of the country’s more successful hedge funds, said yesterday

"It's the beginning of the end of the bond market rally. We are done." 

People in the market, or anywhere, for that matter, don’t get much smarter than Dave Tepper; see AN AMERICAN MANUFACTURING RENAISSANCE; IT’LL TAKE MORE THAN CHEAP ENERGY, 5/15/13  Still, I don’t know if he’s right or wrong here, and I’m not being coy by saying, as is the fashion nowadays, of saying “I don’t know if he’s right here” when one means “He’s wrong here.”   I genuinely don’t know whether Mr. Tepper is right because I fervently believe that very few people, even people as smart as Dave Tepper, can consistently call markets; see the already seminal BULLS,BEARS, AND BRAINS:   THE RELENTLESS PURSUIT OF THE FOOL’S ERRAND OF CALLING THE MARKETS, 8/29/14. But if Mr. Tepper is right about the bond markets, and there is about a 50/50 chance that he is, it won’t be because of the Fed, or at least not because of the Fed in the way that most people say. 

If the bond market rally is over, it will be because the inflation that we all see around us will finally find its way into the government’s questionable statistics and maybe into the markets.  But old guys like yours truly have been saying that inflation is just around the corner for years…and those of us who pay for college tuition, health care and insurance, gasoline, food, cars, restaurant meals, airline tickets…you know, those things that Wall Street tells us are inconsequential, have seen it.  But the government, and the markets, tell us that what is as plain as the noses on our faces doesn’t exist.  When they finally open their eyes and stop playing games, though, there is no doubt that Dave Tepper and like minded souls will be proven correct in their predictions of higher bond rates.