Institutional investor hall of famer Rich Bernstein is a market bull whose playbook excludes some of Wall Street’s most popular groups.
He blames a risky dynamic that is unfolding in the market.
“On the one hand, we have everything I would call bubble assets: technology, innovation distractions, cryptocurrencies,” Richard Bernstein Advisors CEO and CIO told CNBC’s “Trading Nation” on Friday. “On the other side of this rocker, you have literally everything else in the world. I think if you look at 2022 to 2023, you will be in everything else in the world next to the rocker.”[ads1];
Bernstein believes the lack of capital will create opportunities.
“This is where your return is higher,” he said.
His first choice is energy, a group he listed as a top game coming into 2021. Earlier this year, Bernstein called oil the most ignored beef market. And now he thinks it can be the growth group in 2022.
The Energy Select Sector SPDR Fund, which follows the group, is already up 51% so far this year.
In a special note to CNBC, Bernstein wrote “Last time FCF [free cash flow] The return for the energy sector was so high in relation to either the market or the technology sector was around the technology bubble, and energy gave better results in a decade. The sector’s dividend yield is> 3X S&P 500s dividend yield. “
Bernstein, who pursued strategy at Merrill Lynch, warns that today’s “bubble assets” could hurt investors dramatically, just as they did in the early 2000s.
“Values are very high, and what you have to remember is that valuation is more important than history,” he said.
He acknowledges that stories told about the internet and mobile communications during the 2000 technology bubble became a reality over the next decade. But it took years to collect the profits.
“If you invested in the Nasdaq 100, which were the real companies at the time, it took you 14 years to balance,” Bernstein said. “Something tells me that people today do not take valuations into account, but that they also do not think it will take them 14 years to balance.”
Crypto as a “monster” bubble
Bernstein also sees cryptocurrency as a major problem. In June last year on “Trading Nation”, he warned about the rush to own bitcoin and other cryptocurrencies were becoming dangerously parabolic.
“Cryptocurrencies are the biggest financial bubble ever in history,” Bernstein said. “This is just a monster.”
Since Friday’s closing of the market, bitcoin has decreased by around 30% in the last month. It is still up 63% so far this year.
Bernstein speculates that bitcoin may fall as much as 90% just like some technology stocks during the 2000 bubble.
“I think one will wait to look at the true fundamental factors and look at the valuations before deciding that this is over,” Bernstein said.