2026 Liquidity Outlook: Is the Global Liquidity Cycle Past Its Peak? w/ Michael Howell

Quick Overview

Global liquidity cycles, which have historically followed a 5-6 year pattern, are currently showing signs of slowing down their growth trajectory, suggesting a potential shift away from the aggressive stimulus seen in 2020-2021, which could negatively impact asset markets like the S&P 500 and lead to renewed challenges like higher inflation or deflationary pressures on the real economy.

Key Points: Global liquidity cycles, tracked since 1970, typically run on a 5-6 year cycle, which is currently showing signs of slowing down (4:38, 4:51). The current liquidity environment is characterized by a policy divergence: the Fed is tightening while the US Treasury is engaging in direct stimulus (issuing debt) which is flowing into financial markets rather than the real economy (4:40, 4:43). The US Treasury General Account (TGA) refill is a significant liquidity drain, projected to be around $500 billion over the coming months, which is likely to persist (2:50, 4:50). The US banks' public debt holdings (Treasury & Agency Securities) are growing, but at a slower rate than the overall debt issuance, indicating banks are not fully absorbing the new debt (13:22, 13:33, 13:51). The Asset Allocation Cycle suggests the current phase is exiting 'Speculation' and moving towards 'Turbulence'/'Rebound' in the liquidity cycle, which historically favors defensive assets like bonds over risk-on assets like equities and commodities (46:27). Michael Howell notes that while the Fed's policy is arguably helping the real economy (e.g., lower mortgage rates), it risks fueling inflation or deflation depending on where the liquidity ends up (35:35, 36:37). The author's firm (GLI) projects Fed liquidity growth will remain positive but slow in 2026, while the S&P 500 is expected to fall slightly below the projected liquidity path (25:50).

Context: Michael J. Howell, founder and CEO of CrossBorder Capital and author of "Capital Wars," joins John Gillen on Milk Road Macro to discuss the outlook for global liquidity into 2026. Howell uses proprietary GLI data, including charts on US Bank Reserves and the Global Liquidity Cycle, to argue that current monetary policy is creating distortions and risks, particularly concerning the sustainability of government debt financing and asset prices.