BIS calls for "moderate long-term interest rates." BofA's Hartnett: Return to the "Nixon era"—go long on gold, digital currencies, and US Treasuries, short the US dollar!
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From political pressure to the latest warnings from Wall Street giants, the script of the "Nixon era" seems to be repeating itself.
Recently, U.S. Treasury Secretary Bessent made a rare public "warning" to the Federal Reserve, urging it to return to its statutory missions such as "moderate long-term interest rates," and criticizing its unconventional policies for exacerbating inequality and threatening its own independence.
Shortly afterwards, Michael Hartnett, Chief Investment Strategist at Bank of America, published a report pointing out that the current situation is highly similar to the "Nixon era" of the 1970s, predicting that political pressure will force the Fed to pivot, and may eventually lead it to employ the extreme tool of Yield Curve Control (YCC).
Before the Fed officially commits to YCC, Hartnett is bullish on gold and digital currencies, bearish on the US dollar, and believes investors should prepare for a rebound in bond prices and a widening of stock market gains.
Repeat of the "Nixon Era" Under Political Pressure?
An article from Wallstreetcn wrote that, in a signed op-ed, Bessent criticized the Fed’s quantitative easing as a dangerous experiment, urging it to refocus on its three statutory missions, including “moderate long-term interest rates”—namely, maximizing employment, stabilizing prices, and ensuring moderate long-term interest rates. This statement is seen by the market as a call for the Fed to take a more active role in managing long-term rates.
Coincidentally, Hartnett reached a similar conclusion in his latest report, but he believes that the main force driving the Fed to pivot will be political pressure.
Hartnett wrote in his report that this scene closely resembles the early 1970s during Nixon’s presidency. At that time, in order to create economic prosperity before the election, the Nixon administration pressured then-Fed Chair Arthur Burns to push large-scale monetary easing.
The result was that the federal funds rate fell from 9% to 3%, the dollar depreciated, and a bull market in growth stocks represented by the “Nifty Fifty” was born. Hartnett believes history is repeating itself, and that political motivations ahead of elections will once again dominate monetary policy.
Yield Curve Control: An Inevitable Policy Tool?
Hartnett believes that, against the backdrop of surging long-term global bond yields, policymakers cannot tolerate a disorderly rise in government financing costs.
Currently, global sovereign bond markets are under immense pressure, with long-term yields in the UK, France, and Japan hitting multi-decade highs, and US 30-year Treasuries having tested the psychological threshold of 5%. However, Hartnett notes, risk assets have responded tepidly, precisely because the market is “betting” that central banks will ultimately step in.
Thus, he predicts that to prevent government financing costs from spiraling out of control, policymakers will resort to “price maintaining operations,” such as Operation Twist, Quantitative Easing (QE), and eventually Yield Curve Control (YCC).
According to Bank of America's August global fund manager survey, 54% of respondents expect the Federal Reserve to implement YCC.
Go Long U.S. Bonds, Gold, Cryptocurrencies; Short the Dollar!
Based on the views that the “Nixon era is repeating” and “YCC will eventually come,” Hartnett outlines a clear trading strategy: go long bonds, gold, and cryptocurrencies, short the US dollar—until the US commits to YCC.
- Step One: Go Long Bonds
The direct outcome of YCC is the artificial suppression of bond yields. Hartnett believes that as U.S. economic data shows signs of weakness—for example, July construction spending was down 2.8% year-over-year—the Fed already has enough reason to cut rates, and political pressure will accelerate this process. He judges that the trend for U.S. bond yields is toward 4%, not up to 6%. This implies significant upside for bond prices.
- Step Two: Go Long Gold & Crypto
This is the essence of the whole strategy. YCC is essentially debt monetization, i.e., "printing money" to fund government spending. This process will severely erode the purchasing power of fiat currency. Hartnett explicitly points out that gold and cryptocurrencies, as stores of value independent from sovereign credit, are the best tools to hedge against such currency debasement. His advice is direct: “Go long gold and cryptocurrencies until the US commits to YCC.”
- Step Three: Short the US Dollar
This is a logical consequence of the previous two steps. When a country’s central bank announces unlimited money-printing to suppress domestic interest rates, the credibility and value of its currency on the international stage will inevitably be impaired. The Nixon era’s 10% dollar devaluation is a historical lesson. Thus, shorting the US dollar is the most logical part of this macro narrative.
The core logic of this strategy: YCC means central banks print money to buy bonds and suppress rates, causing currency devaluation. Gold and cryptocurrencies will benefit. At the same time, forcibly lower rates are positive for bond prices, and will also open upside for small-cap stocks, REITs, and interest-rate sensitive sectors like biotech.
After Prosperity: Inflation and Crash?
Hartnett also reminds investors that history always has a second act.
As in the Nixon era, the loose and prosperous period of 1970-72 was followed by the runaway inflation and market crash of 1973-74. He recalls that this boom ultimately ended with inflation soaring from 3% to 12% and a 45% plunge in US equities.
This means that while the current trading window is tempting, it also contains significant long-term risk. But before that, the market may follow the "visible fist" of policy and play out a policy-dominated asset feast.
Risk Warning and DisclaimerThe market has risks and investment should be cautious. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Invest at your own risk. ```