Michael Howell doesn’t sound like a man guessing his way through the fog. The founder of Crossborder Capital, often described as the “godfather of liquidity,” was forthright on the Monetary Matters Network podcast: the cycle may look calm, even buoyant, but we’re nearing the end.
“Right now, liquidity looks pretty good,” Howell said. “There’s been a lot of liquidity coming into US markets courtesy of the debt ceiling. A weaker dollar has encouraged central banks globally to ease—about 80% of the 100 we monitor are easing right now.”
That optimism is tempered by experience. For Howell, the current strength in asset markets—from equities to Bitcoin to gold—is inseparable from this liquidity surge. “These things are connected 100%. And I expect it’s going to continue for a few months yet. But the cycle’s 34, 35 months old now. It’s mature.”
He draws parallels with the late 1980s. Then, like now, a weaker dollar encouraged global easing. Then, like now, bond markets began showing cracks before equity markets caught on. “It was the Germans tightening policy that rang the bell in ’87,” Howell said. “You could pick up those signs in fixed income markets. The selloff began gradually and then accelerated.”
Howell sees a similar setup now: “We’ve got to watch the bond markets closely. Especially Japan. Their 30-year yield has gone from 0% to 3%. That’s huge. And the Japanese government bond market is where the volatility really is—not the US Treasury market.”
Though the US bond market is often accused of losing its safe haven status, Howell is sceptical. “Far from it. If you look at term premium data, it’s France and the UK where investors are demanding higher risk premia. The US Treasury market still looks okay by comparison. It’s the cleanest shirt in the laundry.”
Still, the nature of funding has changed. The government, he says, is the main source of credit growth—not the private sector. “The state is back in control. And we know how this ends: inflation. You want monetary inflation hedges in your portfolio—gold, prime residential real estate, good-quality equities, Bitcoin.”
He’s clear-eyed about the direction of travel. “We’ve moved from an era of monetary dominance to fiscal dominance,” Howell explained. “The Fed isn’t really fighting inflation anymore—it’s trying to preserve the integrity of the bond market.”
In this new regime, fiscal authorities drive inflation, and the Fed’s job is to stabilise debt markets. Howell points to the Fed’s management of bank reserves, the Treasury’s issuance of short-term paper, and the push to scrap the Supplementary Liquidity Ratio (SLR) as signs of a broader strategy. “They want banks to buy Treasury debt. Why? Because there’s a lot to sell. And issuing short-term debt increases liquidity by definition.”
But Howell warns that this setup can’t last forever. “The debt supercycle has rolled on for decades. From 2008 to 2018, it didn’t seem so bad because growth was anemic and inflation was low. But now inflation is picking up. Yields are following. And fixed income isn’t a hedge against monetary inflation—it’s the opposite.”
So where are we in the cycle?
“We’re not in the middle,” he said. “We’re towards the end. Liquidity bottomed in September 2022 and has been rising since, largely due to the weaker dollar. But our models show a slowdown starting early next year. That’s not a fall in liquidity, but a drop in the growth rate—and that’s enough to shake investors.”
What could trigger the turn? Howell is blunt: “A disturbance in the funding mechanism. An inability of a government to fund itself. Maybe it’s the UK. Maybe Japan. But it’s not likely to be a classic business cycle event.”
And the business cycle? “It’s dead,” Howell claimed. “We’ve got flatlining data. Asia hasn’t really seen a proper business cycle since 2020. What drives economies now is fiscal policy, not investment or capital expenditure. And higher rates don’t bite like they used to.”
He returned several times to the idea of a liquidity-driven market where asset performance follows a predictable rhythm. “In the upswing, you want equities. Around the peak, it’s commodities. Then cash, then bonds. Right now, we’re seeing poor-quality names performing—that’s always one of the last signs.”
The global debt maturity wall is approaching fast. “A lot of debt was termed out during COVID. Five or six years on, it’s coming due. That could absorb huge amounts of liquidity. It’s not just about new issuance—it’s about refinancing existing debt.”
China’s role in all this can’t be ignored. Howell highlighted the enormous liquidity injections by the People’s Bank of China. “They’ve already added over 10 trillion yuan. They’ll probably need to double that. And they’re doing it at the same time as buying gold, which explains a lot of the price action there. Asia’s doing with gold what the West is doing with Bitcoin—hedging monetary inflation.”
Asked about Chinese equities, Howell didn’t hesitate. “Very bullish. If the PBOC keeps easing, Asia will benefit. The MSCI Emerging Market Index is already picking up. The Chinese supply chain is revving up again.”
He brushed aside the narrative that the US dollar is losing its safe haven appeal. “That’s just a natural rebalancing. Portfolios were overweight US assets. There’s no mass exodus from the dollar in the cross-border flow data.”
He also doesn’t expect a recession in the near term. “The data doesn’t show it. We’re seeing strength in commodities, and that’s not what you’d expect in a global slowdown.”
Howell believes the Federal Reserve won’t let liquidity dry up suddenly. “Why would they allow the Treasury General Account to rebuild by $500 billion and cause a crash? They’re managing this carefully. The move index has come down. Repo spreads are in check. There’s no panic in collateral markets—for now.”
What worries him is the eventual squeeze. “2026 or 2027 is when the refinancing wall hits. Public and private debt is coming due. If there’s not enough liquidity to roll it over, that’s your crunch point.”
So how close are we to the exit?
“The clock is ticking. If we see a blow-off in commodities, that’s the end. It always is. Until then, it’s party on—but stay close to the door.”
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