“Liquidity” is a critical concept in markets that many may have heard, but few truly understand. Michael Howell, managing director at Cross Border Capital, is the global liquidity flows. He breaks down what liquidity is and he explains to Jack Farley how the tide of liquidity that has lifted asset prices over the past two years is reversing very quickly.

Howell argues that, since 95% of central banks are tightening at the same time, the short-term risk/reward for stocks is poor, and he thinks a further 20% correction is ahead for the equity market. Howell explains the complex yield curve dynamics, and explains why the ongoing liquidity collapse might finally make long-term government bonds attractive once again. 

Filmed on Tuesday, April 19, 2022. A note on the title: Howell’s expectation of a 30% in stocks is from peak-to-trough, and since equities are down nearly 10% already, that would equate to a further fall of 20% from current levels (not 30% from current levels).

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Follow Cross Border Capital on Twitter @crossbordercap

Follow Jack Farley on Twitter @JackFarley96

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Timestamps

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(00:00) Introduction

(00:45) What Is Liquidity? 

(10:59) The Turbulence Zone

(21:06) What Will Be The First To Break?

(23:58) Why Are Stocks And Credit Still So Richly Priced?

(26:35) But What About Inflation?

(32:24) Bit.com Ad

(43:32) Can China Save the Day?

(47:05) Why Falling Liquidity Causes A Dollar Squeeze

(50:33) How High Oil Prices Further Deteriorate Liquidity

(53:04) History of Global Liquidity

(56:28) Capital Wars and Bretton Woods III

(1:08:25) Is The Yield Curve Signaling A Recession?

(1:09:56) How Far Will The Fed Get With QT? (Bagehot's Dictum)