The Bull Market Will Continue Into 2025 As Liquidity Heads Higher | Michael Howell

Summary

In this financial market analysis, Michael Howell of CrossBorder Capital discusses the current economic climate, emphasizing a sluggish US economy, Federal Reserve's easing stance, and deflationary pressures from China. He posits that these factors create a bullish environment for markets, with an uptrend in global liquidity. The conversation delves into the implications of these conditions on asset prices, the potential for a recession, and the strategic management of Treasury issuance. Howell also highlights the importance of gold and Bitcoin as monetary inflation hedges in the face of expanding debt and the need for liquidity.

Takeaways

• 📉 The speaker suggests that financial markets typically perform well during slow economic periods when policymakers are taking measures to stimulate growth, which is the current situation with a soft US economy and Federal Reserve easing.
• 💹 There is a belief that deflationary pressures from China are helping to contain global inflation, which along with other factors, creates a positive environment for financial markets.
• 🤔 The speaker expresses skepticism about secular inflation trends, expecting them to be higher than the Federal Reserve's 2% target, but acknowledges near-term deflationary impacts from China.
• 🌐 The global liquidity cycle is highlighted as an important indicator, with the suggestion that it bottomed in October 2022 and is expected to peak in late 2025, indicating an upturn that is positive for markets.
• 📉 The recent market volatility, including the Yen carry trade, is attributed more to changes in risk exposure rather than a fundamental shift in global liquidity trends.
• 💼 The speaker discusses the potential for a coordinated global easing cycle, similar to the Plaza Accord in the mid-1980s, which could boost global liquidity and further support asset prices.
• 💬 There is an analysis of the Federal Reserve's policy shift from focusing on inflation to employment, suggesting that this change, along with other factors, may prevent a recession and support market growth.
• 💵 The US dollar's role in global liquidity is discussed, with the implication that a weaker dollar could lead to increased global liquidity, which is beneficial for asset prices.
• 🏦 The script touches on the mechanics of how central banks, particularly the Federal Reserve and the Bank of Japan, might control currency values, with potential implications for market stability.
• 📈 The speaker forecasts a continued 'risk-on' environment for investors, with the belief that global liquidity will continue to increase, supporting financial markets.
• 🌟 The importance of understanding the nuances of monetary policy, liquidity cycles, and their impact on various asset classes, such as gold and Bitcoin, is emphasized for making informed investment decisions.

Q & A

What is the current stance of the Federal Reserve on interest rates according to the discussion?

The Federal Reserve is shifting towards easing monetary policy, with rate cuts expected in the coming months. This is a significant change from their previous stance on inflation control.

How does the current economic environment impact financial markets according to Michael Howell?

Michael Howell suggests that a slow or sluggish economy with policy makers trying to stimulate growth, as seen in the current US economy, is a bullish environment for financial markets.

What is the significance of deflation in China as discussed in the transcript?

Deflation in China is keeping a lid on inflation pressures worldwide, which is favorable for global financial markets as it suggests lower inflation rates despite economic stimulus efforts.

What is the 'Shanghai Cord' mentioned in the discussion and why is it significant?

The 'Shanghai Cord' refers to a potential agreement or understanding between the US, Japan, and China to stabilize Asian currencies against a strong dollar. This is significant as it could lead to increased global liquidity and affect financial markets.

How does the discussion view the current state of the US economy?

The US economy is described as soft or sluggish, not recessionary, which is seen as a positive backdrop for financial markets as it could lead to continued policy support.

What is the role of the Mantra chain in the context of the discussion?

The Mantra chain is mentioned as a purpose-built layer one blockchain for tokenized real-world assets and regulated digital assets, aiming to onboard traditional financial institutions into web3.

What does the discussion imply about the future of the US dollar in the global economy?

The discussion suggests that the US dollar may weaken further, which could lead to increased global liquidity and potentially higher asset prices.

What is the 'yield suppression' mentioned in the transcript and how does it affect bond markets?

Yield suppression refers to the active duration management by the Treasury, which involves issuing a high percentage of T-bills, thereby keeping long-term interest rates artificially low. This affects bond markets by distorting the natural yield curve.

How does the discussion view the relationship between liquidity and asset prices?

The discussion posits that more liquidity typically leads to higher asset prices, as increased liquidity in the financial system can drive investment and speculation in various asset classes.

What is the significance of the global liquidity cycle as discussed in the transcript?

The global liquidity cycle is seen as a critical factor for financial markets, with the current cycle expected to peak in late 2025, suggesting a continued positive environment for risk assets.