- Anthony Scaramucci says the downturn is expected but we won’t see relief from the Fed any time soon.
- If you have the stomach for it, bear markets are a great buying opportunity.
- He’s bullish on technology and crypto but says investors need to be ready to withstand volatility.
In the real world, bulls and bears live in different environments. But in the stock market, they rotate places. The bear comes to town every five years or so, the stock market plummets, and the villagers, or in this case, investors, run for the hills.
Anthony Scaramucci, the founder of the investment firm SkyBridge Capital, told Insider he has lived through eight bear markets. For him, the current downturn is expected.
The variables seem ripe for a correction. Inflation is above 8%, interest rates are rising, and the largest companies are missing on earnings, particularly in the
, he noted. It’s hard not to expect share prices to correct, at least for the short term.
What might be different this time is that we’re not going to see relief from the
. If anything, the central bank is behind the curve on inflation, something it’s trying to correct, he said.
Scaramucci believes that interest rate hikes will continue until there’s a slow down in consumption or something breaks, causing the Fed to say “enough,” like when Lehman Brothers filed for Bankruptcy in 2008.
He refers to this moment as a perfect storm of negativity. If we do head into a
, it will run for about 12 to 16 months based on historical trends, he said.
As for the stock market, he isn’t exactly sure where the bottom is.
“I don’t feel the pain yet, the wreckage, the pandemonium, the full-blown wipe-out panic,” Scaramucci said.
He told Insider on Wednesday May 18 that we’d be closer to the bottom after another 1,000 to 2,000 points, or 3.5% to 7% drop in the Dow Jones Industrial Average. By then, margin debt, or money borrowed to trade stocks, would be taken out of the system, and the recession would be priced in, he said.
He made these calls against the backdrop of highly volatile market movements. The Dow saw its biggest one-day drop since 2020 on Wednesday but is since down by less than 1%.
Don’t run from the bear
In the meantime, the question is, what do you do?
“People are not going to like what I’m about to say,” Scaramucci said. “Don’t do anything.”
Instead, investors should dollar-cost average into a broad swath of stocks on a monthly basis, he said. The irony of ironies is that you make your money in a
because you get more shares for less, he added.
“So in good times, you’re buying less and in bad times, you’re buying more on a percentage basis,” Scaramucci said.
Right now, the FANG Stocks, referring to the four prominent US technology companies, Meta (FB), Amazon (AMZN),
(NFLX), and Alphabet (GOOG), are all down at least 20%. If you have the stomach for it, it’s an amazing opportunity to get in, he noted.
“I like technology. I obviously like cryptocurrencies. I would like to buy into those areas right now because I think they’re dirt cheap,” Scaramucci said.
Another stock that’s down substantially is Coinbase (COIN). At a share price of around $64, it’s “ridiculously cheap” given the cash on the balance sheet and its earnings, he said. He told Insider he had a reasonably sized position in the stock. Coinbase is down by about 80% from its November all-time high of $343. The crypto exchange peaked with the overall crypto market and trailed back down with it. As of Tuesday, COIN was trading at around $66.
When buying crypto, stick to quality assets such as bitcoin, which has already had a steep correction, he said. Like Coinbase, bitcoin’s price also peaked in November of 2021, briefly tapping $70,000 before plunging by roughly 57% to date. As of Monday, it was trading just above $30,000.
Historically, bitcoin tends to plunge even deeper by about 82% to 85%. In December 2017, the crypto tapped $20,000 before it tumbled to $3,200.
Anything you think can’t happen in markets, can happen, Scaramucci said when asked about how low he thinks bitcoin can go. For example, the Great Recession plunged the S&P 500 to $676, and the Dow to $6,500, or by about 55% from their all-time highs, on the lowest closing day. The goal is to keep your gaze long-term. If you had the strength to buy the Dow at its weakest, you’d have made six times your investment today, he noted.
The same goes for blockchain technology: if you believe it’s the future of financial innovation and it will be used to transact, then you should own assets like bitcoin and ethereum, he said. If you don’t believe that then you shouldn’t own it, he added.
“But I think it will be,” Scaramucci said. “And I think this is a seismic leap into the future. I think this is the biggest innovation that we’ve come up with since the world wide web, and a lot of people back in the day when the world wide web was created, including Bill Gates, said it was a fad.”
One crypto he has taken up a large position in is Algorand (ALGO), a layer-1 blockchain. He told Insider he was impressed by its founder, its technology, and the community building on it.
Overall, investors need to be able to withstand the
that comes with this sector. One point of concern for Scaramucci is the lack of market
in crypto, adding that a small amount of capital can plunge the entire market, he noted.
This was highlighted by the crash of Terra’s ecosystem. A mere sell-off of bitcoin from The Luna Foundation Guard’s (LFG) reserves, a non-profit tasked with supporting Terra’s ecosystem, helped plunge BTC’s price by 25%. The sell-off was an attempt to stabilize TerraUSD (UST), the network’s stablecoin but it had a ripple effect on the overall market. This is why there’s so much volatility in the crypto market, he added.