BofA's Hartnett: Yield curve control imminent, gold and cryptocurrencies becoming "defensive weapons"

In the United States, under the intertwining pressures of debt and expected policy shifts, the market is experiencing a profound paradigm shift. Michael Hartnett, Chief Investment Strategist at Bank of America, recently stated that policymakers, in response to debt challenges, may resort to currency devaluation as a core path, and discussions on unconventional tools such as Yield Curve Control (YCC) have resurfaced. Against this backdrop, the strategic value of gold and cryptocurrencies as assets hedging against dollar devaluation and inflation risks is becoming increasingly prominent. As the global economy enters a new round of monetary easing, expectations for the Federal Reserve to join the "rate cut party" have peaked. Since 2025, 88 central banks globally have implemented rate cuts, marking the fastest pace of easing since 2020. This expectation has driven asset prices such as stocks, credit, gold, and cryptocurrencies to repeatedly hit new highs, with investors preparing for dovish statements from the Federal Reserve Chairman at the Jackson Hole Global Central Bank Annual Meeting. However, Hartnett's main argument is "Disruption = Debasement." He believes that discussions on topics such as the independence of the Federal Reserve, higher inflation targets, specific industry price controls, and the revaluation of gold are increasingly pointing in the same direction: policy disruptions will aim to lower the US dollar exchange rate to facilitate easier financing for America's massive debt and deficits. For investors, this means that the attractiveness of holding government bonds in the long term is decreasing, and stocks and credit markets, which historically have high valuations, are also facing risks. Hartnett suggests that investors increase their allocation to gold and cryptocurrencies to seek refuge in a potential long-term bear market for the US dollar in the coming years. Policy shifts are imminent, and dollar devaluation may become a certainty Hartnett believes that the US government's need to achieve economic prosperity and asset bubbles in 2025 to 2026 is seen as the most convenient path to reverse the trend of debt and deficits. This potential policy objective makes shorting the US dollar a clear investment theme entering 2026 and beyond, with the expectation that the Dollar Index (DXY) will fall below 90. As of the time of writing, the Dollar Index has fallen by 0.36% to 97.85. This expectation explains why global investors continue to avoid long-term government bonds and instead flow into stocks and credit markets with historically high valuations. Data shows that the price-to-book ratio of the S&P 500 has reached a record 5.3 times, surpassing the peak of the dot-com bubble era; its forward P/E ratio is 22.5 times, ranking in the 95th percentile since 1988. At the same time, the credit spread for US investment-grade A+ is only 64 basis points, ranking in the 98th percentile over the past 30 years. Investors appear to universally agree that there is "Anything but Bonds." Hartnett points out that besides the artificial intelligence boom, factors driving high valuations include currency devaluation (favorable to nominal assets), demographic changes (millennials and Gen Z are more inclined to accumulate wealth through stocks), and the global shift in consumption from the US to other parts of the world. Jackson Hole Conference: Beware of "sell-the-fact" Although the market is eagerly awaiting Federal Reserve Chairman Powell to release dovish signals at the Jackson Hole Symposium, Hartnett warns investors that this may be a typical "buy the rumor, sell the fact" trading opportunity. He believes that market sentiment was extremely optimistic before the conference, and any dovish remarks may have already been fully priced in, potentially triggering profit-taking afterwards. Behind the market's desire for a rate cut by the Federal Reserve lies the real pressure on US finances. Data shows that the average maturity of US Treasury bonds is 5-6 years. In order to stabilize the annual interest payments of up to $1.2 trillion, the yield on 5-year US Treasury bonds needs to fall below 3.1%. This provides a strong incentive for the Federal Reserve to pursue loose policies, even eventually implementing Yield Curve Control, and reinforces the market's expectations for rate cuts. Gold and Cryptocurrencies: New "safe havens" for portfolios In the trend of dollar devaluation, Hartnett believes that gold, cryptocurrencies, commodities, and emerging markets will be the biggest winners, as investors actively seek tools to hedge against inflation and dollar devaluation. A popular saying in the market aptly describes the current mindset: "I just hope that the rise in the market exceeds the fall in the currency." According to Bank of America's August Global Fund Manager Survey (FMS), there is still significant potential for investors to increase their relevant allocations. The survey shows that only 9% of surveyed fund managers have exposure to cryptocurrencies, with a weighted average allocation of only 0.3% of assets under management (AUM). In comparison, 48% of investors hold gold, with an allocation of 2.2% of AUM. In the energy market, Hartnett presents a long-term view that differs from the mainstream. He believes that current oil and natural gas prices (down 41% since March) have already factored in expectations for peace in the Russia-Ukraine conflict. He further analyzes that the geopolitical strategy of the Trump administration aims to lower energy prices for American consumers. According to Hartnett's viewpoint, if the US collaborates with Russia to jointly develop a cheaper and safer Northern Passage, and cooperates in the exploration of oil and gas reserves in the Arctic region, which account for 15% of global undiscovered oil and 30% of natural gas, this would mean a further bear market in energy prices until 2026. While short-term expectations surrounding related agreements may lead to price rebounds, the long-term trend points to lower energy prices. This article is reproduced from "Wall Street See News," written by Zhang Yaqi; GMTEight edited by Xu Wenqiang.