Michael Howell — The global liquidity cycle has peaked: prepare for turbulence
CrossBorder Capital's founder argues bond yields are rising because nominal growth is the fastest since the mid-1980s (not just debt), that capital markets now exist to refinance debt rather than fund investment, and that governments are quietly printing money through bill-financed "Treasury QE". The growth rate of global liquidity has peaked in its 5–6-year cycle; watch repo (SOFR vs fed funds) and bond volatility (MOVE), and buy any gold pullback.
One-line take: it's a refinancing world, so watch the plumbing, not the Fed funds rate. Debt rolls every 5–6 years, which is why global liquidity runs in 5–6-year cycles; its growth rate has now peaked (the level is still inching up), and weak bonds + strong commodities are the classic late-cycle signature. Yields are rising because nominal GDP is booming worldwide (ex-China) and sit ~100bp below where NGDP says they should be. Governments fund at the front end with bills that banks buy to duration-match deposits — private banks doing "Treasury QE", i.e. money printing — while Bessent's buybacks aim at yield volatility, not yield levels. The yen carry trade is an exaggerated bogeyman (watch French OAT–Bund spreads instead). In a crisis it's cash first, then central banks re-liquefy and gold, Bitcoin and risk assets reprice sharply higher; Wall Street stays range-bound meanwhile. Gold on any dip: "absolutely 100% this is a buying opportunity."
1. Stocks & names mentioned
| Ticker | Name | Research | View | What he said | At |
|---|
| Gold | Gold (commodity) | — | Positive | Gold is "the perfect monetary hedge": governments can't afford austerity, so debt and liquidity keep rising. A wobble if policy tightens is "absolutely 100%… a buying opportunity. If gold comes back, buy it." China, with the biggest debt problem, "has to print money and the Chinese love gold." | 26:49 |
| BTC | Bitcoin | QT · STK | Positive | Bill-financed "Treasury QE" is money printing, which is why "the gold price and to some extent bitcoin are going up"; after any liquidity crisis central banks re-liquefy and "Bitcoin will shoot higher," and it "continues to rise probably as well" over the long run. | 27:40 |
| SPY | Cap-weighted S&P 500 (index proxy) | QT · SA · STK | Neutral | Expected a range-bound Wall Street this year (rising yields compress P/Es while strong economies lift earnings); tech earnings pushed it higher, but his 6–12-month best guess is "a continuation of this range-bound market" — the administration wants to hold it up, yet "we're late cycle" and risks are mounting. | 24:46 |
| TLT | Long-term US Treasuries (iShares 20+ Year Treasury Bond ETF — asset-class proxy) | QT · SA · STK · FA | Negative | "Bond yields have got to go up more": with nominal GDP growth the fastest since the mid-1980s across the US, Japan and Europe, yields sit "about 100 basis points… below probably where they should be." Governments will try to suppress them, but the tendency is up — weak bonds are a typical late-cycle sign. | 26:05 |
Not tabled: Japanese government bonds (10-year above 3%; mostly domestically owned) and French OATs (spread to Bunds widening, possibly on Japanese selling) — discussed as markets, no instrument named; broad commodities ("should continue to rally") without a named vehicle; silver and the Dow asked about but not answered specifically.
2. Talking points
00:00 Capital markets have changed their role
- Textbook capital markets raise money for new investment; today (the AI capex boom aside) they mostly refinance existing debt.
01:41 Japan: why yields are rising
- JGB 10-year above 3% for the first time since 1996 — but the yen carry trade is a "bogeyman," not the dominant feature; journalists have "got the message really wrong."
- Yields are rising worldwide because real economies are strong and inflation is up: the fastest nominal GDP growth since the mid-1980s (US, Japan, eurozone). China is the anomaly, with yields falling.
04:08 Repatriation risk: watch France, not Treasuries
- JGBs are largely a self-contained, domestically owned market; insurers and pension funds may repatriate gradually, not suddenly.
- Japan is a "whopping great investor in French bonds" — the widening OAT–Bund spread may reflect Japanese selling.
05:44 $40T of US debt: a refinancing world
- Debt (unlike equity) must be refinanced; average term ~5–6 years, which produces a 5–6-year global liquidity cycle.
- What matters is balance-sheet capacity of financial intermediaries — the plumbing. The Fed funds decision is "a big pantomime."
- Paradox: higher rates raise the interest bill, a direct income transfer to the private sector that boosts spending — "reverse polarity."
- Governments always get funded, especially a reserve-currency issuer; they may crowd out the private sector and force rates higher.
