Cross-Asset Liquidity Strategist, CrossBorder Capital

Michael J. Howell

Cross-Asset Liquidity Strategist

Implementing Research Using Alt Data & AI

CrossBorder Capital

CrossBorder Capital is a London-based independent investment advisory firm. Founded in 1996, it exploits a gap in the investment arena by focusing on Central bank liquidity. 

It specialises in the monitoring and analysis of global liquidity flows - an important determinant of asset prices, from currencies through to bonds, equities and real estate.

CrossBorder Capital implements its investment strategy and currently manages over US$ 350m.


Cross Asset Strategy

<ul>
<li>
 Global Liquidity Cycle bottomed last October. Noticeable acceleration, particularly in US dollar terms at near 30% annualized clip</li>
<li>
 China and Japan are the key Central Banks leading the charge. Yet, even the US Fed is stirring, with net liquidity injections seeming targeting stable bank reserve levels</li>
<li>Financial markets have already felt this liquidity boost, particularly liquidity-sensitive instruments like tech shares, gold and Bitcoin. The World economy too is stirring 
</li>
</ul>



 Global Liquidity Cycle bottomed last October. Noticeable acceleration, particularly in US dollar terms at near 30% annualized clip

 China and Japan are the key Central Banks leading the charge. Yet, even the US Fed is stirring, with net liquidity injections seeming targeting stable bank reserve levels
Financial markets have already felt this liquidity boost, particularly liquidity-sensitive instruments like tech shares, gold and Bitcoin. The World economy too is stirring 



<ul>
<li>US QT will soon melt away into a ‘stealth QE’ under pressure from illiquidity in key financial markets. QT is effectively already dead
</li>
<li>Recent experiences by the UK (September) and Japanese (December) Monetary Authorities evidence poor sovereign debt market liquidity 
</li>
<li>Lesson is that QE and QT are not symmetric policies: QE is easier to engage than to disengage via QT. This likely puts a floor under Global Liquidity in 2023</li>
</ul>


US QT will soon melt away into a ‘stealth QE’ under pressure from illiquidity in key financial markets. QT is effectively already dead

Recent experiences by the UK (September) and Japanese (December) Monetary Authorities evidence poor sovereign debt market liquidity 

Lesson is that QE and QT are not symmetric policies: QE is easier to engage than to disengage via QT. This likely puts a floor under Global Liquidity in 2023


Is QT Already Dead? Can The Fed Really ‘Ease’ Liquidity And Still ‘Tighten’?

<ul>
<li>
 Global debt projected to test US$315 trillion (ex-financials) in 2023, or 312% of World GDP. Too much debt increases financial fragility</li>
<li>
 Financial dominance driving a return to Central Bank QE. Global Liquidity will reverse its recent fall and rebound to US$174 trillion</li>
<li>More liquidity is consistent with a future stabilization and moderate gains in World asset markets. Gold looks to be a winner 
</li>
</ul>



 Global debt projected to test US$315 trillion (ex-financials) in 2023, or 312% of World GDP. Too much debt increases financial fragility

 Financial dominance driving a return to Central Bank QE. Global Liquidity will reverse its recent fall and rebound to US$174 trillion
More liquidity is consistent with a future stabilization and moderate gains in World asset markets. Gold looks to be a winner 



<ul>
<li>The post-Jackson Hole period has seen renewed tightening policies by the World's major Central Banks, led by the US Fed</li>
<li>World Central Bank Liquidity is skidding at an annualised clip of minus 30%. This squeeze is coinciding with weakening corporate profits</li>
<li>Risk asset markets (eg SPX) typically lag liquidity by several months. They have two legs down, often separated by a brief rally of circa 20%. The second leg-down measures 15-20%</li>
</ul>


The post-Jackson Hole period has seen renewed tightening policies by the World's major Central Banks, led by the US Fed
World Central Bank Liquidity is skidding at an annualised clip of minus 30%. This squeeze is coinciding with weakening corporate profits
Risk asset markets (eg SPX) typically lag liquidity by several months. They have two legs down, often separated by a brief rally of circa 20%. The second leg-down measures 15-20%


Second Leg Down: 5% Points More on Fed Funds! Central Banks Turn Up the Heat

<ul>
<li>Fed unlikely to ease policy rates quickly. Even with recession and rates on ‘hold’, QT (quantitative tightening) policy will probably continue</li>
<li>US dollar liquidity already skidding badly. QT could reduce Fed Balance Sheet by one-third</li>
<li>QT has highly non-linear effects on financial stability. A crisis could be brewing?</li>
</ul>


Fed unlikely to ease policy rates quickly. Even with recession and rates on ‘hold’, QT (quantitative tightening) policy will probably continue
US dollar liquidity already skidding badly. QT could reduce Fed Balance Sheet by one-third
QT has highly non-linear effects on financial stability. A crisis could be brewing?


United States

The MSCI World Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1969. MXWO includes developed world markets, and does not include emerging markets. MXWD includes both emerging and developed markets.

MSCI World Index (MXWO INDEX)

Liquidity, Liquidity, Liquidity ….

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Michael J. Howell

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US QT will soon melt away into a ‘stealth QE’ under pressure from illiquidity in key financial markets. QT is effectively already dead. This puts a...

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Is QE Returning By Stealth in 2023?

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Second Leg Down: 5% Points More on Fed Funds! Central Banks Turn Up the Heat

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Major Fed Policy Error Ahead!?

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