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Institutional investors are ‘going to take a serious look’ at bitcoin in early 2022: Strategist

Matt Maley, Managing Director and Equity Strategist at Miller Tabak, joins Yahoo Finance Live to discuss bitcoin's slump, the likelihood of a pullback in January, the Fed, and the outlook for 2022.

Video Transcript

BRIAN SOZZI: The Santa Claus rally has been in full force as we near year end. But it hasn't taken Bitcoin along for the ride, as we just talked about. Let's dive into markets here with Miller Tabak, Chief Market Strategist, Matt Maley. Matt, always nice to see you. Happy new year in advance.

Listen, I know you follow Bitcoin very closely here. The selling pressure has persisted. I mean, how much downside risk do you see left?

MATT MALEY: Well, I mean, it's going to be interesting to see what happens here in the near term basis. I mean, one of the things-- that well, right now, is just looking at the chart here just before we came on here, testing that 200 day moving average. And if it breaks below that, we could have some more problems.

But one of the things that's going to be very interesting to see is that everybody's talking about hey, Bitcoin still had a good year. It's still had a very strongly year to date. But for the institutional investor, they're late to the party. You know, they are coming into this thing not at the beginning of the year, in the middle, in the spring, and summer of this year. So a lot of them really have losses.

And what a lot of these institutional investors do late in the year is that they know they get rid of their losers, and push up their winners, because they want to make sure their portfolio looks good at the end of the year for marketing purposes the next year, and that their performance, especially some of these big cap names that are highly weighted in their portfolios, they want to push them up. Bitcoin is still a small weighting. It doesn't matter to them.

So I think they've actually been selling a little bit here. It'll be interesting to see what happens after the beginning of the year, and they look at it again, especially if it's down, like, it remains down like it is. They may come back in. So it's going to be very, very interesting to see how it trades in the month of January. Because I think some of these institutional players are going to take another serious look at it, unlike they did early last year.

JULIE HYMAN: Yeah, that does imply that we could see a lift. And especially since it still feels like, Matt, to me, that there's still an awful lot of retail interest in it.

MATT MALEY: Exactly. So my point is, that you know, right now, the retailers has walked away from a little bit, because it's been weaker. The institutional players don't really care about it at the end of the year. They care about they're big winners and their big holdings. As they get into the new year, they're going to take a serious look at it.

And even though I'm concerned about it, because I think it's a liquidity plan. We're going have less liquidity next year. We could have a surprising rally after the first of the year as the institutional players come back into these names, and the retail follows them right back in.

BRIAN SOZZI: Matt, I was reading your latest note this morning. You also seem to be concerned about a deep correction. Now, is that a deep correction in the first quarter of next year? Is it in January? When do you see it happening, and what triggers it?

MATT MALEY: Well, I'm looking more for the first half, starting in the first half. You know, we haven't had a bad January since 2016, 2015, '16, right in that area. January has usually been a good year. But you know, I guess my point is, in the middle of the last decade, we did have a couple of years in a row there where the market did get hit in January, and two times actually got hit pretty good. So it's not out of the question.

But I really think you know, I'm just worried-- that you asked me what caused it, I'm much less worried about Omicron than I am about the Fed. I mean, when the Fed starts tightening, I mean, when they go through a tightening cycle, don't fight the Fed. OK? It works in both directions. It doesn't always happen immediately. It doesn't always cause the market to make a hiccup immediately. But it always does eventually.

And when the market is very over, very expensive like it is today, it does happen more towards the beginning of their tightening cycle. In fact, it's happened about a third of the time overall, and most of the time, when the market is expensive. So I just think you know, people kind of say they love to use don't fight the Fed when the Fed is easing, now that the Fed is tightening and becoming more aggressive with their tightening policy, people should be just a little bit more cautious. Doesn't mean we're going to have a crash. It doesn't mean we're going to have a bad bear market, but I do think will cause some problems next year.

