Fear not, investors unsure of which way to pivot these days when it comes to the stock market and cryptocurrencies. There are only two real choices.
That’s according to the president of macroeconomic research firm Lamoureux & Co., Yves Lamoureux, who has a knack for predicting market direction. After nailing a panic event in 2018, he forecast a series of rolling bear markets spurred by COVID-19 waves last year, correctly calling a market bottom in March 2020.
The Montreal-based forecaster in September predicted an ensuing rally, saying the market retreat was done — and he now foresees a third leg lower, though maybe not a straight shot down.
Doubt over its duration is “because there’s so much interference from the Federal Reserve and central banks [as] they all try to keep the profits up,” he said. Barring such a campaign, the drop would be fast — likely over in a year. Central banks, Lamoureux said, could cause instead the sort of drop that “drags on for a little bit longer.”
He said his firm rotated out of stocks at the end of 2020. “We’ve seen the peak liquidity where all the central banks have done the best they could do, but after that we will find out there is simply not enough liquidity to support all markets, not just stocks,” he said.
One of his enduring views is that rates will embark on a decade-long march higher. Investors got a taste of that in March, when the yield on the 10-year U.S. government bond
marched higher, reaching nearly 1.8%, hitting technology stocks particularly hard. The debate continues to simmer as to whether investors will see this situation repeat as the U.S. economy strengthens.
Asset manager BlackRock is among those that don’t see rates spiraling out of control, but such a scenario was recently flagged as a top risk for stocks over the next 12 months in a Barron’s poll of investors. Lamoureux, meanwhile, has steadily warned clients, including over Twitter, as he did last October when the 10-year yield crept toward 0.7%.
One result of higher rates is that stocks and bonds get hit, making it difficult for those fond of passive strategies, such as buy and hold, to make money. That said, Lamoureux is also predicting that opportunity may knock soon for equity investors, as he sees bonds stabilizing in the latter half of this year, before rates return to an upward path from 2022 onward.
“So that window will give people the chance to go back to tech stocks, because that’s what was hammered the most in this big move up in rates,” he said. “In technology they’ve gone down so much. That’s the area I think is attractive.”
Lamoureux said investors need to start making moves now, though, to protect themselves down the road. One way is to shed the passive cloak and “look at markets that are really beta, higher beta, meaning they move more than the regular market. And the big, big, big money has been made, in SPACS,” he said.
SPACs, or special-purpose acquisition companies, are also known as blank-check companies as they raise money in an initial public offering and then have two years to acquire a business or businesses. They have been called a poor man’s private equity because they allow ordinary investors to get in on a potentially hot stock outside of the public markets.
“I’m talking to a lot of professionals, and they’re basically just starting to be aware that there’s this new market … that gives people a chance to buy stocks like venture capital,” said Lamoureux, who flagged the asset class in a MarketWatch interview last September.
Note that SPAC offerings have begun to slow after a surge in 2020, and some are warning of a bubble in the category that could turn against investors. Bubbles are a “regular feature” of SPACs, said Lamoureux, who adds that investors simply don’t have a ton of choice these days.
“We’ve seen bonds explode, [and] that is a loss of liquidity. I’m calling for oil to double-top and head down. That’s going to be a loss of liquidity. If you look at all the tech stocks that were very popular, they have crashed,” he said.
He named the cloud data software company Snowflake
as one example among many of a “very popular, very good company” that suffered a sudden drop in valuation — its share price declining from nearly $400 in December to barely above $200 in March — when interest rates surged. The Nasdaq Composite
has all but recouped its losses from late March lows when the yield on the 10-year U.S. Treasury bond
surged in late March. Snowflake shares were hovering at $239 on Wednesday.
“Higher rates will have total massive implications not just on bonds but stocks and real estate, which has become the biggest bubble ever,” he said. As well, with higher debts and borrowing, higher taxes are coming, and that will be “bad for stocks,” he added.
Better than Coinbase
Lamoureux has also made prescient calls where cryptocurrencies are concerned. In February 2017, when one bitcoin was worth $994, he predicted the value would reach $25,000 over the next 10 or 15 years, and bitcoin went on to touch $20,000 before melting down.
He accurately called bitcoin’s push to $16,000 in mid-2020, and called bottoms all the way up to a recent record above $64,000, but said his firm exited cryptocurrencies around $50,000 for some indirect exposure via bitcoin exchange and digital-asset marketplace Bakkt. That company is a better long-term play than recently listed digital exchange Coinbase
“because it fits with what I think is coming,” he said.
“People are crazy. They kind of buy a story after the fact, and the story is done, you know? Bitcoin has gone up, and these guys have made lots of money, so people are buying Coinbase at outrageous levels,” he said.
Launched in 2018 by New York Stock Exchange owner Intercontinental Exchange
Bakkt is due to be taken public via a merger with VPC Impact Acquisition Holdings
a SPAC, in a deal that values it at $2.1 billion. The merger has been forecast to close in the second quarter.
With Bakkt, he said, investors get a bitcoin exchange that trades futures and options, and a custodian side — crypto storage plus an app, about which he is excited, having bought into the SPAC. “It’s a new lifestyle app that will increase bitcoin adoption and aggregate your digital assets loyalty points, gift cards, air miles, coupons, in-game assets,” Lamoureux explained.
For example, users could take their points from coffee chain Starbucks
convert them to cash and buy bitcoin with that app, creating interrelationships and “some kind of ecosystem,” he said. “Rather than trying to forecast the price of bitcoin, [Bakkt] allows you to play the adoption curve of bitcoin.”
Bakkt may not stop there. In an interview earlier this month, Chief Executive Officer Gavin Michael said the company could introduce non-fungible token (NFTs) to the platform in future. Popularity has surged for NFTs, a certificate of ownership for a unique digital asset, over the past year, with a work of art using the digitalized technology selling for nearly $70 million in March.
Michael also said they also foresee an ability to “contribute and participate in the central bank digital currency space.”
For Lamoureux, the rationale for Bakkt is basic: “The sellers of picks and shovels have always made money. Just ask the gold diggers.”