Michael Howell: Peaking Liquidity Suggests A Flat To Down Year Ahead For Stocks

**Michael Howell** (0:00)
I think that there may be a case for a correction in markets, a correction in what is maybe a sort of long-term uptrend. That's quite possible. I think we may be in for a period of lower returns from markets for risk assets, given the big gains we've already had. And after all, last year, as everyone will be familiar with, the S&P was up 25% and the gold price was up 25%. Now, looking forward, I would be a lot more confident that gold would make those gains this year than the S&P. And I'd probably suggest that in my view, my feeling would be the S&P would either have a flat or maybe slightly down year this year.

**Adam Taggart** (0:47)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. In his previous appearances on this channel, Michael Howell, founder and CEO of Crossborder Capital, has explained that rising net liquidity has been largely responsible for the surprisingly strong performance seen in both the economy and the financial markets over the past two years. So, will the good times continue into 2025? Well, don't count on it, Michael says. To find out why, 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** (1:22)
Hi, Adam. Great to be here. Lots to talk about.

**Adam Taggart** (1:24)
There's an awful lot to talk about, Michael, and I have been waiting for this interview for a good while.
Liquidity, what drives markets is multifactorial, but I'm not sure if there's a factor that punches above its weight more than liquidity does. And I recall your guidance when we talked last, which I believe was in October. And now that we're heading into this new year, especially giving some of the cautionary notes you were sounding about 2025 at the end of last year, I've really been waiting to get the latest from you here. Let me also note to folks right before we jump into that, that we're just starting the year off here. We'll get your latest update, but you are going to be one of the featured speakers at Thoughtful Money's spring online conference in two months from now. So thank you for doing that. I'm very excited for that, and I think that's going to be a very timely update on your liquidity outlook and where you think markets are going to head there. So folks, this is the first time I'm officially announcing it here on this channel. That spring conference is going to be on Saturday, March 15th. And if you are one of those proactive people, you can go right now to thoughtfulmoney.com/conference and buy your ticket at the early bird price, which is the earliest we're going to be making this available for. All right, Michael. Well, look, lots to get into. We're going to be heavily focused on liquidity. Before we get there, though, what is your current assessment of the global economy and financial markets?

**Michael Howell** (2:52)
I think the short answer is very mixed. I think you've got pockets of growth. I think the US economy is clearly in the positive camp there. Growth looks pretty robust, at least for now. I think that may be a question we've got to revisit later in the year, but I think definitely for now that looks good. The other extreme is China, which is in a parlor situation. I think the Chinese economy is in a much worse situation than maybe many people believe. And I think that tells us something about the need for China to get a deal out of new President Trump. I think that's an urgency and very high up on their agenda for sure. Europe is kind of in the middle. It's nearer the China end than the American end. The reason for that is that Europe we know has got a whole host of problems. Many of those are structural. But in terms of cyclical problems, they have been weighed down by or dragged down by the weak Chinese economy. Europe decided to sell a lot of goods to China over the past few years. And the weakness in the Chinese economy clearly is affecting Europe adversely, as we speak, and the German economy in particular.
So, given the fact that Germany has always been traditionally the powerhouse of Europe, this is not a great omen. So, what you've got is a world that's very mixed. As regards to financial markets, I think financial markets really come back a lot more to the outlook for liquidity conditions rather than the real economy per se. It's certainly my view that it's finance that now drives the real economy much more than vice versa, which traditionally used to be the case in previous history. But financial markets now become much more dominant for reasons we go into. But in terms of what's driving financial markets, liquidity is the paramount factor, as you correctly or kindly said. What is the liquidity background? I think again, you've got a mixed picture. First of all, we've got US liquidity, which has been very good. That has been to a large extent, let's say artificially pushed up because of the election. I think there's a lot of truth in Scott Besson's accusation that both Janet Yellen and Jay Powell were undertaking hidden stimulus in an attempt to get Biden re-elected. I think that's evident in the data. The more close you look at that, that is coming down now quite rapidly. So there'll have to be a new impetus coming in for liquidity. And the Federal Reserve has yet to announce its plans in terms of future QE. I note that the Reserve Bank of Canada did that last week. And they noted that they're going to restart QE but not call it QE. So there we are. There's a good point as to what's going to happen. On the other extreme, China. China liquidity is extremely tight again. That is a danger sign. And that is just further causing or weighing down this debt deflation problem in China.