The Liquidity Cycle Has Turned | Michael Howell on What It Means for Investors

Bitcoin

Across the shows: 19 speakers in other episodes, 14 bullish and 7 bearish calls, past 30 days

• Michael Howell · CrossBorder Capital / GL IndexesBearish

  Bitcoin peaked with the liquidity cycle in late 2025 and has slumped, as the most liquidity-sensitive asset.

  Howell says the liquidity cycle peaked in late 2025 and that the cycle's bottom occurred around September–October 2022. Bitcoin peaked slightly ahead of that turning point and then slumped. He calls Bitcoin the most liquidity-sensitive asset on the planet, so as liquidity growth slows, its weak performance is expected.

  “a little bit ahead of where Bitcoin peaked, and then slumped. And Bitcoin is the most liquidity sensitive asset on the planet.”at 13:51

• Michael Howell · CrossBorder Capital / GL IndexesBullish

  Bitcoin should be a strong performer as a hedge against loss of confidence in paper money.

  Howell says he cannot be sure what Bitcoin is, citing Binance, fraud and North Korea, so his view is tentative. He expects strong performance because Bitcoin emerged from the last financial crisis, when there was concern about the integrity of paper money. Since the system must respond to the next refinancing crisis with more monetary expansion, he thinks Bitcoin will do well again.

  “Binance and fraud and North Korea and whatever else. Who knows? But you would expect that Bitcoin be a very strong performer because it really came out of the last financial crisis when there was concern about the integrity of paper money.”at 41:09

Credit markets

• Michael Howell · CrossBorder Capital / GL Indexes

  Debt-to-liquidity above about 200% signals serious refinancing problems; debt-to-GDP is misleading.

  Howell argues that the debt-to-GDP thresholds economists cite, such as 80% or 100%, are loosely supported and already exceeded. China's debt-to-GDP near 400% and Singapore's similar level produce no particular tensions. He says the metric that matters is the ratio of debt to liquidity, because capital markets now mainly refinance debt rather than raise new capital. His research finds that above roughly 200%, refinancing problems become really serious.

  “what we found is that if you look at a level of debt to liquidity above about 200%, you start to get really, really serious problems in terms of refinancing problems.”at 7:44

• Michael Howell · CrossBorder Capital / GL Indexes

  Collateral repo markets now sit at the centre of credit creation; about 77% of global lending is collateral-based.

  Howell says collateral repo markets are central to credit creation, citing World Bank data that about 77% of global lending is collateral-based. The Fed influences these markets but does not control them. He adds that private-sector factors matter, including banker sentiment and collateral volatility. A more volatile Treasury collateral base makes borrowing against it harder, which tightens credit creation.

  “We live in a world now where the collateral repo markets are really at the center of credit creation.”at 14:28

• Michael Howell · CrossBorder Capital / GL Indexes

  A major refinancing crisis is likely within two to three years as debt grows faster than liquidity.

  Capital markets now mainly refinance debt rather than raise new capital. Low rates in 2020–22 pushed out maturities, so a debt maturity wall is returning. The increase in debt needing rollover is at least $4–5 trillion a year, against a total roll of about $50 trillion across advanced economies. Federal debt adds about $2 trillion a year and AI hyperscaler debt at least $1 trillion, and both compound. Liquidity is cyclical, so the balance-sheet capacity needed to roll this debt is falling. Howell's debt-to-liquidity ratio is at a pressure point, and the liquidity cycle is faltering because of real-economy demand, not just Fed tightening. Central banks will respond with more liquidity, which fuels asset booms. He says this is not a call for tomorrow, but there is a real chance of a major crisis in the next two to three years.

  “Now, you know, it's not saying this is gonna happen tomorrow, but it's saying that probably in the next two years, three years, you've got a real chance of of a major financial crisis.”at 46:11

AI bubble & tech valuations

• Michael Howell · CrossBorder Capital / GL Indexes

  Equity PE multiples are contracting with liquidity, while non-AI earnings are disappointing and fraying the market.

  Howell says PE multiples expanded when liquidity rose and are now contracting as liquidity rolls over, which is the expected pattern. The unusual part is the earnings component, which came through later and more strongly than in past cycles, probably because of AI. Beneath the surface, non-AI stocks are fraying as disappointing earnings, which had been partly priced in, hit them.

  “the PE multiple has moved exactly as you would expect. So what we've seen is a big expansion in PEs when liquidity was rising, and you see the contraction beginning in PEs as the liquidity cycle has rolled down.”at 27:20

• Michael Howell · CrossBorder Capital / GL Indexes

  Tech's late-cycle earnings surge is likely cyclical, not trend, like the 2000 dot-com episode.

