Own everything but ‘bubble assets’ crypto and tech, advises Rich Bernstein, Institutional Investor Hall of Famer
Rich Bernstein, a member of the Institutional Investor Hall of Fame, is a market bull whose strategy eliminates some of Wall Street’s most popular companies.
He attributes it to the market’s perilous see-saw dynamics.
“On the one hand, we have all of what I would term bubble assets: technology, innovation disruption, and cryptocurrency,” Richard Bernstein Advisors CEO and CIO said to reporters on Friday. “You have practically everything else in the universe on the opposite side of this see-saw.” If you want to be on the other side of the see-saw in 2022 and 2023, I believe you should be on everything else in the world side.”
Bernstein believes that a capital shortage will create opportunities.
He makes clear, “That are your higher returns.”
Energy is his top option, which he ranked as a top play heading into 2021. Bernstein dubbed oil the “most neglected bull market” earlier this year. He now believes it might be the 2022 growth group.
Forecasts on the Energy Sector
This year, the Energy Select Sector SPDR Fund, which tracks the group, has already gained 51%.
“The last time the FCF [free cash flow] yield for the oil sector was this high,” Bernstein noted in a letter to reporters. He contrasted this to when the market or the Tech sector outperformed for a decade during the Tech Bubble. The industry’s dividend production is three times + that of the S&P 500.”
Bernstein, who oversaw Merrill Lynch’s strategy, warns that today’s “bubble assets” might wreak havoc on investors, just as they did in the early 2000s.
“Valuations are actually high, and one must consider that the value is more important than the tale,” he mentioned.
He acknowledges that during the 2000 tech bubble, stories about the internet and cellular communications became a reality during the next decade. However, collecting the proceeds took years.
“If you invested in the Nasdaq 100, which were real companies at the time, it took 14 years to break even,” Bernstein noted. “Something tells me today’s people don’t care about valuations, but they also don’t expect to break even in 14 years.”
Crypto is a ‘monster’ bubble, he explains why
Cryptocurrency, according to Bernstein, is also a huge issue. He cautioned that the rush to purchase bitcoin and other cryptocurrencies was becoming dangerously parabolic on “Trading Nation” in June.
“Cryptocurrencies are the largest financial bubble in history,” Bernstein added. “This is a monster,” says the narrator.
Bitcoin has lost roughly 30% of its value in the previous month as of Friday’s market closure. So far this year, it’s up 63 percent.
Bitcoin, according to Bernstein, could drop by as much as 90%, similar to several tech stocks during the 2000 bubble.
“I believe that one should wait to examine the underlying fundamentals and valuations before concluding that this is all over,” Bernstein added.