Investment adviser Rich Bernstein said in a CNBC interview Monday that bitcoin is a bubble, and crypto mania is making investors ignore other asset classes that have more potential.
Institutional acceptance of bitcoin and other major cryptocurrencies has led to mainstream adoption, making it one of the most trending alternative assets. The fear of missing out on the cryptocurrency buzz led to a jump in the number of crypto wallets to 73 million in May this year, from about 49 million at the same time in 2020, according to data from Statista.
“It’s pretty wild,” Bernstein, the CEO and CIO of Richard Bernstein Advisors, told CNBC’s “Trading Nation.” “Bitcoin has been in a bear market, and everybody loves the asset. And oil has been in a bull market, and it’s basically, you never hear anything about it. People don’t care.”
According to the star investor, oil is the most ignored asset class and commodity traders have good reason for optimism.
“We’ve got this major bull market going on in commodities, and all people are saying is that it doesn’t matter,” he said.
Bitcoin was last trading 1.3% higher at around $39,815 as of 7:55 a.m. ET on Tuesday, but it’s fallen more than 36% in the past two months. Brent crude rose 1.2% to $73.75 and West Texas Intermediate rose 1.4% to $71.90. Both are up 97% and 89%, respectively.
By officially establishing itself as an asset class, the most popular digital asset has had a historic year as Wall Street titans like Goldman Sachs opened its trading floor to it. But Bernstein thinks bitcoin’s bull run isn’t sustainable in the longer term.
Investors could suffer portfolio declines over the next two to five years if they overlook other asset classes, he said. “The side of that see-saw you want to be on is the kind of pro-inflation side which most people are not investing in,” he said.
Bernstein listed energy, materials, and industrials as his top bets “because that’s where the growth is going to be” within the next six to 18 months.
US stocks hovered near record highs Tuesday as investors await comments from the Federal Open Market Committee about a timetable for scaling back on its accommodative policies.
The FOMC decision is due Wednesday after a two-day meeting, with most economists anticipating the central bank will leave its policy mostly unchanged. Investors will be focusing on tapering discussions, the latest economic projections, and inflation.
“It is going to be increasingly difficult for the Fed to soothe markets with its dovish stance, as they probably will be discussing tapering and will have to revise up forecasts for economic growth and inflation,” Bank of America said in a note on Tuesday.
While the central bank can exhibit patience this time, the situation will not be the same by the July and September FOMC meetings, Bank of America added.
In March, Fed officials saw consumer prices rising 2.4% in the fourth quarter of 2021 from a year earlier. That pace, they said, would be consistent with their goal of 2% average annual inflation over the long run.
The S&P 500 closed at a record high on Monday for the second trading day in a row. The tech-heavy Nasdaq also closed at a record.
Here’s where US indexes stood at the 9:30 a.m. ET open on Tuesday.
Meanwhile, US retail sales fell 1.3% in May, the Census Bureau said Tuesday. Economists surveyed by Bloomberg held a median estimate for a 0.7% decline. The decline places monthly sales at $620 billion and just below the record-high seen in April. The April sales data was revised higher to a 0.9% jump from an initially unchanged reading.
Bitcoin finally hit the $40,000-level on Monday after trending below that level to date in June. Still, many, including investment adviser Rich Bernstein, believe that bitcoin is in a bubble, and the crypto mania is making investors ignore other asset classes that have more potential.
Giant oil corporation Royal Dutch Shell is considering shedding some or all of its assets in the Permian Basin, Reuters reported on Sunday, underscoring the pressure Shell and its competitors are under to focus on transitioning to a carbon-neutral economy and combat climate change in the coming decades.
The Netherlands-based company has some 260,000 acres in the southern US oil field, the largest in the country, that could be worth as much as $10 billion, Reuters reported, citing sources familiar with the matter. Shell declined to comment to Reuters.
Shell produces some 160,000 to 170,000 barrels of oil per day in the Permian Basin, upstream director Wael Sawan said on May 25 during a meeting with analysts. Sawan has said that over the last year, the company has lowered its Permian production by some 20,000 barrels a day in an effort to preserve cash.
Shareholders and activists have intensified calls on oil companies like Shell, Exxon Mobil, and Chevron to reduce their carbon emissions in recent years. They have grown louder, and more successful, this year.