  Tech stocks got a first boost from falling rates, since long-duration equities gain when discount rates fall. Their earnings then came through late and strongly in this cycle, probably because of the AI boom, which Howell calls a second wind. He leans toward these earnings being cyclical rather than trend, based on Y2K, when stocks were said to be heading to the moon and never did. He acknowledges he could be wrong and says the proof is still to come.

  “And my [leaning] is towards that being cyclical because I remember past cycles and even go back to Y2K when everyone said all these stocks are gonna grow to the moon, and, of course, they never did.”at 28:38

• Michael Howell · CrossBorder Capital / GL Indexes

  The late 1990s liquidity timeline closely matches today's, though post-2008 mechanics differ.

  Howell says the late 1990s are a good period to compare with liquidity, and his timelines line up almost exactly with that period. He cautions that the comparison can be pushed too far, because the financial system has changed since 2008. The cycle's length and amplitude look similar, but the drivers and the mechanisms by which the Fed controls the system differ.

  “I think the late nineties were a pretty good period to look at when it comes to liquidity. And we've done timelines which seem to... light up pretty much exactly to that.”at 31:38

Gold & precious metals

• Michael Howell · CrossBorder Capital / GL Indexes

  Gold should rally strongly as liquidity drives it, not equity-style valuation multiples.

  Howell argues that gold is a liquidity-sensitive asset, alongside Bitcoin, small caps and credit spreads. He says the price is driven by liquidity rather than PE multiples, and that the current phase of the liquidity cycle is extremely bullish for gold. The case is brief and rests mainly on the liquidity framework, with little hard data offered for gold specifically.

  “But, actually, this is exactly the time we should be thinking about bonds right now. That is extremely bullish in my view for the gold price.”at 0:16

• Michael Howell · CrossBorder Capital / GL Indexes

  Gold should rise significantly as China devalues its debt internally and central banks pump liquidity in the next crisis.

  China's debt-laden economy has returns on capital that have collapsed and cannot keep growing on this debt. Howell argues it must devalue the debt, which means a significant internal devaluation of the yuan, with domestic wages and prices rising, while keeping the exchange rate largely stable through capital controls and state banks. He says this is extremely bullish for gold and admits it may take decades like Japan's adjustment, so timing is uncertain. Separately, he expects the next debt refinancing crisis to bring a response of more liquidity from central banks. Monetary inflation hedges such as gold would then perform well and push gold up significantly.

  “And that means a significant devaluation of the yuan internally, which means domestic wages and prices have got to rise in China somewhat significantly, to actually devalue this debt. That is extremely bullish in my view for the gold price.”at 58:04

US growth & recession risk

• Michael Howell · CrossBorder Capital / GL Indexes

  The real economy, especially in the US, is strengthening as liquidity drains out of financial markets.

  Howell's chart shows liquidity in financial markets declining while the real-economy line shows progressive strength. He says money is inversely linked between the two spheres, so the strength of the real economy, particularly in the US, reflects money being redeployed into real activity such as AI capex, and is not captured in financial statistics.

  “what you see on the real economy line is progressive strength, and that's saying that the real economy worldwide, but particularly in The US, is on a roll.”at 8:51

• Michael Howell · CrossBorder Capital / GL Indexes

  US and world growth should slow into 2027, though he is not seeing a recession.

  Howell names three forces for 2027: rising bond yields, a significant rise in oil prices, particularly diesel and other product prices, and a firmer dollar. Together these should mean slower growth next year. He is not forecasting a recession, but says growth will be noticeably slower and that this will have its own implications for bond yields.

  “And by any accounts, that should mean that you've got a slower growth picture for next year. Not... I'm certainly not seeing recession, but you've definitely got a slower growth environment.”at 57:02

US rates & the Fed

• Michael Howell · CrossBorder Capital / GL Indexes

  Treasury and the Fed are now explicitly coordinated, with Treasury funding spending at the front end.

  Howell says the current Fed chair works much more closely with Treasury Secretary Bessent than Powell did, and that Treasury and the Fed are effectively joined. He says the goal is now explicit, moving policy toward Main Street. He also describes policy shifting from Fed QE to what he calls Treasury QE, where Treasury funds spending through front-end bill issuance.

