From political pressure to the latest warnings from Wall Street giants, the script from the "Nixon era" seems to be replaying.

Recently, US Treasury Secretary Besante unusually publicly "prodded" the Federal Reserve, urging it to return to its statutory mandates such as "moderate long-term interest rates," and criticizing its unconventional policies for exacerbating inequality and threatening its own independence.

Following closely, Michael Hartnett, Chief Investment Strategist at Bank of America, released a report pointing out that the current situation is highly similar to the "Nixon era" of the 1970s. Political pressure will force the Fed to pivot, potentially resorting to the extreme tool of Yield Curve Control (YCC).

Before the Fed formally 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 broadening stock market rally.

A Replay of the "Nixon Era" Under Political Pressure?

In her signed article, Besante for the first time listed "moderate long-term interest rates" alongside maximum employment and stable prices as the three statutory duties the Fed must focus on to rebuild credibility.

In traditional understanding, long-term rates are more determined by market forces. This specific "naming" by the Treasury Secretary was seen by the market as an extremely unusual signal. It implies that, within the Trump administration's policy agenda, lowering long-term financing costs has become a priority. This statement is viewed by the market as a call for the Fed to more actively manage long-end rates and also a prelude to a potential major shift in US monetary policy.

Coincidentally, Hartnett reached a similar conclusion in his latest report, but he believes the main force driving the Fed's pivot will be political pressure.

Hartnett wrote in the report that this scene is identical to the Nixon period in the early 1970s. Back then, to create economic prosperity before the election, the Nixon administration pressured then-Fed Chairman Arthur Burns, prompting massive monetary easing.

The result was the Fed Funds rate dropping from 9% to 3%, a devaluation of the US dollar, and the birth of a growth stock bull market represented by the "Nifty Fifty." Hartnett believes history is repeating itself, and pre-election political motives will once again dominate monetary policy.

Yield Curve Control: An Inevitable Policy Tool?

Hartnett believes that against the backdrop of soaring global long-term bond yields, policymakers cannot tolerate disorderly increases in government financing costs.

Currently, global sovereign bond markets are under immense pressure, with long-term government bond yields in the UK, France, and Japan hitting multi-decade highs, and the US 30-year yield briefly testing the psychological 5% level. However, Hartnett notes that risk assets have reacted mildly precisely because the market is already "betting" that central banks will eventually intervene.

Therefore, he predicts that to prevent government financing costs from spiraling out of control, policymakers will resort to "price-keeping operations," such as Operation Twist, Quantitative Easing (QE), and ultimately Yield Curve Control (YCC).

Bank of America's August Global Fund Manager Survey showed that 54% of respondents already expect the Fed to adopt YCC.

Long US Treasuries, Gold, Crypto; Short the Dollar!

Based on the judgments of a "Nixon era replay" and "YCC is coming," Hartnett outlines a clear trading strategy: long bonds, gold, digital currencies; short the US dollar, until the US commits to YCC.

Step 1: Long Bonds

The direct consequence of YCC is artificially suppressing bond yields. Hartnett believes that as US economic data shows weakness, like the 2.8% year-on-year drop in construction spending in July, the Fed already has sufficient reason to cut rates, and political pressure will accelerate this process. He judges that the trend for US bond yields is towards 4%, not continuing to rush towards 6%. This implies significant upside potential for bond prices.

Step 2: Long Gold & Crypto

This is the essence of the entire strategy. YCC is essentially debt monetization, i.e., "printing money" to finance the government. This process severely erodes the purchasing power of fiat currency. Hartnett clearly states that gold and digital currencies, as stores of value independent of sovereign credit, are the best tools to hedge against such currency devaluation. His advice is straightforward: "Long gold and crypto until the US commits to YCC."

Step 3: Short US Dollar

This is the inevitable result of the first two steps. When a country's central bank announces it will print money unlimitedly to suppress its interest rates, the international credibility and value of its currency are inevitably damaged. The historical precedent is the 10% devaluation of the US dollar during the Nixon era. Therefore, shorting the dollar is the most logically smooth part of this grand narrative.

The core logic of this strategy is: YCC means the central bank prints money to buy bonds to suppress interest rates, leading to currency devaluation. Gold and digital currencies will benefit. Simultaneously, forcibly suppressed interest rates are positive for bond prices and will also open up upside potential for rate-sensitive sectors like small-cap stocks, Real Estate Investment Trusts (REITs), and biotech stocks.

After the Boom: Inflation and Crash?

Hartnett also reminds investors that the historical script always has a second half.

Just like the Nixon era, the easing and prosperity of 1970-72 were followed by out-of-control inflation and a market crash in 1973-74. He recalls that boom ultimately ended with inflation soaring from 3% to 12% and the US stock market crashing by 45%.

This means that while the current trading window is attractive, it also harbors significant long-term risks. But before that, the market may follow the policy's "Visible Fist" and play out a policy-led asset feast.