Market Refuses To CRASH: Here's Why! | Michael Howell
Summary
Global Liquidity: Liquidity is rolling over, yet leading indicators and market internals signal robust growth, cyclical outperformance, and flattening yield curves alongside rising inflation pressures.
Commodity Bull Phase: The cycle favors commodities now, with expectations of broad strength across oil, copper, aluminum, fertilizers, and food due to monetary inflation and resilient global demand.
Gold Dynamics: Gold’s strength is tied to PBOC liquidity injections and internal yuan devaluation, with pricing behavior best viewed in yuan terms and likely to remain elevated.
Oil Outlook: The gold–oil ratio historically reverts near 20x, implying oil upside; geopolitics matter, but underlying economic momentum and monetary factors are bigger drivers.
Portfolio Positioning: Rotation toward real assets is underway; within equities, favor resource stocks as momentum leaders, while broader U.S. equities may be rangebound this year.
U.S. Market Support: Treasury buybacks and bill-heavy issuance aim to cap bond volatility (MOVE index), stabilizing collateral and liquidity, which underpins financial markets.
Companies Mentioned: No specific public company tickers were pitched; the focus centered on sectors and macro themes like commodities, gold, oil, and U.S. market structure.
Transcript
Well, I think what that what that lines up with is rising inflation pressures. What you're seeing is the one thing that most uh most uh forecasters didn't see January 1, which is the yield curves globally are beginning to flatten. The world has obviously changed over the last 8 weeks, but what does that mean for global liquidity? It's really important to track the global liquidity flows because I want to know is it just a function like is the S&P higher only because it is the cleanest shirt in the hamper or are there other reasons for the S&P 500 rallying. I've invited back the king of liquidity, Michael How with Crossber Capital. He is a keynote at our upcoming Deutsche Gold Messa. Really looking forward to hosting him in Frankfurt because his his knowledge about the global liquidity flows is unparalleled and it really opens our eyes or it really helps us understand why are markets moving the way they are. It's not just headline driven. There's other topics like liquidity that are underneath the surface that are way more important sometimes. So really looking forward to hearing his latest and really excited for you to hit that like and subscribe button because it helps us out tremendously. And did I mention that you can register for free for the Decea or Germanold show.com? Thank you so much for doing that. We'll see you in Frankfurt. Now let's get Michael on the screen here. Michael, it's great to welcome you back on the program. It's good to see you again. >> Well, good to see you, Kai. Always a pleasure. >> Yeah, really looking forward to hosting you in Frankfurt in about 3 weeks time. But uh in the meantime, we we got to analyze what is happening in the world of liquidity. Michael um two two big topics I want to tackle with you today. Of course, are global liquidity flows. How have they changed over the last seven eight weeks? And then of course we got to talk about the S&P 500. Is it the cleanest shirt in the hamper? But let's start at the top. What's the status of the global liquidity cycle right now? >> Well, I think the way that we've got to address it is to say that first up, uh money moves markets. um economies are downstream of markets and geopolitics is downstream of economics. So if you kind of look at it in that uh in that sequence uh we've got to sort of start really at the beginning which is to say what's happening to money flows and our view basically now and actually even prior to the Iran tensions is that liquidity is basically rolling over uh we've seen a period of abundance abundant liquidity in markets uh for much of the last two to three years. I mean that really explains the bull market in assets generally. Um you know clearly we're seeing markets hitting you know all-time highs yet again. But I think you got to put that into perspective and try and understand the underlying currents already what's happening. And alongside this uh rally or this this rebound and all-time high in the S&P, what we've got is further strength out of commodity markets. And it's this stage of the cycle which is really typically a very strong one for commodities. And the irony maybe or the paradox within this situation with Iran is it seems to us looking at the data the world economy has strangely been unaffected so far at least by uh what the tensions and what the implications of higher energy prices mean. And maybe put into context what this is telling us is that this shock that we've had so far is nothing like as big as the COVID shock back in 2020 and probably even smaller than the uh tariff tantrum that we saw about a year ago. In other words, the world economy seems to have shaken it off remarkably well. And that's maybe a headscratching fact, but it's a reality. And that's what the markets pretty much are telling us right now. Yeah, it's really like as you said a bit of a head scratcher because the question is is it not priced in? Is the market ignoring it? Because we have to admit like the market is always right. But um why is it behaving that way? Maybe