The Flow Show: Credibility, Intervention & Liquidation

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The Flow Show

Credibility, Intervention & Liquidation

Scores on the Doors: oil 45.7%, intl stocks 8.7%, SPX 8.6%, cash 2.1%, US$ 1.6%, HY

bonds 1.2%, IG bonds -1.2%, govt bonds -2.5%, gold -5.5%, bitcoin -26.1% YTD.

The Price is Right: credibility event...Fed nakedly dovish, so financial conditions to

continue to tighten until Fed forced to restore credibility via aggressive hikes (= higher

yields into Warsh @ Jackson Hole Aug 28th); we say retreat/rotate from risk assets rather

than reload until higher inflation and one of those nasty “higher yields-lower dollar”

vigilante events (Chart 5) forces monetary & fiscal policy U-turns.

Tale of the Tape: intervention event...US/Japan/Korea coordinated FX intervention most

imp event of week as policy makers try to short-circuit risk of JPY collapse, JGB yield

melt-up, contagion into Korea/Taiwan bonds, disorderly UST-negative capital

flows...better work; also shows new era of AI PKOs (price keeping operations)...US

policymakers will act to prevent weakness in Japan/Korea/Taiwan stocks from impeding

race with China for AI supremacy.

The Biggest Picture: liquidation events...KOSDAQ (Korea small cap tech) @ Oct’22 lows

(Chart 2), Mirae (largest Korea broker) -66% @ Jul’07 levels (Chart 3), stock price of

many US retail darlings under water (e.g., SPCX 30%, NASA 36%, DRNZ 20%, DRAM

10% below VWAP average investor entry point YTD), plus Situational Awareness; no big

rally on lovey-dovey Fed + AI PKOs + liquidation...risk assets capped into mid-terms.

Investment Strategy

Global

Michael Hartnett

Investment Strategist

BofAS

Anya Shelekhin

Investment Strategist

BofAS

Myung-Jee Jung

Investment Strategist

BofAS

Jessica Guo

Investment Strategist

BofAS

Chart 2: K-pop

Korea small cap tech stocks (KOSDAQ)

1300

31 July 2026

Korean stocks (KOSDAQ)

1200

Chart 1: BofA Bull & Bear Indicator

1100

Down to 9.4 from 9.6

1000

900

800

4

700

600

Oct'22

Jul'26

500

400

2

Buy

'16

'17

'18

'19

'20

'21

'22

'23

'24

'25

'26

Source: BofA Global Investment Strategy, Bloomberg

BofA GLOBAL RESEARCH

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