Global Liquidity Has Peaked: What Happens to Bitcoin? | Michael Howell

**Michael Howell** (0:02)
One's got to be realistic and face up to the fact that the world has changed. And that change in the world is partly a function of China, and partly a function of demographics.
And the fact is that the West is bust.
And, you know, the reason that the UK goes through prime ministers every two years is simply the fact there's no money left. They can't fulfill an agenda, and they lose the confidence of their party. But that's the reality. And that's probably a fact across Europe as well. And then if you look at some data that came out of the Philadelphia Fed last week, you're looking at a lot of demand growth in the US economy. So I think it would be absolutely madness if they tried to do anything like, or even get near, you know, trying to ease policy. I mean, it would just be crazy. I don't believe that that's what they're going to do. I think the strength or the firmness in the US dollar is actually already telling us that that's the direction they're going in. They're going towards more tightness.

**Danny Knowles** (1:00)
Let's get into this.
Michael Howell, the liquidity king. Thank you for coming on the show. It's good to speak to you.

**Michael Howell** (1:06)
Well, great. Good to be here, Danny.

**Danny Knowles** (1:09)
I've heard a lot of good things. I know you've spoken to Nick Bartier a lot and James Lavish, the sort of macro people I speak to on the show all the time, all recommended having you on the show. So I'm excited about this.
I don't know exactly the best place to start. I think maybe we should start off with why you focus so much on liquidity and what it is that means that's the thing you keep your eye on the most within the economy.

**Michael Howell** (1:32)
Yeah, okay. I mean, it's a good question. I mean, the short answer is that money moves markets, and it's really straightforward as that.
You know, broadly, the way that we see things is that what starts the whole cycle or the investment cycle going is money flows, money coming into financial markets.
Economics is downstream of markets, and geopolitics are downstream of economics. So you kind of see the sequence of maybe our thought process. But what we really want to understand is, is there money coming into markets or leaving markets that will effectively change transactions? One of the things you need to think about or conceptualize is that there are broadly speaking, two big pools of money in the world economy. One that's in financial markets and almost a separate one that's in the real economy. And so many people confuse these two things. They conflate them. They think they're the same thing, but they're not. They're very distinct. And all money that's anywhere must be somewhere. So it's either in the financial sector or it's in the real economy.
Generally speaking, as investors, we prefer it to be in the financial or asset economy than in the real economy. Because if it's in the real economy, it's just driving activity. Whereas if it's in the financial or asset economy, it's driving asset prices higher. And that's really what we're looking at. So that's, I suppose, the sort of the basic thesis.

**Danny Knowles** (2:59)
And when you say economics is a downstream of markets, what exactly do you mean there? Because I think there's probably a lot of people out there who would think that whatever's happening in the economy is the thing that's driving markets. Maybe have that flipped the other way around.

**Michael Howell** (3:12)
Yeah, I mean, see, it basically works the other way around. I mean, there are feedback effects. There's no question, but the real economy will come back and influence financial markets as a sort of echo effect. But the first stage is that money, if you think about, if you said that money is the important factor that we all need to look at, I mean, I suppose in a capitalist system, that almost goes without saying. But the fact is that that money process effectively starts transactions. And typically, you've got to ask the question, how does money get into our pockets, into our bank accounts, or whatever? And it tends to move first through the financial system. It comes from the financial system. So it's in sustain the financial system first.
Then it will spill out into the real economies. That's the transmission mechanism. So we look for guidance as to what's happening in real economies at the financial sector. And it's so often the case that you've probably heard the line before that the stock market tends to predict what's happening in the stock in the real economy.