  “that the treasury and the Fed are really, they joined at the [hip]. I mean, I suppose de facto they always were, but I think it's more explicit now.”at 19:47

• Michael Howell · CrossBorder Capital / GL Indexes

  The Fed is reluctant to tighten because heavy debt could easily derail the economy.

  Howell argues the Fed understands that tightening with very high debt levels could trigger problems quickly, so it will not push too fast. He says the Fed's main tools are repo and reserve management rather than the fed funds rate. In late 2025 bank reserves fell by about $400bn, repo spreads blew out, and the Fed responded with reserve management purchases, which he calls another form of QE. He also argues the Fed has missed its 2% inflation target for almost six years, which casts doubt on how serious it is about that target.

  “at the end of the day, I suppose what I would conclude is this is a federal reserve that is reluctant to tighten, and I think they're reluctant to tighten because they've got a better understanding of the risks there”at 21:51

US Treasuries & yields

• Michael Howell · CrossBorder Capital / GL Indexes

  Government bonds are the right asset now, as the cycle moves late and liquidity tightens.

  Howell argues that bond flows track financial-sector liquidity and that the yield curve slope drives bond returns. Media commentary calling bonds terrible investments is wrong because the cycle is now late. In the turbulence phase, non-dated government bonds are among the best-performing assets, since growth falters and investors move to the safety of government debt. Risk assets underperform as liquidity falls.

  “But, actually, this is exactly the time we should be thinking about bonds right now, because we're moving very late cycle.”at 26:22

• Michael Howell · CrossBorder Capital / GL Indexes

  The US long bond yield should top out near 5.5–6%, with fiscal fears not driving the rise.

  Over time the 10-year yield should roughly match nominal GDP growth, and US nominal GDP growth is about 6%. The long bond should therefore reach about 6%, plus or minus a term premium. The US term premium is about minus 50 basis points, so Howell sees 5.5–6% as the upper bound unless the economy changes direction sharply. He rejects the view that rising yields reflect Trump or Bessent policy, fragile fiscal finances or debt fears. US term premiums are flat to declining, and a strong dollar also points to a strong economy, so the evidence goes against a fiscal-fragility story. Other countries such as France and the UK do have positive term premiums, while Germany is a safe haven.

  “You should think the long bond should get to six, plus or minus a term premium... you could say somewhere between five and a half, six is probably the top side for yields, certainly at the moment unless the economy changes direction radically.”at 51:36

Europe's economy

• Michael Howell · CrossBorder Capital / GL Indexes

  France, Germany and the UK face fiscal problems that are eye-wateringly large, with no appetite for austerity.

  France's problems are similar to those in Germany and the UK. Debt compounds at high interest rates, and governments are running large primary deficits. France in particular should be cutting spending to slow debt growth, but when cuts are made, people protest. Howell says the fiscal problems are eye-wateringly large and nobody is prepared to follow austerity. He points to bond vigilantes, citing the UK's Liz Truss episode, when the Bank of England switched from QT to QE overnight to protect the sovereign debt market. Greece's history shows that austerity has been imposed on democratic governments, but the lesson has been forgotten.

  “the problems in France are problems that have become similar problems in Germany, problems in The UK... you're looking at fiscal problems, which are just eye wateringly large.”at 47:56

• Michael Howell · CrossBorder Capital / GL Indexes

  Europe can invent but cannot innovate because its fragmented market and heavy regulation block startups.

  Europe has the ability to invent, as with DeepMind, which came out of the UK. However, its ability to turn that into innovation is near zero. The reason is a small, fragmented market, and government regulation works against innovation. Taxes and socialist-leaning policy push out the best entrepreneurs. Starting a business is easier in the UK than in mainland Europe, where startups are very difficult. Howell says the system must be shaken up quickly if Europe is to compete.

  “But the ability to innovate is zero or very, very low. The reason is it's a small market. It's a fragmented market. And what's more government regulation is really against that.”at 54:47

US stock market outlook

• Michael Howell · CrossBorder Capital / GL Indexes

  Global liquidity growth peaked in late 2025, and risk assets are now choppy and moving toward turbulence.

  Howell says liquidity moves in a cycle, and its growth rate peaked in late 2025. Absolute liquidity has not yet fallen, but its rate of change has slowed sharply, and this makes gains harder. Liquidity-sensitive assets such as small caps, Bitcoin, gold and credit spreads are performing poorly, and the market is being held up by AI. He places the cycle on the cusp between speculation and turbulence, where returns become low quality and high-volatility. A fall in absolute liquidity would be the trigger for major risk-asset drawdowns.

