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 likely to hit US$176 trillion in 2022, or over 175% of World GDP </li>
<li>Smallest increase (+3% or US$5 trillion) since 2018. Central Bank balance sheets increase modestly to US$32.7 trillion as tapering bites</li>
<li>Faltering Liquidity will be a major headwind for risk assets in 2022</li>
</ul>


Global Liquidity likely to hit US$176 trillion in 2022, or over 175% of World GDP 
Smallest increase (+3% or US$5 trillion) since 2018. Central Bank balance sheets increase modestly to US$32.7 trillion as tapering bites
Faltering Liquidity will be a major headwind for risk assets in 2022


A Equity Sell-Off? Prospects For Global Liquidity in 2022

<ul>
<li>Re-configured US Fed is becoming more hawkish towards inflation</li>
<li>Bond market term structure warns of near-term economic troubles
</li>
<li>Expect a ‘catch up’ with faster QE taper by US Fed</li>
<li>Inflation is transitory but ‘sticky’. Disinflationary forces will ultimately reassert themselves</li>
</ul>


Re-configured US Fed is becoming more hawkish towards inflation
Bond market term structure warns of near-term economic troubles

Expect a ‘catch up’ with faster QE taper by US Fed
Inflation is transitory but ‘sticky’. Disinflationary forces will ultimately reassert themselves


Watch-Out For The Fed’s Big ‘Catch-Up’

<ul>
<li>Flattening Treasury yield curves, particularly at the back-end, are rarely bullish for risk assets. </li>
<li>When combined, as now, with a steepening front-end they warn of upcoming credit problems.  </li>
<li>Bonds are telling us that economies are breaking-down.  Low ‘real’ carry compromises the long-term outlook for bonds, but we must not ignore their warning message for 2022  </li>
</ul>


Flattening Treasury yield curves, particularly at the back-end, are rarely bullish for risk assets. 
When combined, as now, with a steepening front-end they warn of upcoming credit problems.  
Bonds are telling us that economies are breaking-down.  Low ‘real’ carry compromises the long-term outlook for bonds, but we must not ignore their warning message for 2022  


<ul>
<li>Financial crises are essentially scrambles for liquidity
</li>
<li>Liquidity supply has lately been dominated by Central Bank infusions
</li>
<li>Post-1990s crises triggered by tight Central Banks and foreign capital outflows</li>
<li>Pre-1980s crises triggered by high inflations and private sector cash drains</li>
<li>Worsening inflation and the upcoming Fed taper need to be watched.</li>
</ul>


Financial crises are essentially scrambles for liquidity

Liquidity supply has lately been dominated by Central Bank infusions

Post-1990s crises triggered by tight Central Banks and foreign capital outflows
Pre-1980s crises triggered by high inflations and private sector cash drains
Worsening inflation and the upcoming Fed taper need to be watched.


<ul>
<li>Steepening US Treasury curve obscures its more important message of flattening long-end and rising convexity</li>
<li>Policy rate expectations are rising and term premia are falling
</li>
<li>Investors’ positioning consistent with ‘stagflation’ outlook and higher credit risk</li>
<li>Bond investors are starting to believe Fed policy-makers will make a mistake
</li>
</ul>


Steepening US Treasury curve obscures its more important message of flattening long-end and rising convexity
Policy rate expectations are rising and term premia are falling

Investors’ positioning consistent with ‘stagflation’ outlook and higher credit risk
Bond investors are starting to believe Fed policy-makers will make a mistake



A Major Policy-Error? The Fixed Income Markets Think So

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)

A Equity Sell-Off? Prospects For Global Liquidity in 2022

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Watch-Out For The Fed’s Big ‘Catch-Up’

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A Wonkish Warning From Bonds For 2022

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A Major Policy-Error? The Fixed Income Markets Think So

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