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>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

<ul>
<li>Investment cycle is in late-stage Speculation, with Turbulence next up</li>
<li>Falling Global Liquidity a major head-wind. Liquidity turns sub-par by early-2022</li>
<li>Start to consider Volatility-based investment strategies and more cash</li>
<li>Traditional economic analysis provides little help in asset allocation. Flow of funds analysis works far better</li>
</ul>


Investment cycle is in late-stage Speculation, with Turbulence next up
Falling Global Liquidity a major head-wind. Liquidity turns sub-par by early-2022
Start to consider Volatility-based investment strategies and more cash
Traditional economic analysis provides little help in asset allocation. Flow of funds analysis works far better


Is There A Bear Out There? Where Are We In The Global Investment Cycle?

<ul>
<li>Inflation fears are being fulfilled. High pass-thru of price shocks</li>
<li>Policy-makers will react (wrongly) by hastening ‘tapering’</li>
<li>This may trigger upcoming ‘liquidity crises’, and</li>
<li>Risk sharper World economic slowdown</li>
</ul>


Inflation fears are being fulfilled. High pass-thru of price shocks
Policy-makers will react (wrongly) by hastening ‘tapering’
This may trigger upcoming ‘liquidity crises’, and
Risk sharper World economic slowdown


<ul>
<li>Sharp pick-up in ‘safe’ asset demands</li>
<li>Global Liquidity peaked late-2020</li>
<li>World GDP growth looks likely to have peaked in May, with big drop in China</li>
<li>June FOMC appears to justify tapering, which de facto has begun</li>
<li>Yield curves now flattening</li>
</ul>


Sharp pick-up in ‘safe’ asset demands
Global Liquidity peaked late-2020
World GDP growth looks likely to have peaked in May, with big drop in China
June FOMC appears to justify tapering, which de facto has begun
Yield curves now flattening


Global Liquidity Support Has Shrunk … Risk Assets Looking Vulnerable

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)

What Triggers Financial Crises?

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Michael J. Howell

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

Fixed income markets are starting to fear a coming 'over-tightening' policy error by the US Fed. This is highlighted by looking inside the term...

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Is There A Bear Out There? Where Are We In The Global Investment Cycle?

Asset allocation should be shifted more defensively in anticipation of major headwinds from slowing Global Liquidity growth in 2022

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Bad News Is Closer Than You Think

Markets are too complacent to 'transitory' inflation risks and to the absence of Chinese stimulus. There is a risk of another 'liquidity crisis'...

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Global Liquidity Support Has Shrunk … Risk Assets Looking Vulnerable

Falling Global Liquidity, notably in the US, and skidding World economic activity, notably in China, suggest that the climate for risk assets is...

Michael J. Howell