Markets Are At All-Time Highs… But Liquidity Says Trouble Ahead

**Michael Howell** (0:00)
What you should be positioning for is an upcoming turbulence regime. Now, that's not going to happen tomorrow, but it may be coming up. And I think the point that I would make is that asset allocation evolves.
You don't, you can speculate in markets, but don't put 100% of your money into a speculation policy. What I would do is...

**John Gillan** (0:23)
The world runs on debt, but what countries are borrowing right now, who is lending, and where is the capital coming from? Where is it going to? And what does all of this mean for investors? Hello and welcome to Milk Road Macro, the podcast that knows that liquidity comes from the liquid region of central banks. Otherwise, it's just sparkling money printing. I'm your host, John Gillan. Today is Thursday, June 4th, and today we are joined by the godfather of global liquidity himself, Michael Howell. Michael is the founder and CEO of CrossBorder Capital and the author of Capital Wars book and Substack. He is recognized as one of the world's leading liquidity experts with over 30 years of experience in finance and macro analysis. Michael is one of the most sought after guests in all of macro. He's going to give us a really critical update on what liquidity outlook is for 2026 and what all this means for you. If that sounds good to you, make sure you like and subscribe. Share this episode with somebody who's going to enjoy it. Today's episode is brought to you by Cape, the privacy first mobile carrier, Nexo, earn interest borrow and trade crypto, and Kalshi, where your takes finally pay out. And without further ado, welcome back to Milk Road Macro. Michael Howell, how are you, sir?

**Michael Howell** (1:28)
I'm good, John. Great to be here.
Plenty going on in the market. You entertain us.

**John Gillan** (1:34)
There's a lot that's going to be entertaining people for a while. Michael, I wanted to start with what I thought was rather a bold prediction of yours. But correct me if I'm wrong. I think you said you're expecting that this sovereign debt crisis we're seeing could lead to the dissolution of the European Union. And I thought this was a bold call and a good way into this conversation. So I wonder if you could walk us through what dominoes you think are going to fall that leads to the European Union breaking up and what led you to that conclusion.

**Michael Howell** (1:59)
Well, I think to sort of start at the beginning, I think that the European Union is, I think, under threat. I mean, I'm not suggesting this is going to happen tomorrow.
But maybe over the medium term or longer term, there's a risk. The reason we sort of come to that conclusion is pretty straightforward actually. I mean, we think the money moves markets, that economies are downstream of markets, and geopolitics are downstream of economics. So it really comes back ultimately to the direction of capital and why capital is shifting. I think what you're seeing is problems on a number of fronts from Europe. I think the first thing to say is that the glue that has held the European Union together for a long time has really been NATO. To the extent that there is a threat of NATO or a threat over NATO, I think that is going to create some tensions within the countries that are currently members of the EU, not least because each of them has very different defence interests, to put it bluntly. Those on the East face a very different threat than those maybe in the South, and therefore the appetite for defence spending is going to be radically different, and that clearly is a major factor within the budget. I think that once you start to then delve into the economics of the EU, there is a problem because number one, maybe first and foremost, there is no safe asset in the European system apart from the German Bund, and that really is the problem because if you start to see tensions emerging, and let's bear in mind here, there are tensions which are beginning to become evident in the very different trajectories of French and German debt levels. French debt levels continue to accumulate.
German is going up, but they're kind of flatlining in comparison, and that's going to put a lot of funding issues, or these going to confront the European Union with a lot of serious funding issues. Now, if you've got the Bund, which is the main safe asset, then you can see there is a problem that we've gone through before, we see tensions within the bond markets.
And that can give rise to problems, not just in terms of different sovereign bond markets coming under pressure, but also the banking markets of those particular countries. So this is a fragile environment. It's a union that is not, let's say, well-founded. It's maybe well-founded on motion and several other things, but it's certainly not founded on strong economics.