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Hartnett: "The End Of The Bear Market Will Coincide With A Credit... https://archive.ph/lrH47

Hartnett then reminds us that while the macro picture - one of war, deglobalization, fiscal excess, bailouts, net zero - is one
which leads to even higher inflation & rates and lower P/E, those higher rates are actually a good thing for some: they
benefit big savers (and punish big debt-funded spenders) and with a Eurozone household savings rate (14%), UK (9%)
way higher than 4% in US, that's one reason Europe's macro has been doing so well.

The BofA strategist then indicates that he read our "7%+ mortgage" post from yesterday in which we noted that the
mortgage applications index just plunged to the lowest level since 1995, and writes that "higher rates hit Anglo-Saxon real
estate…US mortgage to purchase apps at lowest level since Apr'95...

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Hartnett: "The End Of The Bear Market Will Coincide With A Credit... https://archive.ph/lrH47

.... hitting US/UK/Canada/Aussie/NZ house prices anywhere between -13% to +5%", and he also agrees with us that "this is
where real estate/PE credit events will be", something we discussed previously in "Blackstone Defaults On $562MM
CMBS As It Keeps Blocking Investor Withdrawals From $71BN REIT" and 'Facing "Unprecedented Challenges" And Soaring
Rates, PIMCO-Owned Landlord Defaults On $1.7 Billion In Office Mortgages."

The rest of Hartnett's note this week is rather brief, and after his traditional detour summarizing weekly of fund flows which
saw $68.1BN to cash, $8.4BN to bonds, $0.9BN from gold, $7.4BN from equities, broken down as follows:

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Hartnett: "The End Of The Bear Market Will Coincide With A Credit... https://archive.ph/lrH47

US Treasuries: YTD inflows of $29.9bn, strongest start to the year for Treasuries since ’04;
IG bonds: 10th inflow week ($7.2bn), longest streak since Oct’21;
HY bonds: 3-week outflow largest since Sep’22;
EU: 2nd week of outflows from EU stocks ($0.2bn).

... Hartnett concludes by summarizing what he calls the secular script in six simple steps:

1. An era of extraordinary monetary policy (lowest rates of 5000 years) is over

2. Inflation is a secular reality not a cyclical theme
3. Governments have poor balance sheets, must pay higher yields to attract finance
4. The combination of higher inflation and higher interest rates leads to a mean reversion in equity valuations,
5. The end of a necessary bear market will coincide with a credit event; until then, cash as good as bonds &
stocks,
6. Long-term investors must own the solutions to the problems that society wishes to solve, e.g., infrastructure,
inequality, climate change, but also the solved, assets that lost under the zero rate environment, but will win in a
higher rate environment, e.g. value, stocks, banks, Europe; the old regime winners of credit, private equity, tech,
social media are the great losers of the 2020s.

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Hartnett: "The End Of The Bear Market Will Coincide With A Credit... https://archive.ph/lrH47

Tomorrow we'll discuss what said long-overdue credit event may be.
More in the full note available to professional subs.

3,027

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