Liquidity Rising

The global liquidity cycle has come to prominence in the past three or four years in no small part thanks to the work of Cross Border Capital’s CEO

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Liquidity Rising

The global liquidity cycle has become more prominent in the last three or four years, thanks in part to the work of Michael Howell, Cross Border Capital’s CEO and Managing Director. His system, which he developed while working as Research Director at Salomon Brothers from ‘86 to ‘92, offers a broader perspective on global liquidity than those that are only concerned with money circulating in the general economy (e.g., M1 or M2). According to Howell, the majority of liquidity is present in financial and asset markets, which makes sense when you consider that measures like M2 do not include sovereign bonds, bank reserves, or other forms of credit.

This brings us to the conclusion that global liquidity is rising. Howell’s model describes a four-year cycle, and we are currently in the rising phase. For skeptics, there is no stronger evidence that global liquidity is rising than the Fed cutting 50 basis points on September 15. Seven days after Powell effectively announced the beginning of a U.S. easing cycle, China’s central bank introduced its most aggressive stimulus package in four years. This should be a boon for Bitcoin and crypto as one of the most liquidity-sensitive assets, if not the most sensitive.

Many people were curious as to why China made its move “now.” Why did China wait so long to help its struggling economy, which is expected to fall short of its 5% 2024 growth target? Weston Nakamura of Across the Spread highlighted the obvious: China had to wait for the Fed to begin an easing cycle before it could do the same, out of concern that doing so would worsen the ongoing currency risks of yuan depreciation and further capital outflows.

China’s action serves as a strong indication that other nations will probably follow suit sooner rather than later. It’s probably best to pay no mind to this week’s price action if the size of China’s initial response is an indication of the liquidity deluge to come. Continue steadily.

Please share your ideas and opinions on this topic in the comments section below if you believe there is a liquidity cycle.