From "Everything Bubble" To "Everything Bust"? Michael Howell on Liquidity In 2025 & Beyond
Dec 23, 2024
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Michael Howell, Managing Director of Crossborder Capital, shares his expert insights on global liquidity trends and the impending liquidity cycle peak. He analyzes the pivotal role of central banks and cross-border capital flows, warning of potential challenges ahead as refinancing needs grow. Howell also discusses asset dynamics, pointing to the importance of gold and Bitcoin in investment strategies. With a cautious outlook, he highlights the risks associated with the 'everything bust' and the U.S. dollar's dominance in shaping future economic landscapes.
The ECB's proactive measures aim to uphold the euro's stability amidst geopolitical tensions and inflationary pressures in the eurozone.
Current global liquidity is transitioning, with anticipated increases countered by decreasing U.S. supply and impending debt maturity challenges in 2025.
Risk assets in the U.S. appear resilient, yet a thorough evaluation of liquidity dynamics is essential for future market performance forecasting.
China's tightening monetary policy raises uncertainties about its economic recovery and global liquidity's direction, affecting international market conditions.
Deep dives
ECB Commitment to the Euro
The European Central Bank (ECB) has communicated its readiness to take necessary measures to uphold the euro's stability. This reassurance reflects a strong commitment to preventing any potential crises that might threaten the eurozone, aiming for a positive perception among investors. The ECB's actions are crucial in maintaining confidence in the euro, especially in light of ongoing challenges such as geopolitical tensions and inflationary pressures. By signaling its proactive stance, the ECB aims to minimize volatility in the currency markets and instill trust in the economy.
Outlook on Global Liquidity
Current global liquidity appears to be in a transitional state, with an anticipated increase due to various stimulus efforts. However, many experts suggest that the momentum behind this liquidity is beginning to wane, particularly as central banks slow their stimulative measures. The supply of liquidity from the U.S. is gradually decreasing, while the looming maturity wall of debt expected in 2025 introduces further complexities. A notable concern remains regarding how restructuring of debt and funding will affect the overall liquidity landscape in markets around the world.
U.S. Risk Assets and Market Sentiment
In the U.S., risk assets such as stocks continue to exhibit resilience amid ongoing economic uncertainties, yet caution is advised. Analysts suggest that while the current market conditions remain favorable, a comprehensive evaluation of liquidity dynamics is essential to forecast future performance. The interplay between central bank policies and the global economic environment can significantly sway investor sentiment in 2025 and beyond. Therefore, maintaining a balanced perspective on the risks associated with fluctuating liquidity and international factors is vital for market participants.
Role of China in Global Economics
China's economic situation remains pivotal on the global economic stage, especially concerning its tightening monetary policy and the implications for liquidity. Speculation exists regarding the likelihood of significant government interventions aimed at reviving the economy, given the country's substantial debt load. However, tighter metrics and interest rate control strategies hinder rapid recovery efforts, creating an overall climate of uncertainty. A careful observation of China's actions and strategies will be crucial, as they hold the potential to influence global liquidity and market conditions significantly.
Understanding Debt Dynamics
The upcoming years present substantial challenges related to refinancing the massive debt accumulated during the COVID-19 pandemic, particularly in the U.S. Investors should be aware that the total debt-to-liquidity ratio plays a significant role in determining market strength. As existing debt comes due, the requirement for liquidity will rise, potentially impacting asset prices if not managed properly. A proactive approach to observe these developing dynamics will help investors navigate the complex landscape of debt refinancing and its ramifications.
Emerging Markets and Investment Perspectives
Emerging markets currently face headwinds due to a strong U.S. dollar and political challenges within their own economies. Analysts suggest that until major global economic factors, particularly regarding China's economy, improve, these markets should be approached with caution. The inability of emerging markets to strengthen against a rising dollar hinders their growth potential and investor confidence. Thus, it remains prudent to wait for clearer indicators of stability before committing significant resources to emerging market investments.
Future of Cryptocurrency Amidst Economic Changes
Bitcoin and other cryptocurrencies are viewed as viable long-term assets by many in the wake of ongoing financial fluctuations. Analysts suggest that the unique characteristics of digital currencies may help them serve as a hedge against inflation and economic instability. Although short-term volatility is expected, a robust outlook indicates that as liquidity conditions tighten, demand for cryptocurrencies may further increase. Consequently, technology investors may find value in incorporating digital assets into diversified portfolios, recognizing their potential resilience against traditional market dynamics.
Today’s episode is brought to you by the Teucrium Wheat Fund. War, weather, inflation—even monetary policy—drive wheat prices. See disclaimers below. Explore the opportunities at: https://bit.ly/Teucrium
Michael Howell of Crossborder Capital joins Jack on Monetary Matters to share his outlook on global liquidity from three sources: central banks, cross border flows, and the private sector. Howell expects the liquidity cycle to peak in late 2025 / early 2026 and says "enjoy the party but dance near the door." Recorded on December 19, 2024.
This material must be preceded or accompanied by a prospectus. Please read the prospectus carefully before investing. To obtain a current prospectus visit www.teucrium.com. The Teucrium Wheat Fund is a commodity pool regulated by the Commodity Futures Trading Commission and is not a mutual fund registered under the Investment Company Act of 1940 and is not subject to regulation under such Act. Commodities and futures generally are volatile and are not suitable for all investors.
Futures investing is highly speculative and involves a high degree of risk. An investor may lose all or substantially all of an investment in the Fund. Investing in commodity interest subject the Fund to the risk of its related industry. Brokerage commissions and exchange-traded fund expenses will reduce returns.
Teucrium Trading, LLC serves as the Sponsor of the Teucrium Wheat Fund. PINE Distributors LLC is the Marketing Agent for the Fund, and is not affiliated with Teucrium Trading, LLC, or any of its affiliates.
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