JULIE HYMAN: Well, it is hard to time it, isn't it? I mean, I know you are a market historian talking about what you were just talking about in terms of what we have seen historically. We've also been talking a lot about the so-called Santa Claus rally into the January effect, right? Because it looks like we are going to have a bit of a-- well, at least thus far, we still have a few sessions to go-- for the full Santa Claus rally, if you will. Because it includes the first couple of days of the new year. But so far, so good on that front.

MATT MALEY: Well yes, it has been. It's kind of funny, because some people were using it-- they were calling for a melt up. And you know, I guess we've had a little bit of a melt up since December 20, the intraday lows there. But I mean, the NASDAQ is still lower than it was the day before Thanksgiving. The Russell 2000 is lower than it was. And the S&P is about a percent above where it was the day before Thanksgiving.

So you know, we're getting a little bit of a Santa Claus rally here right now. But the overall year end thing has been sideways more than anything else. So it's a little misnomer, because we had that big concern in the middle of December about the Fed, and a little bit of overcurrent as well. And of course, the market has bounced strongly off that.

But it's been these big, big wide moves, rather than a big rally like this. So it's a rally that followed a sharp sell off. And we're really kind of sideway-- so, it's boding well for an early January rally. But again, I just think people need to be careful. I mean, there's a lot of old sayings that don't work. The one that does work is, don't fight the Fed. And right now, fighting the Fed means being really bullish.

JULIE HYMAN: For the moment, right, as you pointed out. There's one other group that I wanted to ask you about, because as you wrote recently, you are bullish on energy stocks next year. And why I find that interesting is that they've done really well this year, right? That XLE that we're showing is a 48% year to date. It's the best performing group in the S&P 500. And what do you think is going to-- I mean, we've been hearing positive outlooks for oil prices. Is that why you're still bullish on energy stocks?

MATT MALEY: Yeah, yes, it really is. But there's also on the energy stocks, number one, they're still relatively underweighted on the institutional side of things. Now, a year ago, they were grossly underweighted, and that's nowhere near what they are now. They've been obviously been adding to them, you can tell by the rally.

But then there's still-- if you look at their 10 year average valuation, they're still relatively cheap. So that's a bullish sign. But the other thing is the price of oil, as you talked about. I mean, it's really good that we're moving away from fossil fuels. But the spending has fallen off a cliff.

And we can't get to completely disregarding fossil fuels in a few years. It's going to take a couple of decades. And yet, the spending has fallen off a cliff. In other words, we still need to rely on fossil fuels. And in a sense, the spending in that area, and the capital spending has fallen off. We are not going to be able to ramp up production to meet demand.

I mean, the IEA still looks for a-- I'm sorry-- demand for fossil fuels for crude oil through at the end of this decade to be within 5% of the pre-pandemic levels. That's a lot of demand. The supply won't be there, because we haven't spent enough money on capital structure to get that oil out of the ground.

That means the supply demand issue is going to take oil prices higher. And the oil stocks, which are yes, have had a great run, but they were so ridiculously cheap a year ago, they're still relatively cheap now, I think they still have further to go. Because I think oil has further to rise.

BRIAN SOZZI: In 30 seconds we have left, reminisce with us for a bit here. What is one thing you learned about investing this year, and how will you apply it to next year?

MATT MALEY: Well, I think the biggest thing I learned-- well, I learned over the last few years, is that the Fed-- the last 22 months, the Fed has played a big impact on the market. Yes, the economy has come back. But the Fed, they kept their emergency level of stimulus long after the emergency had passed. That pushed asset prices above anything that would justify the underlying fundamentals, anything would justify those fundamentals.

The fundamentals are good. But the stock market with less liquidity has got to come down. And my point is, raise a little bit of cash, so you'll be able to take advantage of it. Don't go to 100% cash. We're not calling for the end of the world. But if you raise a little bit of cash, you'll keep your head while others are losing theirs if we do indeed get a deep correction.

BRIAN SOZZI: We do not want the end of the world. Matt Maley, Miller Tabak Chief Market Strategist, always nice to see you. Appreciate you hopping on. Have a happy new year.

MATT MALEY: Thanks you too, Soz.