you can elaborate on that topic a little bit. Why is it ignoring like the oil crisis that seems to be a massive lag of course u before it really hits the economy. Why is that not being priced in? Well, let's let me put some slides up and let me um uh sort of focus on maybe what's happening with the background of of liquidity. And the first chart that I put up which hopefully you can see is looking at world central bank liquidity and you can see that is uh there are two measures there. One is a simple count of what policy makers are doing and that's the dotted black line and the other is to look at the orange line which is kind of a size weighted measure of the amount of liquidity that policy makers are injecting and you can see that's pretty elevated. I mean both indexes are so there doesn't seem to be any clear evidence from this that policy makers are tightening um but you know that maybe is a decent uh fact in terms of supporting markets and if you look at a heat map this heat map just take the impression of that the red splodge in the middle is where they were tightening and where we are now on the right hand side you know we're in a relatively benign sort of green or sort of pale orange area so there's nothing really untoward going on and what we need to understand therefore is the nature of the liquidity cycle and as I said front up um you know broadly speaking uh liquidity is driving markets markets uh lead economies and economies lead geopolitics and what we've tried to show on this slide here is that you've got the liquidity cycle in red which is probably about 15 to 20 months ahead of what's happening in the real economy. So in other words, inflections that you're looking at in uh in liquidity are likely to appear at some stage down the track in terms of the of the economy. Now, why is that important? And this is getting onto the meat of what's happening right now in economies and markets. This is looking at two leading indicators of the US economy. One of those is the ISM uh uh um sorry the ISM orders um factor minus inventories which is the orange line and the other is looking at the Philly Fed activity index. In other words, the manufacturing survey that comes out of the uh Philadelphia Federal Reserve and both of those indicators which are actually tried and tested and remarkably robust indicators of US growth look to be heading uh northwards quite rapidly. In other words, there's a lot of momentum in the economy and you know we do an AI based measure u you know using lots of different uh data inputs uh from around the world as to what the world economy is doing at any one time. And this is as I say you know basically looking at price data it looks at volume data. It looks at exchange rates credit spreads etc. And what that shows as you look towards the right hand side of that chart is a little V. I mean, clearly there's been a drop, but it's rebounded quite rapidly. And that's saying that's the effect that all this data is telling us is having on the world economy. It's nothing like as big as what we saw a year ago. Uh and what's more, it seems to be borne out in stock markets because this look at this evidence which is showing uh in black the performance of cyclical stocks versus defensive stocks in the MCI world index. So in other words, this is saying that cyclicals are strongly outperforming defensives and they continue to do that uh you know as we speak. This is latest data up to late April. Uh and the orange line is basically a series of business surveys from around the world which admittedly has dipped back a little bit but that's probably because the media have spooked all these media bad media headlines have spooked uh businessmen into sort of feeling a little bit more downbeat. But the financial markets are on a roll. I mean just looking at this this is what Stanley Ducker Miller the famous uh you know US investor says uh is the best economist out there. This is telling us uh from the markets uh you know internals what people are discounting about growth and it looks like it's a very bullish story. Now that plays into the commodity story really really well. >> Yes. Like I'm I'm trying to understand like what are we not understanding about what is happening in in markets in the economies cuz we've been on even on this channel we've been talking about well the US is cracking unemployment is rising. Um but it seems like the only negative indicator right now that I'm seeing is a consumer sentiment which doesn't really line up perhaps but maybe it lines up with a geopolitical but I'm curious what you're seeing. >> So >> well I think what that what that lines up with is rising inflation pressures. Um and that's what's hitting the consumer. But you look at a whole range of indicators whether it be consumer spending whether it be capex spending uh you know clearly the government deficits big etc all these factors so manufacturing you know throw that in I mean the US is almost having a manufacturing renaissance given the underlying strength in the uh in the PMI um uh you know so this is something we you know we haven't seen for a long long time so I think the underlying tenor of the of the of the US economy looks pretty robust now the chart that I've just put up maybe goes somewhere way to explaining this and this is dissecting some of the sources of stimulus that are going through the