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Quick analysis of the situation
In the wild world of finance, where the only certainty is uncertainty, Raoul Pal’s latest episode of “Journey Man” offers a glittering glimmer of insight—almost like finding an extra fry at the bottom of your takeout bag. Pal welcomes back Michael Howell, the oracle of liquidity and CEO of CrossBorder Capital, for a sweeping tour through the liquidity landscape that's been pushing crypto and risk assets into the stratosphere for the better part of three years. Spoiler alert: both gentlemen agree we’re late to the party, but don’t fret just yet—there’s still plenty of hors d'oeuvres left to nibble on!
The duo presents a rather unambiguous investment implication: long-duration assets, namely crypto and tech stocks, will continue basking in the sun of ongoing currency debasement. However, don’t pop the champagne just yet, as the end of this bubbly celebration is now bouncily visible on the horizon—marked by a looming wall of debt refinancing and inflation risks, like a looming cloud ready to rain on your parade.
How Long Will the Liquidity Cycle Keep Us Surging?
Here’s where Howell’s sharp insights slice through the fog: “We’re late.” Yes, you read that right. He notes we’re currently enjoying the eighth inning of this liquidity cycle, which is approximately 34 months old and still showing signs of life, albeit on borrowed time. Typically, these cycles last a robust five to six years. Pal, with his compelling "Everything Code" framework, aligns with Howell’s timing, but adds some nuance. While Howell sees the liquidity peak arriving around early 2026, Pal thinks we’ll hit that peak in the illustrious Q2 of 2026.
What’s next, then? A dramatic floor show featuring the transition from Fed QE to Treasury QE. Howell explains it in a way that would make even your high school economics teacher proud: the U.S. Treasury’s preference for short-dated bills is reducing the average duration of assets held by the private sector. In non-economist speak? Shorter durations mean more liquidity, leading to a captivating dance of bidding wars as banks and stablecoin issuers scramble to absorb the bills. If you thought this was just a complex game of musical chairs, think again!
How the Global Liquidity Picture Is Shaping Up
Let’s jet around the world a bit. Europe and Japan seem determined to keep the liquidity flows steady, with both regions pulling their best moves to avoid hitting the brakes. China, on the other hand, has shifted from shuffling timidly to confidently easing policies with an arsenal of tools—from repo agreements to medium-term lending. Howell posits that if China continues this stimulus, it could spark a glorious commodity up-cycle, perhaps propelling us back into an investment wonderland.
Speaking of wonderlands, Japan is the class clown with its cheeky rotation from bonds to equities, as they seem poised to embrace a mild inflation without breaking a sweat. Meanwhile, the U.K. and France are experiencing a textbook case of supply shock, as they wrestle with soaring term premiums and swelling debt burdens. Howell suggests that the situation here is a riddle only solvable with higher taxes or a creative form of monetization—definitely not the kind of dinner conversation that makes you feel all warm and fuzzy inside.
The Dollar and Its Debatable Dilemma
Hovering in the background is the persistent presence of the U.S. dollar, which has a confusingly strong grip on the global financial stage—even in the face of a potential cyclical correction. Howell argues that the administration is itching for a weaker dollar to ease the refinancing of the mountain of dollar-denominated global debt. It’s a classic case of wanting to have your cake and eat it too: debasing the currency while reveling in inflows.
Amidst this cocktail of potential investment outcomes, both Pal and Howell can’t help but lean towards long-duration assets. “You’ve got to start thinking about how to invest in the monetary inflation world,” Howell advises, as Pal confirms that technology and crypto are poised for a thriving evolution—living within lengthy upward trends fueled by smart policy engineering.
The Inevitable Endgame
As the calendar inexorably ticks toward 2026, the risks are certainly crowding in, especially with the looming debt that will need to be refinanced. Howell cautions us about a potential cash-flow squeeze from tech companies undergoing an impressive capital spending spree. Toss in the historical backdrop of the late 1980s, where rising yields preceded a tricky liquidity turn, and the air grows thick with anticipation.
For the moment, none of the gentlemen appear to be donning their party hats just yet. Pal’s financial conditions index suggests that we’re in for a spell of progressive expansion, and Howell anticipates a continued flow of decent Fed liquidity.
As we roll into year-end, they both slightly smirk, acknowledging that while we may see some wiggles, the overall trend appears to be intact for a while longer. Yes, steady as she goes—right into the liquidity endgame. And yes, crypto remains the bright star shining amidst a sky full of uncertainties, embodying the very essence of monetary inflation as we gracefully barrel toward what promises to be a riveting refinancing test.
As we await the next act in this financial drama, one thing remains clear: crypto currently holds a dazzling spot in this grand, swirling liquidity ballet, and the show is far from over!
Disclaimer: Our articles are NOT financial advice, and we are not financial advisors. Your investments are your own responsibility. Please do your own research and seek advice from a licensed financial advisor beforehand if needed.
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