Investors’ efforts to push for change reached a landmark moment this spring when Exxon shareholders elected to install three new directors on the oil giant’s board in a bid to accelerate its shift toward cleaner energies.
Environmental- and social-related shareholder proposals have seen record support this year, according to a report last week by RBC Capital Markets analysts Sara Mahaffy and Lori Calvasina. Just shy of one-quarter of such proposals at US companies have received majority support, up from just 5% in 2019.
Shell earlier this year outlined a plan that included targets like cutting the carbon intensity of the energy products it sells by at least 6% by 2023 and 20% by 2030, compared to 2016 levels.
But its targets were challenged last month when a Dutch court ordered Shell to cut its carbon emissions by an accelerated net 45% by 2030 from 2019 levels. The company called that ruling “disappointing,” and said it will focus on its efforts to reduce its carbon footprint.
Shell, led by Chief Executive Chief Executive Ben van Beurden, has also said it believes its annual oil production peaked in 2019 and will likely fall by 1% to 2% a year until 2030.
“The Permian indeed is part of that core position simply because we do see the running room in there, and we do actually believe it is a high-quality position, plus a high-quality operation that we have there,” Van Beurden told an analyst during a call in February, referring to the company’s strategy in the oil field. “And therefore, we will continue to invest in it until, indeed, it doesn’t make sense anymore.”
Oil prices are primed to push higher in the near term but many investors may miss out on building wealth from those moves because most portfolios have very low exposure to the energy sector, according to Bank of America.
Supply constraints and growing demand for oil as coronavirus vaccinations allow more people to return to work and travel are factors that will contribute to drawing up the commodity’s value and build on price gains of at least 40% this year for both Brent crude and West Texas Intermediate crude.
The impact of the upside risk, however, may bypass numerous investors as the energy sector has 2% of an average long-only portfolio manager’s weight. This “paltry” level is about half as much as the 4.2% exposure to tech-behemoth Facebook, said Savita Subramanian, head of US equity strategy and quantitative strategy at BofA Securities, in a note published Thursday.
“Not owning Energy wasn’t painful when the sector was <2% of the S&P 500,” she wrote. “But the astronomic 92% price return since October has bumped Energy’s weight to 3%; another big move in oil may be felt more acutely.”
The energy sector collapsed in 2020, losing nearly 40% as oil prices briefly dropped into negative territory in a market rocked by a plunge in demand due to the coronavirus pandemic. The sector, along with oil prices, managed to dig out of the red in part as OPEC and its allies cut production to address the buildup in oil stockpiles.
The energy sector this year has gained 45% compared with the S&P 500 index’s nearly 13% rise to record highs. Brent crude and WTI prices over the past 12 months have run up by nearly 90% and 95%, respectively, leaving Brent to fetch more than $72 a barrel, and WTI to trade above $70 a barrel.
“If Energy doubled again, and all other sectors saw average returns, investors with no Energy exposure would sacrifice a full 3 percentage points of alpha,” or returns above a compatible benchmark index, wrote Subramanian. Losing out on 3% would more than obliterate relative gains of 0.59% this year, she said.
Meanwhile, ESG funds centered on environmental, social, and governance issues such as clean energy stand to underperform even more given their 70% underweight in the sector, said the strategist.
US stocks rose on Friday, with the S&P 500 hovering near record highs as investors continue to remain optimistic about the US economy amid support from the Federal Reserve.
The benchmark index on Thursday broke both its intraday record and closing record, to finish the session at 4,239.18.
Tom Lee, managing partner and the head of research at Fundstrat Global Advisors, said the breakout to new highs was presaged by the upside breakout last week.
“Our base case of a surge in S&P 500 to 4,400 before mid-year 2021 remains intact,” Lee said in a note.
While Thursday’s data showed that US inflation surged more than expected in May, weekly jobless claims fell to a pandemic-era low.
The 10-year Treasury yield was trading around 1.455%, two basis points above its March low, in a sign that the market believes strong inflation will prove transitory, as the Federal Reserve has stated.
Here’s where US indexes stood at 9:30 a.m. open on Friday:
Global oil demand is set to return to pre-pandemic levels by the end of 2022, but renewed COVID outbreaks and low vaccination levels in developing countries will make the recovery uneven, the International Energy Agency said on Friday.