  “liquidity moves in a cycle, and we've already seen the peak in the cycle, at least in terms of the growth rate of liquidity that occurred in late twenty twenty five.”at 1:48

Commodities (broad)

• Michael Howell · CrossBorder Capital / GL Indexes

  The commodity boom is topping out late in the cycle, with several prices starting to inflect lower.

  Commodity indexes rose roughly 40–50% this year, which Howell calls astonishingly large. Commodities typically peak late in the liquidity cycle, as real-economy spending rises. He notes that some prices, such as Boomerang-style examples he cites, are beginning to inflect and weaken, soybeans have recovered, and iron ore is weak, possibly because of China. He reads this as the expected late-cycle pattern.

  “You've had this tremendous run up in commodity prices now. They're beginning to inflect a little bit or weaken a tad.”at 26:42

AI infrastructure & data centers

• Michael Howell · CrossBorder Capital / GL Indexes

  The AI capex boom's real risk is funding, since every major tech boom ended in financial stress.

  Howell argues that capital-intensive industries are always cyclical, and that firms carry high operating and financial leverage. The usual problem in big technology booms is not whether the technology works but whether the capital investment it requires can be funded. He says every major technology boom in history was accompanied by some financial crisis because of those funding needs. He points to hyperscalers, whose treasury cash, once parked in financial markets, is now being redeployed into AI capex, draining liquidity from financial assets.

  “one of the problems that you often get, particularly in big technology booms, is not the credibility or the usefulness of the technology. It's more the fact that can you fund the capital investment boom that results from it?”at 29:58

US dollar

• Michael Howell · CrossBorder Capital / GL Indexes

  The dollar may rally first in a crisis, then weaken as the Fed prints money to support the system.

  In the next refinancing crisis, Howell expects central banks to respond with more liquidity. He says the dollar could initially do very well, but if the Federal Reserve leads the monetary printing, which he thinks it may have to do because of the dollar's role in the world economy, the dollar will weaken again afterwards. He expects significant volatility in paper currencies. He also cites the firm dollar as a sign of a strong US economy, which conflicts with fiscal-fragility fears.

  “initially, the dollar could do very well, but then if the Federal Reserve is at the forefront of doing the monetary printing, which maybe it has to do because of the dollar's role in the world economy, then the dollar will weaken again afterwards.”at 40:37

US deficit & government debt

• Michael Howell · CrossBorder Capital / GL Indexes

  US debt is growing at least 6% a year, with a primary deficit near 6% of GDP and high interest rates.

  A primary budget deficit of about 6% of GDP pushes up the overall federal deficit. With debt at about 100% of GDP and high interest rates compounding it, debt grows at at least 6% a year in the US. Howell says this creates a real refinancing problem, so spending should be cut to slow debt growth, though he sees no political appetite for austerity.

  “You've got a high interest rate, and you've got a primary, primary budget deficit, which is pushing the overall federal deficit up at, you know, whatever, 6% of GDP. So this is telling you that, with a 100% debt GDP ratio, debt is growing at at least 6% per annum in The US.”at 47:03

China's economy

• Michael Howell · CrossBorder Capital / GL Indexes

  China's economy is far weaker than the official 5% growth, with deep debt deflation and a broken growth model.

  Chinese bond yields are about 1.5%, against US yields of about 5.5% and US nominal GDP growth of about 6%. Even generously assuming normal nominal growth of 2.5–3%, the bond market says China is growing far below the authorities' claimed near-5% real growth. He says the economy has hit a wall, that returns on capital have collapsed, and it cannot keep generating growth on this debt. The large yield gap also shows the US doing much better than China, and China is likely in debt deflation, which the stock market appears to be signalling. He expects China to have to write down or devalue its debt.

  “Well, the authorities tell us that in real terms, it supposedly is growing at near a five. So work that one out. There's no way the Chinese economy is growing at 5%. Okay? It's basically, you know, it's hit a wall.”at 52:45

International equities

• Michael Howell · CrossBorder Capital / GL Indexes

  European stocks have been cheaper than US stocks for decades but kept underperforming, so liquidity matters more than P/E.

  Howell has worked in markets since the mid-1980s. Each year people have said European stock markets are cheaper than US ones, yet they have consistently underperformed. Aggregate P/E multiples therefore fail to explain returns. He says the explanation is liquidity, so investors should watch money flows rather than valuation multiples at the aggregate level.

  “if you start to think about PE multiples at the aggregate level, you're gonna fail badly... European stock markets are cheaper than The US, but every year pretty much consistently underperformed.”at 59:30