The global economy is at a crossroads, with the extraordinary bull market of recent years, often referred to as the “everything bubble,” showing signs of reaching an inflection point. At the heart of this phenomenon lies the concept of global liquidity, a critical driver of asset markets and economic cycles. In a recent in-depth discussion with David Lin, Michael Howell, founder of GL Indexes and author of Capital Wars, sheds light on the outlook for the global economy, financial markets, and inflation heading into 2026.
Howell’s central thesis revolves around the pivotal role of global liquidity in shaping asset markets and economic cycles. The unprecedented liquidity i********s by central banks, particularly the Federal Reserve, in response to previous financial crises, have been the primary fuel behind the recent bull market. However, as central banks begin to taper their liquidity support, governments, especially the U.S. Treasury, are increasingly taking over stimulus efforts through a phenomenon Howell terms “Treasury QE.” This transition is crucial in understanding the future trajectory of the global economy.
A significant concern highlighted by Howell is the massive amount of debt that was extended during the C***D-19 pandemic and prior periods of low or negative interest rates. The refinancing of this debt, coupled with tightening liquidity conditions, poses substantial risks to financial stability, particularly in debt markets such as repos, which have recently exhibited signs of stress. Despite these potential liquidity tightening risks, Howell forecasts a stronger real economy in 2026, driven by fiscal spending and AI-related capital expenditures.
The discussion with David Lin also touches on the divergence in monetary policy globally, with countries like Japan hiking interest rates and the Bank of England cutting them. However, Howell argues that there is an underlying convergence of terminal rates worldwide, suggesting a more unified global monetary policy landscape than initially meets the eye.
Howell discusses the transition from Federal Reserve-led QE to Treasury-led QE, where fiscal stimulus is directly injected into the real economy by issuing short-dated government debt. This form of monetization, eagerly absorbed by banks, is inherently inflationary. The inflationary pressure is already manifesting in commodity prices and consumer inflation expectations, signaling a potential shift in the inflation landscape.
In light of the increasing debt and monetary expansion globally, Howell highlights gold, silver, and cryptocurrencies as important monetary inflation hedges. China’s efforts to address its real estate problems through monetary easing and gold accumulation are also noteworthy, underscoring the diverse strategies employed by nations to navigate the current economic environment.
The conversation with David Lin covers asset allocation strategies across different phases of the liquidity cycle, providing valuable insights for investors navigating these complex markets. With the economy expected to strengthen in 2026, a possible flattening of the yield curve is anticipated, influencing the outlook for bond markets.
As we approach 2026, understanding the dynamics of global liquidity is more crucial than ever. Michael Howell’s insights, as discussed with David Lin, offer a nuanced perspective on the interplay between liquidity, economic cycles, and asset markets. With the global economy at a critical juncture, investors and policymakers alike must remain attuned to the shifting tides of global liquidity to navigate the challenges and opportunities that lie ahead.
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For a deeper dive into these topics and further insights from Michael Howell, watch the full video discussion with David Lin. As the global economic landscape continues to evolve, staying informed and adaptable will be key to success in the years to come.
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