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>US Fed has injected a positive US$167bn into markets so far in Q4, 2022. This partly reverses the US$1.1 trillion they withdrew in year up to September</li>
<li>Based on US Fed projections of a further US$1.5-2 trillion of QT liquidity withdrawals, the S&amp;P500 could skid lower to 3200 (i.e. minus 20% from here)</li>
<li>QT has stalled, showing the operational difficulty of withdrawing cash.  This may also reflect underlying concerns about US Treasury market liquidity. A pause/ pivot is coming, but its not now</li>
</ul>


US Fed has injected a positive US$167bn into markets so far in Q4, 2022. This partly reverses the US$1.1 trillion they withdrew in year up to September
Based on US Fed projections of a further US$1.5-2 trillion of QT liquidity withdrawals, the S&amp;P500 could skid lower to 3200 (i.e. minus 20% from here)
QT has stalled, showing the operational difficulty of withdrawing cash.  This may also reflect underlying concerns about US Treasury market liquidity. A pause/ pivot is coming, but its not now


Has The US Fed Already Paused Its QT and 'Pivoted'?

<ul>
<li>Dominance of retail investors in US equity market may explain disparity between data on investor positioning and more negative sentiment surveys</li>
<li>Households’ equity positions can be shown to be directly related to the US unemployment rate, and it reactive than anticipatory</li>
<li>With unemployment set to test 6% of workforce, equities will continue to sell-off. Yet, this looks like the final down-leg of this bear market</li>
</ul>


Dominance of retail investors in US equity market may explain disparity between data on investor positioning and more negative sentiment surveys
Households’ equity positions can be shown to be directly related to the US unemployment rate, and it reactive than anticipatory
With unemployment set to test 6% of workforce, equities will continue to sell-off. Yet, this looks like the final down-leg of this bear market


The Final Bear Phase: America’s Retail Investors Are Only Just Starting To Panic

<ul>
<li>Volatility is sequential and the turbulence and illiquidity in forex and bond markets will inevitably spread to equities? A CRASH could be coming!</li>
<li>VIX has already moved up, but this barely acknowledges volatility elsewhere. The VIX always sees greater volatility because it includes the effects of economic volatility as the business cycle breaks</li>
<li>Upcoming World recession seems set to force the VIX above 50 index points. Stay ‘risk-off’ and choose ‘carry’ at the front-end of yield curves</li>
</ul>


Volatility is sequential and the turbulence and illiquidity in forex and bond markets will inevitably spread to equities? A CRASH could be coming!
VIX has already moved up, but this barely acknowledges volatility elsewhere. The VIX always sees greater volatility because it includes the effects of economic volatility as the business cycle breaks
Upcoming World recession seems set to force the VIX above 50 index points. Stay ‘risk-off’ and choose ‘carry’ at the front-end of yield curves


A Coming Crash: The Law of Conservation of Financial Volatility?

<ul>
<li>
 S&amp;P500 (SPX) likely to test 3200, may be even 3000, as earnings get crushed. It looks like a classic ‘second leg-down’ in the bear market</li>
<li>Tight Central Bank Liquidity has hit sensitive bond markets driving yields higher, but also causing term premia to worryingly collapse to near all-time lows 
</li>
<li>Term premia fall is already set-in-stone and historically has led to much weaker reported corporate earnings some 15 months later. Hence US S&amp;P500 earnings could skid by 20% in 2023 
</li>
</ul>



 S&amp;P500 (SPX) likely to test 3200, may be even 3000, as earnings get crushed. It looks like a classic ‘second leg-down’ in the bear market
Tight Central Bank Liquidity has hit sensitive bond markets driving yields higher, but also causing term premia to worryingly collapse to near all-time lows 

Term premia fall is already set-in-stone and historically has led to much weaker reported corporate earnings some 15 months later. Hence US S&amp;P500 earnings could skid by 20% in 2023 



The Second Leg Down In This Bear Market May Be Happening Now?

<ul>
<li>Bear market results from sharp monetary squeeze as Central Bank liquidity withdrawn, led by Fed. More pain to come. Recession is here 
</li>
<li>
 US Federal Reserve is driving markets lower and USD up. QT has officially started, but Fed has in fact been secretly tightening liquidity for months</li>
<li>Effective Fed balance sheet likely to contract by US$2 trillion under QT plans, but policy error could easily force a bigger US$3 trillion correction. Wall Street at risk. 
</li>
</ul>


Bear market results from sharp monetary squeeze as Central Bank liquidity withdrawn, led by Fed. More pain to come. Recession is here 


 US Federal Reserve is driving markets lower and USD up. QT has officially started, but Fed has in fact been secretly tightening liquidity for months
Effective Fed balance sheet likely to contract by US$2 trillion under QT plans, but policy error could easily force a bigger US$3 trillion correction. Wall Street at risk. 



Recession Is Here! SPX(S&P500) Still Set to Test 3200.Last Week’s US Fed Move Makes This More Likely

United States

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

S&P 500 INDEX (SPX INDEX)

Has The US Fed Already Paused Its QT and 'Pivoted'?

US Fed has de facto reversed its QT and restarted QE according to liquidity data. Is this a genuine policy 'pivot' or does it reflect technical...

Michael J. Howell

The Final Bear Phase: America’s Retail Investors Are Only Just Starting To Panic

Dominance of retail investors in US equity market is related to the US unemployment rate. With this set to test 6%, equities will continue to sell...

Michael J. Howell

A Coming Crash: The Law of Conservation of Financial Volatility?

Volatility is sequential. Forex and bond market volatility will morph into equities and possibly trigger a crash. The VIX deserves to be above 50....

Michael J. Howell

The Second Leg Down In This Bear Market May Be Happening Now?

S&P500 (SPX) likely to test 3200, may be even 3000, as earnings get crushed. Bond markets already warn that US EPS could skid by minus 20% in 2023....

Michael J. Howell

Recession Is Here! SPX(S&P500) Still Set to Test 3200.Last Week’s US Fed Move Makes This More Likely

World recession Is here. SPX(S&P500) set to test index 3200.Last week’s US Fed move makes this more likely. They pulled another US$105 billion from...

Michael J. Howell