American economy coming out of the Federal Reserve and out of the US Treasury. Now, one of the things we've been arguing uh of late is there's a subtle shift going on, which will likely be underscored by uh new chair Walsh uh taking the helm at the Fed, uh of a switch from what we've always known as Fed QE, in other words, Fed balance sheet expansion or liquidity, subtle liquidity injections by the Fed, which is shown by the red and orange areas of the chart I've put up, or what we think of as Treasury QE, which is basically the monetization of debt through the issuance of lots of bills by the US Treasury. In other words, they're funding themselves at the very short end of the market. Something like nearly 90% of all debt issues in the US now are under two years. I mean, that's an eyewateringly large statistic. I mean, it's it's mindboggling, but that's what they're doing. And as Stanley Duckerman again to quote him uh saying, I mean this is really the uh the sort of uh this is the economics or uh the fiscal economics of Latin America, not the US. Uh but this is what's going on. It's monetization. Now what this chart is telling us is if you look into 2026 uh in that bigger chart, the black area is showing that Treasury QE, the shift away from using the Fed as a source of stimulus is basically picking up fast. And if you take that data and you maybe can see that little window and we show the data again on the little window and on top of that window we show the changes in the US PMI index. In other words, the ISM um indexes for services and manufacturing and you can see that lines up pretty well. And what that's saying is maybe this is why the US economy is doing so well because there's a lot of government spending and that's being monetized and that is basically forcing the economy into a faster growth track. Add in the AI spending uh etc. and then you've got actually a pretty robust US economy. Now is that inflationary? Well, probably. The underlying level of inflation may well be higher than people have been suspecting. But it looks as if growth so far seems to be robust. And isn't that exactly what the markets are telling us because commodity prices have been on a roll and this is exactly what you'd expect to see at this stage of the cycle. Yeah, it's interesting like the commodity cycle because I was looking at the copper price and I was looking at the rally especially since September from uh was it like let's say 450 to over $6 which is a a 33% move in copper and I was looking at it and I might have mentioned it in a couple interviews as well just as a side note but uh it's it's a bit puzzling where the strength for copper is coming from because Dr. Copper is always an indicator and it tells us well if copper is going higher then the economy must be doing well. We're not moving into a recession here. Yeah, exactly. And if you look at the uh this chart I've put up, which is our asset allocation cycle, what that is illustrating is that you know you get different um you know different seasons for different assets and the phase of the cycle we're in now. um looking at that right hand side of the chart is around the peak of the liquidity cycle which I'll evidence in a moment and that is basically saying this is where commodities generally do extremely well and that's exactly what we've seen the equity rally where equities were uniquely the best asset class is in the past I mean that was in the upswing of the cycle you can see on the left that's when equities do well commodities are now the phase to to think of and within the equity markets you've got a bias towards resource related equities. Now, that cycle clearly moves moves forward. It's sequential. So, we've got to be wary of when we start to dip down significantly and that's the really the time to be worried. Uh but I think what you're going to see is that being flagged in the commodity markets first by some strong run-ups in commodities. And it's not just uh you know geopolitical tensions that are causing this. This is actually also being triggered by the underlying economic background. And I'm just about to go back to looking at the liquidity cycle. This is the evidence of the liquidity cycle globally and you can see on this chart what it demonstrates is the red dotted line is a sine wave that we fitted to the data. The black line is the underlying growth rate of global liquidity going right back to the 1960s. It seems to move in a five to six year cycle and around the peaks of the cycle you tend to find strong commodity markets. Uh and uh at the trough you tend to find strong bond markets. uh but the transitions tend to be uh in the upswing equity related and that's clearly what we've been we've just come through now is the phase for commodities and that's what we've got to look at now I think if you start to move towards the commodity question there are sort of two rabbit holes we can go down one of those is basically thinking about the gold market what's happening to gold because gold is principally the leading commodity uh in that uh in that constellation it tends to be the pole star that uh people guide by uh and all other commodities tend to catch up and then to broaden out and say is the oil crisis or the oil crisis we're looking at something which is purely geopolitical related or is it something deeper about the underlying uh backdrop