Michael Howell: Global Liquidity Is Peaking

Suggesting a flat to down year ahead for stocks in 2025

In his previous appearances on this channel, Michael Howell, founder & CEO of Crossborder Capital, has explained that rising net liquidity been largely responsible for the surprisingly strong performance seen in both the economy & the financial markets over the past 2 years.

Will the good times continue into 2025?

Don't count on it, Michael says.

Global net liquidity is peaking right as valuations are stretched to extremes, much of the world economy is struggling to grow, and a major debt refinancing threat looms.

For these reasons, he expects stocks to disappoint this year, likely delivering flat or negative returns.

This interview is an important one folks…

To watch it, click here or on the video below:

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Adam’s Notes: Michael Howell (recorded 1.21.25)

EXECUTIVE SUMMARY:

• The global liquidity pool is estimated at $175 trillion, serving as a critical measure of financial system balance sheet capacity. This capacity directly influences how debts are refinanced and how financial markets perform. Currently, over 85% of central banks are easing liquidity, which has supported robust market performance in recent years. However, a slight decline in the percentage of central banks easing liquidity has been noted due to tightening policies in China and Japan, despite aggressive easing by Western economies. Liquidity cycles are shown to correlate strongly with asset inflation, emphasizing that market movements are increasingly driven by financial rather than real economic factors.

• China is facing significant economic challenges, with liquidity in a constrained state and bond market yields collapsing, signaling tight monetary conditions aimed at stabilizing the Yuan against the U.S. dollar, which is currently valued at 7.3 Yuan/USD. While a $1 trillion Yuan stimulus program has been announced, it falls short of the $3 trillion needed to stabilize the financial system and the struggling real estate sector. These pressures may force China to negotiate favorable trade deals with the United States and explore unconventional measures such as devaluing the Yuan by 30% against real assets to alleviate its debt burden.

• Advanced economies are grappling with rising debt-to-liquidity ratios, which historically have been linked to refinancing crises when thresholds are breached. A substantial wave of pandemic-era debt issued at low-interest rates is set to mature between 2026 and 2027, necessitating refinancing at higher rates, which will consume significant liquidity. For example, China's debt-to-liquidity ratio is approximately 30% above its historical average, posing a significant risk to financial stability if liquidity conditions do not improve in time.

• Liquidity cycles have a measurable impact on asset classes, with current lead times shortened due to increased scrutiny and trading activity. Bitcoin and Forex markets react within three months of liquidity changes, while bonds take six months and equities approximately nine months. The current liquidity cycle is projected to peak by