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"I really don't think there is a bear market on the horizon,"
Bernstein, the chief executive of Richard Bernstein Advisors LLC
and former Merrill Lynch & Co chief investment strategist, said
at the Reuters Global Investment 2019 Outlook Summit in New
York.
Bernstein said there is now an absence of typical catalysts for
a "multi-quarter, curl-your-toes" bear market including falling
corporate profits, an inverted U.S. Treasury yield curve, and
overly bullish investors.
Indeed, he said complacency is missing.
"People are so focused on downside and downside protection,"
said Bernstein, whose firm oversees $9.5 billion of assets as of
Sept. 30. "That's not what a recession feels like."
Bernstein said he is "very cyclically positioned," favoring
industrials, commodities, gold and other investments that can
thrive in a rising "pro-inflation" environment, while keeping a
"very, very short duration" in fixed-income investments.
"Fundamentals have been deteriorating in the fixed-income market
for two years. Nobody cares. It's an amazing thing to see," he
said. "If you think about what's the kryptonite of fixed income,
it's inflation. (It) has been creeping up at a snail's pace, but
it's creeping up."
A key cause of uncertainty about growth prospects comes from
Washington, Bernstein said, as lawmakers eyeing the two-year
election cycle enact voter-friendly stimulus but resist the hard
choices to address a longer-term need, infrastructure spending.
He said that shortcoming is already impeding productivity,
pointing to the daily slog that he and thousands more commuters
experience on a much-maligned suburban railroad to New York from
New Jersey.
"I have the pleasure of riding New Jersey Transit every day," he
said. "I only go through a 108-year-old tunnel. I don't get to
go over the 110-year-old bridge."
Bernstein sees no "day of reckoning" for the economy, but said a
"slow bleed" from deficit spending has created a "huge
asset-liability mismatch" where the cost of paying interest on
the national debt could soon outpace Medicaid and defense
spending.
Bernstein said last week's Democratic takeover of the U.S. House
of Representatives likely will have no effect.
"We're in a late-cycle environment, we're stretching the limits
of the economy, and public policy is the most uniformly
pro-inflation," he said. "I don't think people realize that."
Follow Reuters Summits on Twitter @Reuters_Summits
(Reporting by Jonathan Stempel in New York; Editing by Jennifer
Ablan and Lisa Shumaker)
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