Michael Howell: We Are Coming To An Inflection Point — Where Liquidity Is Headed
Speakers
Michael Howell
— Founder, CrossBorder Capital
Summary
Michael Howell, CEO of CrossBorder Capital, discusses the global liquidity cycle, which he believes peaked in Q3 2025 and is now rolling over towards a trough in 2027. He argues that the current market rally is phony as liquidity drains from financial markets to the real economy. He provides a tactical asset allocation for the speculation phase, emphasizing defensive sectors, bond duration, and avoiding credit, while also outlining long-term core holdings including gold, Bitcoin, and quality equities.
- Global liquidity cycle peaked in Q3 2025 and is expected to trough in 2027.
- The current speculation phase calls for reducing risk, favoring defensive equity sectors, and increasing bond duration.
- Credit markets should be avoided, while commodities are late cycle and require caution.
- Long-term core holdings include gold, Bitcoin, prime residential real estate, and quality equities with pricing power.
- Yield curves are expected to flatten due to falling term premia and rising demand for safe assets.
- Treasury QE (shift to bill issuance) may provide short-term support for Bitcoin.
- The Fed and Treasury may be targeting the MOVE index to protect the basis trade and collateral system.
- A debt maturity wall from COVID-era borrowing is coming due, adding to refinancing pressures.
Trade Ideas
Favor defensive equity sectors, reduce risk.
In the speculation phase of the liquidity cycle, equity markets should be approached with caution; investors should reduce risk and rotate into defensive sectors like consumer staples and utilities, which tend to perform better late in the cycle.
Commodities late cycle, be cautious.
Commodities tend to do well around the peak of the liquidity cycle, but we are now late in that phase; while they could still do well, caution is warranted as the cycle rolls over.
Long government bonds for duration.
In the speculation phase, investors should increase exposure to bond duration as demand for safe assets rises due to increasing systemic risk and falling term premia; this is part of a defensive shift.
Avoid corporate credit.
In the speculation phase, credit markets are unattractive and should be avoided because liquidity is draining and risk is rising.
Gold for long-term monetary inflation.
In a long-term monetary inflation environment due to high debt levels, gold is a store of value and should be held as part of a core portfolio.
Prime residential real estate long-term.
Prime residential real estate is a good long-term investment in a monetary inflation environment and should be part of a core portfolio.
Bitcoin for long-term monetary inflation.
Treasury QE (shifting issuance to bills) is providing liquidity that may lead to stabilization in Bitcoin prices in the short term, as shown by a correlation chart.
Quality equities with pricing power long-term.
In a long-term monetary inflation environment, good quality equities with pricing power are essential because they can pass on cost increases and should be held as core holdings.
