Episode Details

Michael Howell, CEO of CrossBorder Capital, an investment advisory firm, and author of the book, "Capital Wars: The Rise Of Global Liquidity," joins Julia La Roche on episode 53 to provide a deep dive on what is global liquidity, why it matters, and how it drives markets. 

Michael points out that liquidity is inflecting upwards and explains what's driving that move and the implications for markets, which are sensitive to these infections. What's more, with the liquidity cycle inflecting upward, the economy will likely see a turning point in the U.S., which Michael predicts will happen around May. He believes there will be a few more months of softness, but we're near "a turning point." 

While many believe an inverted yield curve warns us that a recession is fast approaching, Michael explains why it's a flaky predictor and how term premia bias the yield curve.

Julia and Michael also explore some of the themes from the book, "Capital Wars," including that as the investment world has gotten bigger, it's become more volatile, where financial crises are more common. They also touch upon the intensifying tussle between the U.S. and China as the dominant financial economy. 

Michael founded CrossBorder Capital in 1996. He developed the quantitative liquidity research methodology while he was Research Director at Salomon Bros. from 1986. He was subsequently appointed Head of Research at Baring Securities in 1992, and was top-ranked "Emerging Market Strategist" by institutional investors for the three years before setting up CrossBorder Capital. Michael has worked in financial markets since 1981 and is a regular international conference speaker. He is a qualified US Supervisory Analyst and has a Doctorate in Economics.

0:00 Intro 

0:31 Macro view

1:00 Understanding money flows 

1:30 Salomon Brothers 

3:35 What is liquidity and what is it signaling today

5:00 Financial markets suddenly kickstarted upwards 

6:00 Crypto is purely a liquidity phenomenon 

7:00 Tech bouncing significantly as liquidity has picked up 

7:15 Why is liquidity turning up? 

8:00 China 

9:30 What's happening in the big economies

11:15 Liquidity conditions from Fed have picked up 

12:50 Q.T. is dead effectively is dead in the U.S. 

13:27 Implications for markets 

15:06 Term premia for bond investors 

17:50 Why the inverted yield curve is a flaky predictor of a recession

18:08 What are fixed-income markets signaling? 

18:28 Think of the stock market as a predictor of the economy 

19:09 Close to an inflection point on the economy 

22:37 Global financial system is now collateral based 

23:00 Term premia is biasing the 10-2 yield curve 

25:34 Good reasons why the yield curve is distorted 

26:19 Evidence the Fed is in control 

26:45 Ukraine War

28:48 U.S. is the cleanest shirt in the laundry 

29:50 Ultimate job of central banks is financial stability 

31:30 Capital Wars 

35:00 As the world gets bigger it becomes more volatile 

35:19 China's ambition to unseat the U.S. Dollar as the global reserve currency 

38:40 Understanding equity markets 

40:17 Tech stocks 

41:30 Credit is dependent upon collateral 

44:13 Debt mountain has grown 

47:00 Financial crises will appear more regularly in the future 

47:35 Japan is the canary in the coal mine 

50:00 Threat to the financial system 

51:15 Need liquidity because of debt 

52:00 Financial markets of Victorian London 

53:17 Yield curve control is coming klTK j