The IEA issued its first forecast for 2022 in its monthly oil report, predicting that demand would build on 2021’s growth of 5.4 million barrels per day and increase by an additional 3.1 million barrels per day in 2022, reaching 100.6 million barrels per day by the end of next year.
Recovery will however be uneven as COVID-19 continues to affect non-OECD countries with slower vaccination rates and the pandemic caused shifts in consumer behaviour.
“Continued teleworking in OECD countries […], higher electric vehicle sales and increased car efficiencies for new models will weigh on growth.” the IEA believes, adding that ongoing border closures will also keep impacting fuel orders. They had slowed down significantly during the pandemic and associated lockdowns that prevented international and domestic travel.
Jet fuel and kerosene demand are therefore still expected to be 11% lower at the end of 2022 compared to before the pandemic. At the same time, LPG and ethane demand will rise around 5% above pre-pandemic levels and gasoline and diesel orders will rebound to their former standards.
The IEA left its outlook for 2021 demand mostly unchanged from last month. The more stable COVID-19 situation and continued recovery and economic reopening in OECD countries caused demand to rise in the first half of the year. However, slow vaccination rates in non-OECD countries led the IEA to reduce forecasts for the second half of the year.
Overall 2021 demand expectations were therefore lowered to 50,000 barrels per day, with annual growth now expected to be around 96.4 million barrels per day.
Global oil supply is set to grow more quickly in 2022, as the US is set to recover from two consecutive years of production declines and will account for much of the increase in supply from outside OPEC+. The IEA predicts non-OPEC countries will supply around 1.6 million barrels per day more next year, leaving OPEC+ to produce an additional 1.4 million barrels per day to meet growing demand.
“The boost in non-OPEC+ oil supply next year comes despite financial constraints and mounting pressure from climate activists and shareholders on major oil companies and independents,” the report said.
In the shorter term, the IEA said OPEC+ may have to revise its current supply policies in the second half of 2021, as disparities between demand and supply start developing and are set to affect markets in the last quarter especially.
Finally, sanctions on Iranian oil exports will also play a role in increased supply. If Tehran can strike a deal with global powers over its nuclear activities and sanctions are lifted, Iranian crude could flood markets and make the country the biggest driver of supply growth in 2022, the agency said.
Legendary investor Jeremy Grantham said US stocks are hugely overpriced, predicted copper prices should shoot higher in the coming years, and that he had an “overprivileged” lockdown in an interview at the Morningstar Investment Conference Australia this week.
The cofounder of asset management firm GMO also ripped into the major oil companies, saying they’re too cynical to engage with. And the 82-year-old said the SPAC boom and the Nasdaq had probably peaked.
Here are the 14 best quotes from the interview.
On the investing landscape
1. “The developed world is merely overpriced, no big deal on its own, but the US is heroically overpriced, and emerging markets is actually fairly cheap… I have complete confidence that if you bought the intersection, cheap emerging market stocks, that you would get a perfectly handsome 10- or 20-year return. And I am pretty darn confident that you will not get a handsome ten-year return from say the S&P 500 or Nasdaq.”
2. “[The] Nasdaq has, by the way, peaked quite a long time ago, two months ago…. This time, my guess is the super SPACs peaked in January, the Nasdaq peaked in February. And maybe in a few months, the termites will get to the rest of the market.”
3. “The super crazies are really anything to do with electrification. EVs, for sure, Tesla is the king of that group, [and] they’re down 30%. The SPAC index is down 30%, the last 10 SPACs having announced a deal are now [trading at] less than the $10 that they do these deals at.”
4. “There is no way copper will not rise hugely from here because of the electrification of everything. And that goes for cobalt, that goes for lithium. And all of the metals except iron and aluminum are really scarce… You have to be reconciled in the long run for a different world of commodity prices.”
On dangers for markets
5. “The higher an asset price is, the lower the return. So having high-priced assets is great for retirees, old folks like me selling off my assets. But for everybody else, it means you compound your wealth more slowly… So I welcome lower asset prices, which I’m confident will come.”
6. “It won’t take bad news. It won’t take a thoroughly bad economy to start bringing this market down. It will take a perfectly good economy and perfectly optimistic outlook, but a little less than it used to be a week ago, a month ago.” – Grantham also spoke of “pessimism termites” that would start to eat away at investor confidence.
