Institutional Investor Hall of Fame Rich Bernstein is a market bull whose playbook excludes some of Wall Street’s most popular groups.
He blames a risky sawtooth dynamic unfolding in the market.
“On the one hand, we have everything I would call bubble assets: technology, disruption of innovation, cryptocurrencies,” CEO and CIO of Richard Bernstein Advisors told the “ CNBC’s Trading Nation. “On the other side of that swing, you’ve literally got the rest of the world. I think if you look 2022 to 2023, you want to be on everyone’s side of that swing.”
Bernstein believes that a shortage of capital will create opportunities.
“This is where your returns are highest,” he said.
His number one pick is energy, a group he has ranked among the top players by 2021. Earlier this year, Bernstein called oil the most ignored bull market. And now he thinks it could be the 2022 growth group.
The Energy Select Sector SPDR fund, which follows the group, is already up 51% since the start of the year.
In a special note to CNBC, Bernstein wrote, “The last time the CWF [free cash flow] the performance of the energy sector was also high relative to the market where the tech sector was around the tech bubble, and energy outperformed for a decade. The sector’s dividend yield is> 3 times the dividend yield of the S&P 500. “
Bernstein, who headed strategy at Merrill Lynch, warns that today’s “asset bubbles” could hurt investors significantly, just like they did in the early 2000s.
“Valuations are very high and the bottom line is that valuation is more important than history,” he said.
He recognizes that the stories told on the internet and cellular communications during the tech bubble of 2000 have become a reality over the next decade. But it took years to reap the benefits.
“If you were to invest in the Nasdaq 100, which were the real companies at the time, it took you 14 years to break even,” Bernstein said. “Something tells me that people today don’t care about appraisals, nor do they think it will take 14 years for them to break even.”
Crypto as a “monster” bubble
Bernstein also sees cryptocurrency as a major problem. Last June on “Trading Nation,” he warned that the rush for bitcoin and other cryptocurrencies was getting dangerously parabolic.
“Cryptos are the biggest financial bubble in history,” Bernstein said. “He’s just a monster.”
As of Friday’s market close, bitcoin was down about 30% over the past month. It’s still up 63% so far this year.
Bernstein speculates that bitcoin could drop as much as 90%, as could some tech stocks during the 2000 bubble.
“I think you want to wait until you look at the real fundamentals and valuations before you decide that this is all over,” Bernstein said.