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Bitcoin's price decline ‘blew the thesis’ that it’s digital gold: Strategist

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Portfolio Wealth Advisors CIO Lee Munson joins Yahoo Finance Live to discuss market volatility, investing in metals during interest rate hike cycles, bitcoin and other cryptocurrencies, and the Fed.

Video Transcript

- Let's stick with the topic of the markets now with our next guest. Lee Munson is Portfolio Wealth Advisors chief investment officer. Lee, thank you so much again for joining us, as always. Now, the trading that we're seeing this afternoon across US stocks of course belies the volatility that we saw over the past month in January. Do you think that volatility is now behind us, or is there more bumpiness that investors should be looking out for?

LEE MUNSON: Well, I mean, I think that when you have a volatility spike like you had last week, generally six months later, 100% of the time, the stock market's up. The question is, are we going to see follow-through. I'm not sure we're going to see follow-through. I think that the concern was a lot about Ukraine. I think that's baked in. I think there's a concern about what the Fed was going to do. But I think the Fed is pretty clear on what they're going to do. They're going to slow roll this thing for the rest of the year, and we'll see if we get five hikes like they said.

So unless there's some big surprise, right, like the Fed hikes by 50 basis points, which I think will be a cold day in hell next month, I think you're going to see volatility might spike up. I don't think you're going to see it back at 40 anytime over the next couple of weeks or the next couple of months. But that being said, do you want to go in and start buying up all these stocks, you know, sort of the Cathie Wood stocks, the young, unprofitable companies, or do you want to start looking at analogs from 22 years ago and realize we could go lower? And you don't have to have high volatility to get that slow bleed out of liquidity stocks, the sort of stay at home stocks, and the overpriced companies that don't make any money stocks.

- And I guess that's the big question. If you did get a surprise on the size of the hike, how would that impact where, for some of those traders that have already piled into names that they saw discounts on, would that spook them at all at this point?

LEE MUNSON: Well, I think it should spook them. I think that if you want to be in-- let's just call it the NASDAQ, the things that are not value, the growthy names, we all know what those are. I think you've got to trade them this year. For me, I'm not going to go long. I like to hold stuff for a year and a day, or even longer. Most my clients are older. They want to be investors. They don't want to be traders. But even for me, as a value-oriented guy having his day in the sun this month, I still think that you're going to have to do a little bit more trading to generate excess returns.

So I think that if you were going down deep into that NASDAQ, you know, you're getting nice pops here. And I think that if you want to do that for the rest of the year, in the face of the ludicrous idea that higher rates are going to help those stocks, and if you believe that, good luck. But if you're smart and you're a trader, you'll just trade around these bounces and, you know, make sure you have tight stocks, and don't fall in love with any of this garbage right now.

- Well, and one area of the markets that you've been watching outside of stocks has been in precious metals. And you're actually, you mentioned, long gold, silver, and some gold miners. Why precious metals in this environment?

LEE MUNSON: Well, last year, I guess I liked to lose money and look stupid, but the ultimate reason is that when you look at a hiking cycle, which can last two or three years, we've had six, seven of them since 1970. And in general, on average, once you get that first rate hike, gold and, you know, by virtue of that, the gold miners-- remember, gold miners are just a hyped up version of owning gold, and silver is just gold on crack-- is that you tend to see most of the time in those hiking cycles gold go up 30%, 60%.

The problem is you have to be patient. The problem is that a lot of times, to really get all those gains, you have to be in the trade 12 to 24 months. Remember back in '08, '09, gold didn't peak till 2012, after the hikes had already sort of come and gone. And so a lot of people think of gold as this thing that pops right during the crisis. And that's true. I like to go in after the crisis, when all the gold-- you know, the panic buyers of gold kind of float off away.

And then you accumulate positions like last year, which can be very painful. And then you sit on it for a year or two, and see if this time it works again. I think it will. And I think that it has a little less to do with how the Fed hikes and all of that. I think it has more to do with the hiking cycle in general, and also the resilience of the purchase power of emerging markets, where you get a lot of marginal gold purchases.

- Is any of that applicable to digital gold, on the other side, and the dips that we've seen with Bitcoin, last week touching 33,000, and still trying to set its own bottom and perhaps rebound a little bit. It's up over 5% over the past five days.

LEE MUNSON: Well, I was concerned last year, mainly because I wasn't making a bunch of money in gold, and you make a lot more of Bitcoin, that somehow-- let's just say, digital gold, we mean Bitcoin when I say that. I don't mean Ethereum. I don't mean Dogecoin. When I say digital gold, I mean Bitcoin, the granddaddy, the thing that adults and people over 50 in the biz will buy.

And so I think that there was a lot of speculation-- I thought of it, too, wasn't sure-- that it's going to be this new gold. But look at its-- look at its price action over the last couple of months. It's going down big double digits, you know, 30%, 40% down. So I think that kind of blew the thesis that people are really looking at Bitcoin as some sort of gold substitute for an inflation hedge or substitute for let's say strange central banking policies on a rate hiking cycle. I think it's really just a risk asset. I always suspected it was a risk asset, and this year it's acting like a risk asset.

Honestly, I think that the diamond hands are out. I think if you want to buy digital gold, you want to buy some Bitcoin, I think the prices here are fine. It could go to zero. It's not really real. I think the New York mayor is crazy, and just it's a big PR stunt, in your last bit about it.

But I think that if you want to own some Bitcoin and sock it away, with the idea that somehow we all agree it's going to go to 100,000 in the next year or two, I think this is a perfect time to buy. But don't think that it's a replacement for gold, and don't think it has really anything to do with inflation, all this nonsense. It's just a risk asset that seems to front-run the market by four to six weeks. But that's another whole topic.

- Lee, going back to central bank policy and what we might hear from the Fed in March, what data or what signs are you looking for on the margins to really inform whether we do get these five interest rate hikes that the market seems to be increasingly pricing in as likely for this year?

LEE MUNSON: Well, the first thing is that, you know, there are two mandates, which we can't say enough and remind people. Unemployment, it's low. Where are they going to go on unemployment, right? It's back where we were around pre-COVID. So I think that's now off the table. The box is checked. So what they're really going to look at is inflation.

And they're going to look at these outputs. And they're not going to take into account energy, which is going to be sticky on its pricing all year because we're only putting 75% of capex into the energy sector versus pre-COVID. You do the math. It's going to stay high. And I think they're not going to look at food.

So I think what the Fed is going to do is they're probably going to do a quarter point because everybody wants them to. I think all the CIOs out there are saying, oh, they could do a half. They're just trying to get some publicity for themselves. And I think the Fed is going to look at starting slow and calming people down and telling us bedtime stories that somehow they're going to tell Treasury to print another trillion, of which they're not going to mop up, and they're going to say every-- there's enough space out there for people outside of the Fed to mop up all that liquidity.

And I think that's going to be more important when they look at their data than what inflation is going to be, because I think there's a general sense of people who watch this, including myself, that we're probably peaking on inflation the next couple of months, and the second half of the year, it's going to slow down. I think it's all about the taper. And I think that that's what the Fed is going to have to message. I think they're going to choose to run off, because again, I think a lot-- I'm an inflation guy. I believe there's inflation. I was talking about it a year ago.

But I think it's going to cool off the second half of the year. The Fed knows it. They're going to taper slowly. And there are going to be some people really shocked that the Fed's just going to let this thing get out of control. Maybe. We don't know. Time will tell.

- Absolutely time will tell, definitely, inflation being something we're all watching closely. But Lee Munson, Portfolio Wealth Advisors chief investment officer, thank you again so much for your time.