BofA Hartnett: "New global order = new global bull market = gold and silver bull market." The biggest risk to the bull market is the appreciation of East Asian currencies.

BofA Hartnett: "New global order = new global bull market = gold and silver bull market." The biggest risk to the bull market is the appreciation of East Asian currencies.

Bank of America Chief Investment Strategist Hartnett reiterates that Trump is driving global fiscal expansion, giving rise to a "New World Order = New World Bull Market" scenario. Within this framework, the bull market in gold and silver will continue, while the biggest risk at present comes from the rapid appreciation of the Japanese yen, Korean won, and New Taiwan dollar, which could trigger a global liquidity squeeze.

The yen is currently near 160, approaching its weakest historical level, with its exchange rate against the Chinese yuan at the lowest since 1992. Hartnett warns that if these extremely weak East Asian currencies appreciate rapidly, it will reverse Asian capital outflows and threaten the global market's liquidity environment.

In terms of asset allocation, Hartnett recommends going long on international equities and assets related to "economic recovery," and also remains bullish on the long-term prospects of gold. He sees China as his top pick, believing that the end of China's deflation will become a catalyst for bull markets in Japan and Europe.

Gold is expected to break through the historical high of $6,000, while small-cap and mid-cap stocks will benefit from policies of interest rate, tax, and tariff cuts. However, the continuation of this optimistic outlook depends on whether the U.S. unemployment rate can stay low, and whether Trump can boost his approval rate by lowering living costs.

Appreciation of East Asian Currencies Constitutes the Biggest Risk

Hartnett points out that market consensus in the first quarter is extremely bullish, but the biggest risk comes from rapid appreciation of the yen, Korean won, and New Taiwan dollar. The yen is currently trading near 160, with its exchange rate against the yuan at its weakest level since 1992.

The rapid appreciation of these currencies may be triggered by factors such as a rate hike by the Bank of Japan, U.S. quantitative easing, Japan-China geopolitical factors, or hedging errors. Once it happens, global liquidity will tighten as the capital that has flowed into the U.S., Europe, and emerging markets from Asian countries to recycle $1.2 trillion in current account surpluses will reverse.

Hartnett issues a warning signal: the risk-off combination of "yen up, MOVE index up." Investors need to closely monitor this indicator to know when to exit the market.

New World Order Gives Rise to a Global Bull Market

Assuming the yen does not crash in the short term, Hartnett believes the market is entering the "New World Order = New World Bull Market" phase. Trump is driving global fiscal expansion, continuing Biden's earlier approach.

Within this framework, Hartnett recommends going long on international equities, as U.S. exceptionalism positions are rotating toward global rebalancing. Data shows that in the 2020s, U.S. equity funds have seen $1.6 trillion in inflows, while global funds have seen only $0.4 trillion—this imbalance is likely to be corrected.

China is Hartnett's top pick. He believes the end of deflation in China will be a catalyst for bull markets in Japan and Europe. From a geopolitical perspective, the Tehran Stock Exchange has risen 65% since last August, while the Saudi and Dubai markets have remained stable, indicating that the region will not see a revolution. This is good news for markets, as Iran accounts for 5% of the global oil supply and 12% of oil reserves.

Gold Bull Market Is Far From Over

Hartnett emphasizes that the new world order fosters not only a bull market for stocks but also for gold. Although gold—especially silver—is short-term overbought (silver prices are 104% above the 200-day moving average, the most overbought level since 1980), the long-term bullish logic for gold remains intact.

Gold has been the best-performing asset of the 2020s, driven by war, populism, the end of globalization, excessive fiscal expansion, and debt devaluation. The Federal Reserve and Trump administration are expected to add $600 billion in QE liquidity by purchasing Treasuries and mortgage-backed securities in 2026.

Over the past four years, gold has outperformed bonds and U.S. stocks, and this trend shows no sign of reversal. While an overbought bull market is always subject to strong corrections, a higher allocation to gold is still reasonable. Currently, the gold allocation ratio among Bank of America's high-net-worth clients is only 0.6%. Given that the average rise in four gold bull markets over the last century is about 300%, gold prices are expected to break $6,000.

Besides gold, other assets are also benefiting from the new world bull market. Hartnett believes that interest rate, tax, and tariff cuts, as well as "put option protection" provided by the Fed, Trump administration, and Gen Z, explain the market rotation into "devaluation" trades (such as gold and the Nikkei Index) and "liquidity" trades (such as space and robotics) following the Fed's rate cut on October 29 and Trump's election win on November 4 last year.

Hartnett recommends going long on assets related to "economic recovery," including mid-cap stocks, small-cap stocks, homebuilders, retail, and transportation sectors, and going short on large tech stocks, until the following situations arise:

First, the U.S. unemployment rate rises to 5%. This could be driven by corporate cost-cutting, AI applications, and immigration restrictions failing to stem the rise in unemployment. Notably, youth unemployment has jumped from 4.5% to 8%, while Canada’s unemployment rate has risen from 4.8% to 6.8% over the past three years despite a sharp drop in immigration. If tax cuts are saved rather than spent, it will be unfavorable for cyclical sectors.

Second, Trump’s policies fail to lower living costs through massive intervention. Main Street interest rates remain high, and if energy, insurance, health care, and AI-driven electricity prices do not fall, it will be hard for Trump’s low approval rate to improve. Currently, Trump's overall approval stands at 42%, with 41% on economic policies, and only 36% on inflation policies.

Historically, Nixon’s price and wage freeze in August 1971 to lower living costs proved effective—his approval went from 49% in August 1971 to 62% when re-elected in November 1972. But if Trump’s approval does not improve by the end of Q1, midterm election risks will rise and investors will find it harder to continue going long on "Trump Prosperity" cyclical assets.

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