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>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?


<ul>
<li>Latest FOMC meeting sounded 'surprising' dovish, but this is less surprising if we consider the US Fed is only six months away from a probable policy pivot
</li>
<li>Evidence seems to confirm the US and World economies are already in recession. This will get worse because a major Global Liquidity shock has already been delivered </li>
<li>This looks like a bear market rally. Bears have two down-legs, split by an often vicious spike.  Effects of a bigger recession on 2H, 2022 profits needs to be discounted</li>
</ul>


Latest FOMC meeting sounded 'surprising' dovish, but this is less surprising if we consider the US Fed is only six months away from a probable policy pivot

Evidence seems to confirm the US and World economies are already in recession. This will get worse because a major Global Liquidity shock has already been delivered 
This looks like a bear market rally. Bears have two down-legs, split by an often vicious spike.  Effects of a bigger recession on 2H, 2022 profits needs to be discounted


Is The US Fed Tightening Into A Big Recession?

<ul>
<li>Global Liquidity Index (GLI) tests a low 29.5 (range 0-100). World economy now in recession </li>
<li>World Central Bank Liquidity even weaker at index of 15.9, with US Fed Liquidity at index 41.6, trailing other policy-makers notably ECB . More squeeze ahead</li>
<li>Risk exposure of investors  still too high at index 19.1 (range -50 to +50)  given upcoming recession</li>
</ul>


Global Liquidity Index (GLI) tests a low 29.5 (range 0-100). World economy now in recession 
World Central Bank Liquidity even weaker at index of 15.9, with US Fed Liquidity at index 41.6, trailing other policy-makers notably ECB . More squeeze ahead
Risk exposure of investors  still too high at index 19.1 (range -50 to +50)  given upcoming recession


<ul>
<li>
 Chinese economy skidding badly, buffeted by C-19 lockdowns and strong US dollar. Domestic economic weakness alongside strong dollar are two critical facts. </li>
<li>
US dollar has been weaponized and pointed towards the Chinese Yuan. Growing pressure on Yuan to devalue </li>
<li>
US policy is to drive Fed balance sheet lower and US dollar higher, forcing credit funders back to the US unit</li>
</ul>



 Chinese economy skidding badly, buffeted by C-19 lockdowns and strong US dollar. Domestic economic weakness alongside strong dollar are two critical facts. 

US dollar has been weaponized and pointed towards the Chinese Yuan. Growing pressure on Yuan to devalue 

US policy is to drive Fed balance sheet lower and US dollar higher, forcing credit funders back to the US unit


Yuan Devaluation (CNY): China At A Turning Point?

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)

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

post-Jackson Hole the World's Central Banks have stepped-up tightening. Liquidity is skidding at an annualized 30% clip. QT policies in the US add...

Michael J. Howell

Major Fed Policy Error Ahead!?

Fed’s upcoming Jackson Hole may ignore the bigger threat to financial stability from persistent and potentially accelerating QT. We remain risk-off...

Michael J. Howell

Is The US Fed Tightening Into A Big Recession?

Having been late in tightening the US Fed now risks been out-of-step in easing. July FOMC acknowledged this risk with surprisingly dovish comments,...

Michael J. Howell

A Bigger Crash?!

A bigger squeeze is coming. The US Fed intends to take US$2.5 trillion from its balance sheet, equivalent to a 4-5% point hike in Fed Funds. Expect...

Michael J. Howell

Yuan Devaluation (CNY): China At A Turning Point?

Domestic economic weakness plus strong US dollar expose China's fragile position. C-19 lockdowns have hard-hit the economy, but PBoC being forced...

Michael J. Howell