Intro

Michael Howell, Managing Director of Crossborder Capital and Author of the Capital Wars Substack, returns in this episode to speak with Alan Dunne about the liquidity cycle’s influence on global markets. Michael outlines how he sees rising liquidity growth providing a favourable backdrop for risky assets and that the conventional narrative that the Fed has been tightening liquidity via quantitative tightening is misplaced. They discuss how the requirement to refinance $70 trillion in debt every year, and the prospect of double digit growth in debt, will inevitably lead to monetary inflation with profound implications for assets like gold and equities. In contrast, although tactical duration issuance by the US Treasury has supported US Treasuries the longer term outlook is less favourable. The conversation also touches on global FX markets, the recent unwinding of the JPY carry trade, and Michael’s perspective on a possible tacit agreement to weaken the US dollar, which could have far-reaching consequences for liquidity and asset markets.

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Episode TimeStamps:

02:12 - Introduction to Michael Howell

03:15 - Howell's framework for looking at markets

06:32 - How Asian central banks impact U.S equities

09:17 - Do different types of liquidity have different effects?

12:17 - The last 15 years from a liquidity perspective

18:19 - Is liquidity the driver of the bond yield moves?

23:08 - Why has the quantitative tightening not been more disruptive?

32:44 - Is a debt crisis in sight?

39:48 - Howell's advice for allocating assets

42:45 - What has caused the reversal of the Yen?

48:02 - How to distinguish between capital flows and hedging activity

49:44 - Why are the G10 currencies so stable?

51:18 - A risk point on the radar

52:23 - The implications of the shift towards private credit financing

55:02 - A favorable environment for risk assets?

59:15 - Is Howell skeptical about the Chinese currency?

01:00:11 - The outlook of the liquidity cycle

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