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Tepper and Prechter Square Off On CNBC
September 28, 2010 11:29 AM
STOCK MARKET SMACKDOWN!
Two men enter the cage but only one mans leaves: Let’s get it on!
CNBC recently hosted two very well known market mavens who offered us competing views about where this stock market is headed.
First up: David Tepper, whose bullish comments last Friday helped drive the equity markets higher. CliffsNotes version of Tepper’s big view (summarized for us by Gluskin Sheff’s David Rosenberg):
1. If the economy sputtered, the Fed would step in and embark on more quantitative easing (QE), and that would propel the equity market higher because it will lead to P/E multiple expansion.
2. If the economy chugs along, then there will be no need for more Fed balance sheet expansion but the stock market will enjoy the fruits of stronger earnings growth
Check out the entire 17-minute interview
However, skeptics respectfully counter that there is another scenario Tepper doesn’t account for in his analysis. Specifically, Rosenberg argues, there is a third possibility: the economy weakens to such an extent that the Fed does indeed re-engage in QE, but it doesn’t work.
So the “E” goes down and the P/E multiple doesn’t expand. In this scenario, Rosenberg writes, the market doesn’t go up; it goes down.
Is it possible that QE2 won’t work?
“The answer is yes,” says Rosenberg. “How do we know? Well, because the first round of QE didn’t work. After all, if it had worked, the Fed obviously would not be openly contemplating the second round of balance sheet expansion.”
Continuing on that decidedly downbeat theme, Robert Prechter, president of Elliott Wave International, told CNBC yesterday that he remains extremely bearish on the market and expects the Dow to fall below 1,000 within the next six years – a drop of about 10,000 points.
“I don’t think there is any indication that we have made the major bottom,” Prechter said, adding, “The market has been topping in 2010. It has been giving investors several opportunities to get out. We should see down markets again in coming months and years until all this debt problem clears up and all the overvaluation in the market clears up.”
No positions in stocks mentioned.
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