Michael Howell, CEO of CrossBorder Capital, an investment advisory firm, and author of the book, "Capital Wars: The Rise Of Global Liquidity," joins Julia La Roche on episode 53 to provide a deep dive on what is global liquidity, why it matters, and how it drives markets.
Michael points out that liquidity is inflecting upwards and explains what's driving that move and the implications for markets, which are sensitive to these infections. What's more, with the liquidity cycle inflecting upward, the economy will likely see a turning point in the U.S., which Michael predicts will happen around May. He believes there will be a few more months of softness, but we're near "a turning point."
While many believe an inverted yield curve warns us that a recession is fast approaching, Michael explains why it's a flaky predictor and how term premia bias the yield curve.
Julia and Michael also explore some of the themes from the book, "Capital Wars," including that as the investment world has gotten bigger, it's become more volatile, where financial crises are more common. They also touch upon the intensifying tussle between the U.S. and China as the dominant financial economy.
Michael founded CrossBorder Capital in 1996. He developed the quantitative liquidity research methodology while he was Research Director at Salomon Bros. from 1986. He was subsequently appointed Head of Research at Baring Securities in 1992, and was top-ranked "Emerging Market Strategist" by institutional investors for the three years before setting up CrossBorder Capital. Michael has worked in financial markets since 1981 and is a regular international conference speaker. He is a qualified US Supervisory Analyst and has a Doctorate in Economics.
0:00 Intro
0:31 Macro view
1:00 Understanding money flows
1:30 Salomon Brothers
3:35 What is liquidity and what is it signaling today
5:00 Financial markets suddenly kickstarted upwards
6:00 Crypto is purely a liquidity phenomenon
7:00 Tech bouncing significantly as liquidity has picked up
7:15 Why is liquidity turning up?
8:00 China
9:30 What's happening in the big economies
11:15 Liquidity conditions from Fed have picked up
12:50 Q.T. is dead effectively is dead in the U.S.
13:27 Implications for markets
15:06 Term premia for bond investors
17:50 Why the inverted yield curve is a flaky predictor of a recession
18:08 What are fixed-income markets signaling?
18:28 Think of the stock market as a predictor of the economy
19:09 Close to an inflection point on the economy
22:37 Global financial system is now collateral based
23:00 Term premia is biasing the 10-2 yield curve
25:34 Good reasons why the yield curve is distorted
26:19 Evidence the Fed is in control
26:45 Ukraine War
28:48 U.S. is the cleanest shirt in the laundry
29:50 Ultimate job of central banks is financial stability
31:30 Capital Wars
35:00 As the world gets bigger it becomes more volatile
35:19 China's ambition to unseat the U.S. Dollar as the global reserve currency
38:40 Understanding equity markets
40:17 Tech stocks
41:30 Credit is dependent upon collateral
44:13 Debt mountain has grown
47:00 Financial crises will appear more regularly in the future
47:35 Japan is the canary in the coal mine
50:00 Threat to the financial system
51:15 Need liquidity because of debt
52:00 Financial markets of Victorian London
53:17 Yield curve control is coming klTK j
