Markets Are Misreading A Late Cycle Liquidity Crunch | Michael Howell

The global liquidity cycle is currently inflecting lower, signaling a transition from a "speculation" phase toward a period of market turbulence. Michael Howell of Cross Border Capital argues that liquidity, rather than geopolitics, remains the primary driver of financial markets. The current economic environment shows a reacceleration in the real economy, which is absorbing liquidity and creating a "bear flattening" in yield curves. Central banks are increasingly reducing their market footprint, shifting the burden of liquidity provision to the Treasury through bill issuance and bank monetization. Investors should anticipate a shift in asset performance as the cycle progresses, with commodities currently benefiting from economic strength while cash and government bonds become more attractive as the cycle bottoms out in 2027. This framework emphasizes the critical role of collateral-based lending in modern financial systems.