Bullish For Rest Of 2025, But Bearish For 2026 | Michael Howell

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Thank you for watching. Crap.

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**Michael Howell** (0:45)
And if you look at the black line, which is latest data, it's showing a sharp increase in liquidity since that low point which came at the end of 2022, actually came in September, October of 22 And then it looks like it's likely to peak out sometime around either later this year or more likely the early part of 2026 So maybe sometime in the first half of 2026, we'll be getting concern. And if you look at the orange line on the chart, that is the reason to start getting concerned, I'm only going to say concerned, about what can happen in the next 18 months, because liquidity is going to be absorbed by the need to refinance this debt.

**Adam Taggart** (1:36)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. In his appearance at Thoughtful Money's Spring Online Conference back in March, Michael Howell, founder and CEO of Crossborder Capital, warned of an oncoming liquidity air pocket, which was why the market's subsequent plunge of nearly 20% the following month wasn't a surprise to him. So where does he see liquidity headed for the rest of 2025? To find out, we'll sit down today with the man himself. Michael, thanks so much for coming on the program today. All the way from London.

**Michael Howell** (2:07)
Thanks Adam, always a pleasure. Good to be here.

**Adam Taggart** (2:09)
Thank you. Same here. And Michael, I like to say I try to bring on people who have important parts of the puzzle, macro speaking, and you have your eyes squarely focused on a very important one, which is liquidity. Rising tides will raise all boats, and the sinking tide will sink all boats to a certain extent. Liquidity has been playing a very outsized role, I think, in the financial markets over the past several years, and I think it continues to, at least so far this year. So anyways, I thought a lot of people clamoring to have you back on the main channel here to give us an update on where things are liquidity wise. So why don't we just start with that?
What is your current assessment of financial market liquidity right now?

**Michael Howell** (2:59)
Well, I think the short answer is it's pretty good. I mean, it's almost difficult to say it's going to get better than this, but it may well do. There's a lot of liquidity going to markets. That's arisen from a number of features. I mean, one certainly in the first quarter after the air pocket was the rundown in the Treasury General Account that was really imposed by the debt ceiling in the US. So that launched something like probably overall about 500 billion into US money markets. You found on top of that the weakening dollar, which has actually caused or triggered easing from foreign central banks. So that's been a second factor. And then as the second quarter has unfolded, you've had another two developments. One has been that the People's Bank of China has injected a lot of liquidity into their financial markets. In fact, over the last six months, the Chinese have whacked in about 10 trillion yuan, which is close to one and a half trillion US dollars. So sizable amounts of cash has gone in there. And then on top of that, if you look at the collateral basis of liquidity generation, which is increasingly important, you've had volatility in the collateral markets. In other words, volatility in the main collateral, which is the US. Treasury market, actually coming down. And that's come down against the background where a lot of people have been, as we know, very negative treasuries over recent months. But volatility has actually come down noticeably. And that's been a positive boon for liquidity. And I can demonstrate very easily by looking at a chart. If I put a chart up, hopefully we can see that backdrop.
I think that chart should be clear. That's looking at weekly global liquidity going right back to 2010 There have been a number of gyrations en route. But what I would get people to focus on is one is the big climbing liquidity that you had during the COVID emergency. And that's pretty stark. There's a very sharp incline as liquidity picks up. And then really since the COVID crisis, you've seen this sort of ragged or sawtooth trend. But the trend has been there. I mean, the trend is definitely picking up. And it seems to be sort of gaining something like the rate of about 10 trillion US dollars a year. So sizable amounts of cash. And if you want to blow that up a little bit more, you can see what's happened since the beginning of 2024 And the latest pickup is there quite clear. You've had a noticeable rise in liquidity. As you said, right at the beginning, liquidity is a leading factor. So there was an air pocket likely coming in the early part of the year, as that dip suggests. But since then, we've climbed to new highs. So the liquidity background looks to be pretty good. And that's largely as we see it going forward. You know, it's difficult to argue that liquidity will be interrupted significantly, providing those various parameters keep going. And I think the, you know, there are doubts clearly on a number of those. I mean, one is, will the Treasury build up its Treasury general accounts at the Federal Reserve, as is being slated in the current quarterly refunding announcement? That's a possibility. If they did that, it would take a lot of liquidity out of markets. But I just don't think they, I don't think they're prepared to do that, despite the announcement. And I don't think they're able to do that. So I think the liquidity background looks to be pretty good. And we can drill that into that by all means.