The "digital gold" narrative for cryptocurrencies is flawed. Gold has a high correlation to uncertainty, acting as a defensive hedge. In contrast, crypto, as shown by its tight correlation with high-yield bond spreads, is highly correlated with liquidity. It is an aggressive, risk-on asset driven by speculative flows, not a safe haven.
Many non-US companies are growing as fast as the Magnificent 7, offer significantly higher dividend yields (7-8x), and trade at a 30-50% valuation discount. This represents a rare cost-benefit opportunity that investors, who typically apply such analysis to every other purchase, ignore in the stock market.
Despite the narrative that dividends are a "lead weight on performance" during speculative periods, the power of compounding dividends provides extraordinary wealth-building potential. The S&P Dividend Index's long-term performance parity with the growth-oriented NASDAQ is a shocking testament to this often-overlooked strategy.
The current market's concentration in a few mega-cap stocks has now persisted for a longer duration and with greater narrowness than the infamous tech bubble of the late 1990s. This concentration represents the primary risk in the market, while the broader, neglected market may actually be quite attractive and hold substantially reduced risk.
Long-term returns are a function of capital supply and demand. Hyped areas like AI have a surplus of capital, competing returns down. True opportunities lie in being the "one banker for 1,000 borrowers"—investing in areas starved for capital, where your money commands a higher expected return.
The high valuations of mega-cap tech stocks are predicated on the idea that their growth is unique. However, data shows numerous companies, both in the U.S. and internationally, are growing at similar or even faster rates. This competition for growth should logically put downward pressure on the Mag-7's multiples, a key tenet of a bubble.
Richard Bernstein's framework posits that stocks cycle from "dogs" to "cream of the crop" and back again. The goal is not to time the absolute bottom (6 o'clock) but to invest when fundamentals start improving (7 o'clock) and exit before the peak euphoria (11 o'clock), avoiding the inevitable crash after midnight.
With corporate credit spreads at historically narrow levels, investors are not being compensated for the inherent risk. In Richard Bernstein's career, spreads have only been this tight three previous times, each preceding a major credit crisis or market scare (late 1990s, mid-2000s, 2021-22). This suggests a poor entry point for credit.
The market's expectation of significant Fed rate cuts is historically unfounded given current economic strength. With nominal GDP tracking so high, any rate cuts would likely fuel further nominal growth (either real growth or inflation), putting upward pressure on long-term interest rates and making duration risk in bonds dangerous.