Investors are ill-prepared for inflation, warns all-star money manager Rich Bernstein
Institutional Investor Hall of Famer Richard Bernstein finds a lot of disapproval regarding inflation risks.
According to Bernstein, the evidence is provided of how investors are currently positioned.
“Think about what people love. They currently love long-dated stocks,” Richard Bernstein Advisors’ CEO and CIO told CNBC’s “Trading Nation” on Monday. “That shows that people are ill-prepared for this higher inflation.”
He fears investors will forget that long-term stocks or growth stocks traditionally perform like 30-year treasury bills. Hence, they are usually a smarter investment when the economic outlook is declining – not when growth is abundant.
“When interest rates rise and people become more optimistic about the economy, these groups are underperforming,” said Bernstein. “What is the likelihood that we will have higher inflation than people think? We think the likelihood is pretty good.”
Even so, the tech-heavy Nasdaq is up more than 5% this month despite the softness on Monday.
“There is a kind of forked market. You have a part of the market that is grossly overvalued [and] really doesn’t have a solid foundation, “he said.
Bernstein’s problems with tech stocks began before the coronavirus pandemic. Two years ago he told Trading Nation that the enthusiasm for technology shows parallels with the dot-com bubble.
He sticks to this warning.
“I think the whole group is ripe for underperformance,” he said. “The reason I say this is because they are the safe havens. They have proven to be safe havens during the pandemic. You have surprised a lot of people, probably me too.”
Known for his long tenure on Wall Street and his strategy for Merrill Lynch, Bernstein encourages investors to focus on economically sensitive groups with a minimum of 12 months.
He counts energy, materials, industry, regional banks, small caps and commodity-related emerging markets among his top games because they are undervalued.
“These are all beneficiaries of pro-cyclical, pro-nominal growth,” he said. “The basics are demonstrably improving.”
“Obviously a sign of speculative excess”
What about investors who have shorter term deadlines and want to take advantage of speculative and momentum trades like cryptocurrencies? Bernstein suggests steering clearly.
“What I find kind of ironic is that people who have never traded euros, never traded yen, never traded pounds, never took a course in international trade and finance, experts suddenly say why bitcoin and cryptocurrencies are so important “said Bernstein. “That is clearly a sign of speculative excess.”
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