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>Chairman Powell’s short and direct Jackson Hole speech emphasized the need to conquer inflation and (unusually) warned us to expect some economic pain</li>
<li>US monetary tightening is being front-end loaded. The Fed sees QT/QE operating like an ‘air conditioning unit’ whirring in the background. But we see QT as a wrecking ball
</li>
<li>Too much liquidity is being sucked out of financial markets by Central Banks. Among other things it may trigger Euro instability? Will this force a policy pivot sometime in 2023?</li>
</ul>


Chairman Powell’s short and direct Jackson Hole speech emphasized the need to conquer inflation and (unusually) warned us to expect some economic pain
US monetary tightening is being front-end loaded. The Fed sees QT/QE operating like an ‘air conditioning unit’ whirring in the background. But we see QT as a wrecking ball

Too much liquidity is being sucked out of financial markets by Central Banks. Among other things it may trigger Euro instability? Will this force a policy pivot sometime in 2023?


Post-Jackson Hole: Don’t Fight The Fed… Euro Collapse Threatened?

<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>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 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)

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