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U.S. equities and small-cap stocks were given a big thumbs-up by investment strategist and money manager Richard Bernstein in his keynote speech at Fortigent’s annual Winter Forum conference in Beverly Hills Thursday morning, but emerging markets and gold were treated with much less enthusiasm.

Bernstein, the former chief investment strategist at Merrill Lynch who is now chief executive of Richard Bernstein Advisors, said he sees “more opportunity” in the U.S. stock market than he does in the highly touted “BRIC” countries (Brazil, Russia, India and China). “The U.S. economy is more normal than people realize,” he explained to the audience of nearly 200 wealth managers. “It’s not even the weakest recovery in the post-war period. And even though the U.S. economy is perceived as weak, all the leading indicators are strengthening.

“Markets don’t move on absolutes of good or bad,” continued Bernstein, whose firm is an equity strategy subadvisor for Eaton Vance Management. “They move on whether things are better or worse. And the U.S. economy is better than 12 months ago, which is why the stock market is up.”

By contrast, the fundamentals of emerging markets don’t justify their high valuations, he argued. “Expectations are so high that stocks in emerging markets can no longer meet those expectations,” Bernstein said.

He also pointed to the abundance of recent initial public offerings and secondary offerings and high-price-to-sales ratios for public companies in emerging markets. “The valuations you’re seeing in those markets are rich,” Bernstein said. “They’re not cheap. The players there wouldn’t be doing them if they didn’t think they could get a lot for what they have.”

Bullish On Small Caps

Bernstein was much more bullish on small cap U.S. stocks for what he called “secular and cyclical reasons.” The scarcity of capital for the sector “is part of the secular story,” he said, while upward pressure on long-term interest rates were contributing to the “middle phase” of an expanding economic cycle.

“The risk premium for small cap stocks is abnormally high,” Bernstein said. “They have outperformed Chinese stocks for the past three years and no one cares. By our calculations, smaller U.S. companies have twice the projected 2011 earnings growth of China and half the valuation.”

As for the gold boom, Bernstein contended that investing in gold may have made sense when the dollar was depreciating but doesn’t now that the dollar is appreciating. He also warned that while the price of gold may still go up, “It is a momentum-driven market and prices tend to go down faster than they go up.”

Investors who want to buy gold as an inflation hedge can do better, according to Bernstein. “If you’re really concerned about inflation, there are much more rational ways to invest,” he maintained, including buying municipal bonds.

“Munis will do real well if inflation is high,” Bernstein said. “Debt is a fixed cost, and if inflation goes way up, municipalities will get a lot more money.”