Michael Howell 5.0 13 ideas

You got to trim your equity exposure. You got to get out of credits... and then in industry groups within the market I would be out of technology until the next time. The ratio of equity market capitalization to global liquidity is stretched to 2008 levels. Without expanding liquidity to support high valuation multiples, long-duration assets like technology stocks will derate. AVOID. The liquidity cycle no longer supports the high multiples required to sustain the tech sector's outperformance. Massive AI-driven productivity gains could generate enough organic earnings growth to offset the contraction in valuation multiples caused by tightening liquidity.

Around the peak, you would typically see commodity markets exploding upwards... resource stocks, energy stocks outperforming, beginning to see some evidence of utilities beginning to outperform and investors starting to reach towards stable demand consumer staple stocks. As the global liquidity cycle rolls over from speculation to a defensive posture, capital rotates out of long-duration growth assets and into cyclical value (energy/commodities) and defensive value (utilities/staples) that offer stable cash flows. LONG. Late-cycle and defensive sectors historically outperform as liquidity momentum slows and the real economy absorbs capital away from financial markets. A sudden re-acceleration of central bank quantitative easing could cause growth and tech stocks to resume their market leadership, leaving defensive sectors behind.

China will be the only bull market that I would be convinced of this year... The thing to look at are things like Chinese technology stocks. The People's Bank of China is injecting massive amounts of liquidity (estimated at 7 trillion yuan) to bail out its debt and real estate crisis. Because of capital controls, this liquidity is trapped domestically and will flow into Chinese risk assets. LONG. China's liquidity cycle is expanding and completely decoupled from the tightening Western cycle, providing a strong macro tailwind for Chinese equities. Geopolitical tensions, new US tariffs, or a failure of the PBOC's stimulus to restore domestic confidence could derail the equity rally.

As that money comes into the system, it's going into risk assets and is going into gold as a monetary inflation hedge. So, that line likely is going higher. Gold has decoupled from US real interest rates and is now being driven by Asian liquidity. As the PBOC prints money, Chinese citizens and institutions are buying gold to hedge against domestic monetary debasement. LONG. The marginal pricer of gold is now Eastern liquidity, meaning PBOC easing will continue to drive gold higher regardless of what the US Federal Reserve does. If China successfully stabilizes its real estate market and economy, domestic capital might rotate out of gold and back into property or other local assets.

The trend in that black line is still downwards and we're likely to see much smaller peaks in liquidity... and that would not be great for Bitcoin through this period. Bitcoin is the most liquidity-sensitive asset in the world. With global liquidity momentum slowing, Bitcoin will face near-term headwinds, but significant pullbacks (one standard deviation below trend) offer strategic entry points. WATCH. Wait for the liquidity cycle to bottom or for Bitcoin to reach deep value territory before accumulating for the next cycle. An unexpected pivot to aggressive quantitative easing by the Federal Reserve could cause Bitcoin to surge before reaching the targeted pullback levels.

If the bond markets face declining liquidity then they're going to act with their feet and basically yields will start to come down. So, I think you could see potentially here the risk of a bullish flattening. Consensus is positioned for a steepening yield curve, but term premiums are actually peaking. As liquidity tightens and markets move to a risk-off stance, investors will seek the safety of government bonds, driving mid-duration yields lower. LONG. Mid-duration bonds offer a safe haven and capital appreciation potential as the yield curve flattens in response to a slowing liquidity cycle. A resurgence of inflation caused by a robust real economy could force the Fed to maintain or raise rates, causing bond yields to spike and prices to fall.

I think the second half year may surprise us in terms of some firmness in the dollar. If we're moving to a risk-off environment, investors will like this comfort of US safe assets. While the US administration may try to talk the dollar down in the near term, structural capital outflows from Asia into the US and a global flight to safety later in the year will overwhelm political rhetoric. LONG. The US dollar will benefit from its status as the ultimate safe-haven asset when the global liquidity downturn triggers broader market turbulence. Coordinated global central bank intervention to weaken the dollar, or a massive acceleration in US debt monetization, could permanently impair the dollar's safe-haven appeal.

I would be probably beginning to trim some financial holdings on the basis that financials get a lot of their gas from steeper yield curves and so if that's we're near the end of that, that's something to bear in mind. Banks and financial institutions rely on a steep yield curve to expand their net interest margins (borrowing short and lending long). A flattening yield curve removes this core profitability engine. AVOID. The macroeconomic environment is shifting away from the steepening curve that financials need to outperform. If the Federal Reserve aggressively cuts short-term rates while long-term rates remain anchored by heavy Treasury issuance, the curve could steepen, boosting financial stocks.