Mike Novogratz Says Fed Is Feeling Fat, Dumb And Happy

Mike Novogratz, president of Fortress Investment Group (NYSE: FIG) and former Goldman Sachs (NYSE: GS) partner, appeared on CNBC's Squawk Box on Wednesday, where he had much to say about the possibility of the Federal Reserve tapering.

Novogratz was on the day after the Founder and President of Appaloosa Management, David Tepper, appeared on the program and said that investors shouldn't be worried about the possibility of the Fed tapering, stating that without it, the stock market would go into hyperdrive.

Novogratz agreed with Tepper.

"The central banks are flooding the markets with liquidity, inflation continues to fall, which means the Fed is feeling fat, dumb and happy. I mean, they are not nervous," said Novogratz.

According to Novogratz, inflation indicators going down and growth going up creates the perfect storm for the Fed, saying that there's no rush to taper while stocks are going up.

"The moment the Fed starts moving, the stock market is going to go down," said Novogratz.

Novogratz sent on to say that the rally is going to end, and that the correction would lead to a 10-15% dip in the stock market.

"As long as the inflation indicators keep pointing down, the Fed is sitting back with a cigar in their one hand and bourbon in their other," said Novogratz.

Novogratz said that stocks are cheap, and if you look at the stock market today versus where it was in 2007, earnings are higher.

In regards to bonds, Novogratz sees a plan at work. He said that the Fed is buying treasuries to hold government bond yields down in attempts to generate inflation, and that currently, the Fed has driven down treasury yields to much lower than they would normally be. He said that if the Fed is tapering to to strong growth and inflation is coming back, yields are going to be a lot higher.

"Are they 200 basis points higher? No, they're not, cause I just don't see us shockingly coming form an era of deflation into one of inflation," said Novogratz.