7. “You look around and you find that real estate is suddenly pretty bubbly in almost every interesting market in the world… You can’t keep an asset class like housing, where the house doesn’t change, and you’re just marking it up in real terms year after year. Eventually, there’ll be a day of reckoning.”
8. “Don’t pull a Japan. Japan had the biggest bubble in history in land and real estate, bigger than the South Sea Bubble in my opinion. It also had the biggest equity bubble of any advanced country. [Now] 32 years later their land is not back to where it was in 1989 and their stock market is not back in nominal dollars to where it was in 1989. And that’s a perfect example, as the higher you go, the longer and greater the fall.”
9. “We had a totally overprivileged existence. We’re down in beautiful countryside with 50 acres of our own of woodland… And I did quite a lot more research than normal because I wasn’t wasting my time on airplanes. So my carbon footprint was magnificent, and I was reduced to worrying about rather small things like amortizing my tie supply. If I could wear three at a time, I would.”
On the oil companies
10. “The oil industry ran a deliberate campaign of obfuscation, political propaganda, to deliberately mislead the world… That should be criminal. It certainly has had a very damaging effect… It’s cost the world perhaps as much as 10 years of progress on climate change action and government support and sensible regulation.”
11. “I think engagement for the routine concerns [with companies over climate change] is the way to go… But with oil companies, I think they’re simply too cynical and too clever for engagement to count.”
On value investing and venture capital
12. “[Value investing] has had a brutal 11 years. It was the worst 10 years in history for value versus growth. And then last year was by far the worst single year. So you had the worst decade followed by the worst single year… We’ve had a lot of problems over the last 11 years.”
13. “American capitalism seems to me past its prime, a little fat and happy, not aggressive enough. There’s only half the number of people working for firms [that are] one and two years old than there were in 1975. So we’re losing some of our dynamism.”
14. “But there is one thing where the US is still exceptional and that is venture capital. And venture capital is really attracting the best people these days. They don’t go to Goldman Sachs to write algorithms. They go into venture capital or to start a new firm, and they should.”
In cryptocurrencies, bitcoinslipped as much as 8% after Elon Musk signaled a potential breakup with the digital asset by posting a broken-heart emoji and a reference to a popular Linkin Park song. Bitcoin has fallen more than 40% since its April record high of near $65,000.
US stocks closed higher on the last trading day of the week as optimism around the pace of economic recovery continues to grow.
“For now, the market is looking through these high readings and shares the Fed’s views that inflation is transitory,” Cliff Hodge, Cornerstone Wealth CIO, wrote in a statement. “We’ll likely have at least two more lofty prints before settling back down.”
Hodge said the “true gut check” will come in July and August when the country has gotten past the worst of the pandemic. This, he said, is when the window of risk for the markets really opens up.
“If inflation proves to be more sticky and we get a taper announcement that could be a double whammy for stocks,’ he added.
The Personal Consumption Expenditures price index – a key measure of domestic inflation – gained 0.6% in April, the Commerce Department announced Friday, as American spending rebounded.
The jump is the largest single-month gain since 2008, in line with the median estimate of a 0.6% increase from economists surveyed by Bloomberg.
The PCE index also notched a 3.6% year-over-year gain, surpassing the median estimate of 3.5%
“This report puts the Fed in a really good place, inflation is up, but real yields are still low,” Jamie Cox, managing partner for Harris Financial Group, said in a statement. “This is basically a transitory sweet spot.”
Here’s where US indexes stood shortly at the 4:00 p.m. ET close on Friday:
GameStopcontinued its rally amid a meme-stock resurgence with shares rising as much as 5.39%. In the past month alone, shares of GameStop are up nearly 50%, while fellow Reddit darling AMC has seen an incredible rise of nearly 200% over the same period.
AMC short-sellers, in fact, aren’t letting up. Instead, they’re digging in further. A week ago, the number of AMC shares on loan, used to short the stock, was 124 million. As of Friday, the number of shares on loan was 132 million, new data from ORTEX shows.
In the digital asset space, South Korea is moving forward with plans to impose a 20% income tax on capital gains from cryptocurrency transactions, according to a report. Starting next year, these will be classified as “miscellaneous income” and must be reported when filing for general income taxes in May 2023.