Michael Howell argues that the global liquidity cycle is rolling over from a late-stage 'speculation' phase toward 'turbulence,' but he does not think the economy is in a recessionary collapse. His core view is that debt refinancing needs and Treasury/Fed balance-sheet actions are currently the main forces shaping market liquidity, with bond volatility and reserve management acting as key transmission channels.
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This episode is a repeat-guest interview on liquidity with Michael Howell of CrossBorder Capital. Howell frames markets as being driven primarily by a global liquidity cycle rather than the business cycle alone, and he says that cycle is now inflecting lower. He describes his framework as four regimes or seasons: the current phase is 'speculation' (late cycle, autumn-like), and the next phase is 'turbulence,' which he says would be especially difficult for risk assets. That said, he repeatedly pushes back on the idea that current conditions imply an immediate recession or 'end of the world' scenario. A major part of the conversation is Howell's distinction between financial-market liquidity and real-economy liquidity. He argues that money cannot be in both places at once, so liquidity in financial markets and liquidity in the real economy tend to move countercyclically. …
Tactically, the setup is still defensive: Howell sees liquidity rolling over and wants less risk exposure as the cycle matures. Near-term focus should be on MOVE, SOFR/repo stress, Treasury bill mix, and whether the market can absorb debt supply without volatility spikes.
Over the coming weeks and months, the base case is a slower liquidity backdrop rather than a collapse, with official balance-sheet actions helping smooth refinancing demand. If industrial data and cyclical stocks keep holding up, his 'turbulence' phase may arrive later than bears expect; a sustained oil-driven growth hit would change that view.
Structurally, Howell argues that markets are a debt-refinancing machine that depends on collateral quality and balance-sheet capacity. The lasting regime implication is that issuance composition, reserve plumbing, and bond volatility can matter as much as headline rate policy for asset prices.
The global liquidity cycle is inflecting lower and markets are moving toward a late-cycle 'turbulence' regime.
He explicitly says the liquidity cycle is rolling over, the current season is 'speculation,' and turbulence comes next.
Yield curves are likely to flatten rather than steepen this year because liquidity is weakening.
He says this was his contrarian call versus consensus, which expected steepening from inflation and rate cuts.
The real economy is still absorbing liquidity and may be strengthening rather than contracting.
He argues working capital demand is drawing money out of financial markets, but that data still look robust.
Where are we in the global liquidity cycle right now, given that many are talking about rate cuts which would seem positive for liquidity?
Michael explains the liquidity cycle is inflecting lower. He describes four seasons/regimes — we're currently in 'speculation' (the autumn phase), which precedes 'turbulence' (a very difficult time for risk assets). He argues yield curves will flatten not because central banks are tightening, but because the real economy is accelerating its demand for working capital, sucking liquidity out of financial markets. He advises paying back risk and moving risk-off, though not getting out entirely yet.
Can you explain the difference between the business cycle and the liquidity cycle, since when I hear 'speculation' I think go long risk assets but you view it differently?
Michael explains the framework: there are two pools of liquidity — money in financial markets and money in the real economy. Money can't be in both places simultaneously. Global liquidity (their focus) measures balance sheet capacity of credit providers including repo and shadow banking, while M1/M2 measures real economy transactions. The difference between the two is what matters. When the economy slows, liquidity refluxes back into financial markets, and vice versa.
Do you view this as the last inning of the business cycle or are we just starting the next leg into a major reacceleration?
The guest says the data suggests the business cycle has decent legs and that all other things being equal, they're seeing a period of accelerating growth. He cautions that a sustained oil problem would clearly wreck economic activity, but otherwise the outlook is for continued growth.
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