Rich Bernstein, a member of the Institutional Investor Hall of Fame, is a market bull whose playbook excludes some of Wall Street’s most popular groups.
He blames a risky seesaw dynamic unfolding in the market.
“On the one hand, we have everything I would call bubble assets: technology, innovation disruption, cryptocurrencies,” Richard Bernstein Advisors CEO and CIO told CNBC’s “Trading Nation” on Friday. “On the other side of this seesaw, you have literally everything else in the world. I think if you’re looking from 2022 to 2023, you want to be on everything else’s side of that seesaw.”
Bernstein believes that the capital shortage will bring opportunities.
“That’s where your returns are highest,” he said.
His number one pick is energy, a group he listed as one of the top plays in 2021. Earlier this year, Bernstein called oil the most ignored bull market. And now, you think it could be the growth group of 2022.
The Energy Select Sector SPDR Fund, which follows the group, has already risen 51% so far this year.
In a special note to CNBC, Bernstein wrote “The last time the FCF [free cash flow] the performance of the energy sector was as high relative to the market or the technology sector was around the technology bubble, and energy outperformed for a decade. The industry dividend yield is> 3 times the S&P 500 dividend yield. “
Bernstein, who led the strategy at Merrill Lynch, warns that today’s “bubble assets” could dramatically hurt investors just like they did in the early 2000s.
“Valuations are very high and the thing to remember is that valuation is more important than history,” he said.
It acknowledges that the stories told about the Internet and cellular communications during the tech bubble of 2000 became 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 14 years for you to break even,” Bernstein said. “Something tells me that people today are not paying attention to valuations, but they are also not thinking that it will take 14 years for them to break even.”
Crypto as a ‘monster’ bubble
Bernstein also sees cryptocurrencies as a major problem. Last June, on “Trading Nation,” he warned that the rush to own bitcoins and other cryptocurrencies was turning dangerously parabolic.
“Cryptocurrencies are the largest financial bubble in history,” Bernstein said. “This is just a monster.”
At the close of the market on Friday, bitcoin is down around 30% over the last month. It’s still up 63% so far this year.
Bernstein speculates that Bitcoin could fall as much as 90% as did some tech stocks during the 2000 bubble.
“I think you want to wait to see the real fundamentals and see the valuations before deciding that this is all over,” Bernstein said.