in the world economy and what I want to show is a chart that I'm just going to flip on to in a second which is basically looking at uh at commodities sorry I've got here we here we go on the commodity story Now, what this is looking at is a ratio that I've long looked at and this is looking at the gold to oil ratio. Now, many of your viewers may be familiar with that. It tends to be uh a statistics that that economists dismiss as being irrelevant, but I think it's actually really really valuable. And if you look at the long run average, you can see there that it's averaged around about 20 times. Now, if we go back to 1970 when gold was 35 bucks an ounce and oil was about $2 and a bit uh uh a barrel, that gives you a pretty rough average of around about 20 times. If you look in 1990 with gold at 400, oil was then 20 20 time ratio. And if you look as recently as 2022, gold was $2,000 an ounce and oil 100 bucks a barrel. Now, that neatly gives you that 20 times ratio. What you see on the right hand side are two spikes and those spikes basically shot upwards and then came rapidly downwards within a basically a 2 to threeyear period but it looks like we're getting an adjustment now. If you look back historically uh there's one clear fact that emerges from this data and that is that when you get an adjustment of this ratio uh the adjustment tends to be oil prices going up not gold prices falling. And that's a very important consideration because if you say to if we ask ourselves the question what is the fair value for gold? I think many people would argue that around current levels seems to be fairly decent. So you know $5,000 per ounce if that's a given looking forward or at least a given. Divide that by 20 and what do you get? You get $250 a barrel for oil. Now, we presented this uh this idea uh a few weeks ago to a group of clients and they said, "You're just insane. That's never going to happen." Um I mean, absolutely ridiculous. Well, my point is, well, let's not take that as a forecast. Let's just look at the math behind it. And one of those three assumptions must be wrong. Either gold at 5,000 doesn't work. Either the ratio at 20 is now no longer relevant, but you've clearly got a long long history which shows that it seems to work. or the projection of an oil price at 250 is wrong. One of those three things is out. Now, I think that of those the softest is the the idea of oil at 250. That's the one that uh that is we've got to start exploring because it may not be 250. It may be 200. It may be, you know, 175 or whatever the figure is. Let's not dancing ahead of a pin, but let's just basically say this is telling us that commodity prices are generally going up. Think not oil, think copper, think aluminum. uh you know think fertilizers, think food prices, all these things are going up because we've had a monetary inflation and that's what the gold market is telling us. Now the interesting thing is that if you put this in context and what I've done is to merge the two previous thoughts that is what's happened to the global liquidity cycle which we repeat as the sine wave as that black line and then we show the gold oil ratio in log terms is red. Now, isn't it interesting that almost every time you see an end to the liquidity cycle, when that liquidity cycle goes down, the oil gold ratio tends to adjust lower. And one of the things that I said earlier was the adjustment is almost invariably oil prices, let's read, and other commodities going up and that's forcing the ratio lower and looks like it's happening right now. So, it's not geopolitics that may be driving the oil price up. clearly it's had an effect, but it's much more the underlying tenor of number one the robust world economy and number two the fact we've just had a big monetary inflation and probably we're going to get more because it was a path of least resistance and that's what we're seeing. So commodity prices I think are our role and they may be the factor that end this investment cycle but we're still in the midst of that rally. >> Michael, global financial institutions like the IMF had have adjusted their growth forecast for this year. they've adjusted them lower actually. Um, how does that fit together like what you're seeing in the liquidity cycles here versus what they're seeing? Like are they being guided by headlines or uh are they maybe misinterpreting the data? >> Well, I think they're being inter they're probably a combination of the two kind. I think the fact is that if you look at what I mean the markets are are rarely this wrong uh in terms of judging uh economics or the tempo of economies at least and I think everything that we look at seems to line up pretty well. uh with this picture. Okay. Uh what we're seeing is robust economic data now cast data which is very high frequency uh is coming out uh above expectations. Uh that's clear. Uh I've given you the evidence of what's happening in the US economy already. New orders look pretty robust. Uh you know latest sentiment surveys are clearly holding up pretty well. Consumer spending looks okay. Um etc. We're looking at strong commodity markets. Now you could argue that's geopolitics but I think it's more than that. Um and the within the market what you're seeing is evidence of cyclical strongly outperforming defensive stocks which you shouldn't be think we shouldn't be