08:58 Fiscal dominance: "spoiler alert, it's already happening"
- Not financial repression or yield-curve control — "yield volatility control": Bessent's buybacks are too small to move yields but calm volatility, which matters because hedge funds are leveraged Treasury buyers.
- Governments fund at the front end with 3–6-month bills; banks buy them to duration-match deposits created by government spending.
- That is money printing — "private sector banks doing the QE for the US Treasury," a template spreading to Japan, the UK and the eurozone — and why gold and Bitcoin are rising.
13:04 The liquidity cycle has peaked (in growth-rate terms)
- Money drives all markets and is fungible, so it is a global measure. The growth rate has peaked; the level is still inching higher.
- Not central-bank tightening: strong real economies are absorbing liquidity away from financial markets.
- Weak bonds + strong commodities = late cycle; equities straddle both (P/E from finance, earnings from the economy) — the more yields rise, the bigger the danger.
15:59 Central banks are buying time
- Tightening would pressure bond markets and disrupt financing, so they're reluctant. Warsh (Jackson Hole, FOMC presser) stressed money-market liquidity and adequate bank reserves.
- A higher Fed funds rate could even extend the cycle if it pulls term premia down a tad — focus on liquidity, not the policy rate.
17:39 Anatomy of a liquidity crisis: the debt–liquidity nexus
- Debt needs liquidity to refinance; liquidity needs good collateral. ~77% of lending worldwide is collateralized (World Bank); a 2% haircut implies a 50× collateral multiplier.
- US repo is ~$14T overnight — Lehman was an overnight-funding failure and these markets have only grown.
- Debt-to-GDP doesn't matter (Japan has lived at 400%); debt-to-liquidity does — crises occur when it spikes (back to the Asian crisis).
- Indicators: SOFR spiking versus Fed funds, the MOVE index (bond volatility), credit spreads.
21:59 Cash is king — briefly
- In the crisis itself everyone hoards liquidity and cash; counterparty risk rises.
- But new credit rests on the integrity of old debt, so central banks can't let debt default — their real job is protecting debt markets (GFC, 2019 repo, COVID).
- In the re-liquefication, take risk: gold moves fast, the dollar falls after an initial spike, Bitcoin "will shoot higher."
24:46 6–12 months: range-bound stocks, higher yields, commodities up
- Wall Street range-bound (strong tech earnings offset P/E compression); the administration wants to hold the market up and manage liquidity — watch SOFR and bond volatility, not Fed funds.
- Yields ~100bp below NGDP-implied fair value; commodities should keep rallying on strong economies.
26:49 Gold: buy the dip; "nothing stops this train"
- Any gold wobble on tightening is a buying opportunity; no politician will choose austerity amid "capital wars" with China and possibly Russia, so debt and liquidity rise together.
- China has the biggest debt problem, must print money, and loves gold.
28:24 Where to find him
- Capital Wars (Amazon; written pre-COVID but principles hold), the Capital Wars Substack (3–4 posts a week), and an institutional data tier covering 90+ financial systems.
3. In plain English
Gold — the metal Positive
Howell's core idea is that the amount of money sloshing around the world ("liquidity") has to keep growing, because governments and companies carry huge debts that must be rolled over every few years, and no politician will cut spending to shrink them. When the US Treasury pays for its deficits by selling short-term bills that banks buy with newly created deposits, that is effectively printing money — just not by the Fed.
Gold is the classic protection against money being created faster than things to buy with it. So if gold drops because a central bank tightens for a while, he sees that as a chance to buy, not a warning. He adds that China has the world's biggest debt problem, will have to print money too, and its citizens and central bank favour gold.
BTC — Bitcoin Positive
Bitcoin sits in the same bucket as gold for him: a hedge against governments creating more money. His crisis playbook is that when funding markets seize up, central banks rush in with cash; once that "re-liquefication" starts, the assets that react fastest to extra money — gold and Bitcoin — jump first. Over the long run, as liquidity keeps rising with debt, he expects Bitcoin to keep rising too.
TLT — long-term US Treasuries Negative
The yield on a bond should roughly track how fast the economy is growing in money terms (real growth plus inflation, "nominal GDP"). Howell says that nominal growth is the fastest since the mid-1980s, yet long-term yields are about one percentage point lower than that would justify. So he expects yields to keep climbing — and when yields rise, the prices of long-dated bonds (what TLT holds) fall. Governments will try to slow that, but he sees the pressure as upward.
For personal study — not investment advice. Source material © Triangle Investor. Views are Michael Howell's own (CrossBorder Capital).