Mapping Macro Liquidity and How AI Is Changing the Transmission Mechanism

Capital Flows · Capital Flows · May 13, 2026 at 22:34 · ⏱ 6 min read  | Read on Substack ↗
Summary
The article argues that the current market melt-up is driven by simultaneous expansion of financial liquidity and credit injection into the economy, with AI acting as a non-bank credit mechanism. Real interest rates nearing negative levels force capital out of cash into risk assets, suggesting more upside ahead despite positioning being underprepared.
  • •80% of asset class returns come from macro factors (market and sector returns), with fundamentals stacking on top.
  • •Melt-ups are driven by liquidity and credit, not sentiment; both pipes are currently open due to AI.
  • •AI injects credit into the economy by reducing upfront capital needed to start businesses, creating a liquidity impulse.
  • •Real interest rates are 30 basis points from turning negative; negative real rates mechanically force borrowing and deployment into risk assets.
  • •Money is defined as a web of asset-liability relationships; every asset has duration risk, credit risk, or both.
  • •The yield curve regime is the cleanest synthesis of macro liquidity, capturing both price and quantity of money.
Read time 6 min
Length 6,466 chars
Category finance
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