seeing if there's a recession upcoming. Uh and then on top of that what are the bond markets doing? What you're seeing is the one thing that most uh most forecasters didn't see January 1 which is the yield curves globally are beginning to flatten. Now that flattening uh is completely consistent with the picture we're looking at right now. Um and that is telling us that investors are basically starting to shift rotating out of financial assets more into real assets and probably more into uh defensive plays. So they're moving away from the high-risk financial stuff into something which is more which is more solid. And I think that makes sense. Um so you know the other question within that frame that one's got to ask is uh what's happening to the gold price? Why is gold is is gold going to remain elevated for some time? And my answer is I think it is because I think that comes back to China and China is doing something very different right now that maybe people don't fully understand. And that is China is devaluing internally the value of the yuan because it has to simply because of the debt burden that China faces is is too too immense. >> How how does that affect us here in the west? China devaluing the yuan like how does it keep China competitive um on on a global market? >> Well, let me let me just run through the the backdrop briefly of what's happening in China. The chart that I just put up is looking at the underlying return on capital in different regions or different countries worldwide. So you've got the Euro zone as the dotted line. You've got the red line, the US. Uh Japan is orange, China is black. Now if you look at what's happened to China, the returns on capital in industry have basically collapsed uh over the last 10 years, right? Uh they're now, you know, barely above or let's say they're matching US levels. US has revived. uh Europe is probably, you know, bumping along the bottom. Japan clearly had very high returns back in the 1980s. Those have since collapsed. So what you're looking at is that China, which is now on par with other economies. But why is it that that big return on capital has collapsed? And the reason is is the debt burden has been just too too much for China to swallow. And if you look at the debt burden, this is a parallel with what happened between Japan and China. Now just go go go back to this past this previous chart and look at the Japanese data in 1989 uh early 1990s. The return on capital in Japan collapsed through that period and what Japan was doing was basically taking on huge amounts of debt which was saddling the economy. And it's only been recently through abonomics and a huge monetization within the Japanese economy, evidenced by the collapse in the yen, that Japan has managed to get out of that huge debt burden. In other words, the BOJ was buying huge amounts of JGBs. Uh, and through that monetization, the yen has since collapsed. Now, the only way in a developed economy with a large credit system you can get rid of debt is not default it, but devalue it. So you've got to print money. This is the evidence for the debt liquidity ratio, the ratio between debt and the pool of liquidity in Japan and China uh over the last um you know uh 2030 years. And what you can see is the dark red line is what Japan has done. It has basically brought its debt liquidity ratio down by printing huge amounts of liquidity and that's how it's you know managed to dig itself out of the hole. China is in a similar situation and China is doing exactly the same thing or at least it has been up until maybe the Iran conflict. Um sorry let me u go to here. This is showing uh the injections by the PBOC into China's markets. Uh it's fallen off a little bit uh through the Iran conflict but this is looking at the yearon-year change in net liquidity. In the last 12 months, China has injected about $1 trillion dollars equivalent into its money markets. So to put that into perspective, the US did about two trillion after the GFC. So China is well on the way to matching what the US has done previously, but it's basically devaluing or trying to devalue the yuan internally. Now, who is the buyer of uh of gold worldwide? It tends to be Asians, but particularly Chinese retail. They're big big buyers. On top of that, which we'll come on to, the P PBOC itself is buying gold, but effectively what you're seeing is an internal devaluation uh of the yuan. Now, they can keep the pretend that they're not doing anything because they've got capital controls which are stopping any of that money flowing out. They've banned crypto which means it can't flow out through that channel. And the only vent it's got is domestic asset prices, i.e. the stock market or gold. and the gold market has basically been reflecting that. So in our view, what you've got to look at is the gold price in yuan, not in US dollars, because that seems to be what's going on. And my uh my uh proposition is that what's happening is they're moving the gold price up probably in 5,000 yuan steps. And this is what this chart is trying to show. And it's interesting, I think, that what you saw was the gold price in yuan bounce exactly on the 30,000 yuan level and it's now starting to make uh you know to reclim or retest those earlier highs. Uh it needs liquidity to do that. As I said, China has basically turned the tap off a tad uh through