Liquidity Is Still In Charge, But It's Going To Be A Bumpier Ride From Here | Michael Howell
Mar 10, 2024
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Exploring the impact of liquidity on markets, predicting a peak by 2025. Discussions on investment cycle rebound, global liquidity's influence on equity markets, and strategic options trading for safety. Analysis of unsustainable market valuations, possible downturn by 2025, and importance of expert financial advice for navigating economic challenges.
Liquidity cycle projected to improve in 2024, benefiting equities, credits, commodities, and real estate.
Bitcoin shows higher sensitivity to liquidity than gold, suggesting investment opportunities.
Potential risks include inflation, Federal Reserve missteps, geopolitical events, and financial crises.
Consider large-cap US stocks, real estate, gold, and Bitcoin as hedges against monetary inflation and diversification options.
Deep dives
Global Liquidity Cycle
Michael Howell emphasizes the importance of liquidity in the world economy, stating that the liquidity cycle bottomed in October 2022. He projects an upward cycle for liquidity, predicting a better second half of 2024 and growth picking up through the next year.
Asset Allocation and Sensitivity to Liquidity
He highlights the significance of asset allocation based on liquidity trends, mentioning that equities, credits, commodities, bond duration, and residential real estate could benefit from liquidity expansion. Bitcoin is noted to have a higher sensitivity to liquidity compared to gold.
Rising Debt and Federal Reserve Policy
He discusses the rising public debt burden and the potential need for the Federal Reserve to triple liquidity injections by 2034. Michael raises concerns about potential risks such as significant inflation, Federal Reserve errors, geopolitical events, and financial crises.
Investment Recommendations
Michael recommends considering investments in assets like large-cap US stocks, residential real estate, gold, and Bitcoin as hedges against monetary inflation. He emphasizes art as a non-money-related investment, citing its creative and observational benefits.
Liquidity Forecasting and Market Sentiment
The discussion centers on forecasting liquidity peaks by the end of 2025, with current indications suggesting a continuation of positive market conditions for the next two years. However, there are diverging viewpoints on how to measure opportunity, especially concerning valuation concerns amidst the liquidity-driven market surge. Despite concerns about potential market corrections and overvaluation, the possibility of a blow-off top and looming market adjustments remain key focus areas, anticipating potential shifts in market sentiment.
Federal Reserve Policy and Rate Cut Speculations
The episode delves into Federal Reserve Chairman Powell's recent testimony, highlighting his stance on inflation and foreseeing rate cuts in 2024. Market expectations regarding Fed rate cuts have oscillated, impacting market sentiment and valuations. The narrative surrounding potential rate cuts has shifted multiple times, underscoring the ongoing market uncertainty and the influence of Fed policy on investor expectations and asset valuations.
Gold Market Analysis and Mining Sector Outcomes
A detailed examination of the gold market commences, illustrating a breakout above $2100 and the implications for the gold mining sector. The discussion emphasizes the leverage potential of mining stocks in response to gold price movements, with the current sentiment and profitability dynamics influencing investment decisions. Despite historical underperformance, the potential growth trajectory for gold stocks, especially in lockstep with rising gold prices, presents a compelling opportunity for investors to consider, particularly amidst changing market conditions.
When today's guest was on this channel back in December, he explained that rising net liquidity was responsible for the surprisingly strong performance seen in both the economy & the financial markets in 2023.
And he predicted that these net liquidity inflows would continue, leading to even higher asset prices ahead.
Well, here in the final month of Q1 2024, things so far have played out according to his script.So where does he liquidity heading for the rest of the year?
To find out, here's another very important conversation today with Michael Howell, founder & CEO of Crossborder Capital.
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