the the Iran tensions, maybe because it's uh it's sort of pondering what to do next, but I think it's going to have to start injecting a lot more liquidity into its system. And if you want the evidence against gold, this chart is showing what's driven the gold bullion price. This is looking at gold in yuan on the right hand side. Uh and that's shown in orange. The black line is PBOC liquidity. And that is the story. That's why gold is going up. >> No, it's fantastic. It's it's super clear why why that is happening. And you you shown a couple interesting slides. One of them, of course, was the rate of return there uh from China and the US. And I'm trying to make a segue to the S&P question that I phrased earlier here, Michael. Is is the S&P 500 perhaps the cleanest shirt in the hamper and the only home that is somewhat available for global liquidity right now given the geopolitical backdrop as well. Asia running out of fuel um and putting pressure on the markets over there. Is that really the only home right now? >> Well, I think the the to my mind, I mean, what we're looking at is a world where commodities are are run. I think that the home for global liquidity is going to be increasingly into real assets. Uh and therefore I think within stock markets you've got to veer towards resource stocks still. I think there that's where the momentum clearly is. So what I would uh argue is that that is basically the channel. Now why is the US getting impetus right now? uh you know I would say that there are two reasons for for that and let me just maybe to move back into uh sorry move into the pres move back in the presentation just show >> and Michael maybe you can throw in as well because we talked about capital leaving the US around the tariff tandrum as well um just out of political spite perhaps as well so maybe we can connect those two dots >> yeah I think that the I mean a lot of the concern that people have have got is that we're looking at the demise of the dollar or the end of the I just think that's that's nonsensical. There's no way that this is going on. And I think that if you look at uh you know, if you look at why the why the dollar is such an important currency, it's because it's the it's it's the currency of invoicing that most people will use and it's the currency of lending that most bankers will lend will lend uh you make loans in. So at the end of the until that changes, the dollar is still going to be the main currency worldwide. uh whatever central banks at the margin decide to do with their reserves, that's kind of irrelevant. Uh they're really responding in many cases to other factors. They need to diversify reserves. But ultimately, if you look at, you know, where the opportunities are, the opportunities, I think, are very clearly in the US uh in terms of long-term opportunity. I mean, what why invest in Europe? Because of the given the challenges Europe's got. Uh and I think that you know the US is uh is where you've got most opportunities to in terms of investment and that's really where uh from a stock market investment point of view you've got the you've got the the the sort of the the big technology stocks which are clearly going to attract more money in the future. So I would say that's that would be you know my counter to that argument in terms of what the of what the US is doing to if you like to cement and embed that process. The US is trying to stabilize its markets and what I would argue and this may be a contentious point uh you know upcoming given the uh the appointment of uh or the pending appointment of chair Walsh of the Fed is that you know what's really important in the US system now is not so much setting Fed funds rates it's much more about maintaining stability in the Treasury market because the Treasury market is so big and collateral is so important in terms of lending and what I've shown here is the move volatility index. Now, many people in equity space will look at the VIX index of equity volatility, but that's not really the most important variable. Uh the bond market volatility is a much much more important statistic, and this is showing it. Why is it so important? It's important for two reasons. Number one, that the federal government in the US is getting a lot of its uh support from hedge funds who are doing so-called basis trades. And those hedge funds are buying cash treasuries uh and they're effectively arbiting between cash treasuries and futures. So they're shortselling futures and they're basically uh non-cash treasuries. And that trade depends on low volatility. If volatility spikes that trade is vulnerable. So that's point number one. That would affect adversely the bond market and the ability of the US government to fund itself. The second point is that global liquidity is is now collateralbased. Something like 80% of all lending worldwide requires collateral and the bulk of that collateral is US treasuries. Therefore, you need stability in the bond markets. This is showing US Treasury volatility. This is far more important in my view than Fed funds rate. Uh and this is what I think the Treasury is deliberately controlling. What this next chart illustrates is uh this latest or the last spike that you can see in the move index is what happened during Iran. And this next chart is illustrating what the treasury is doing. This is something called treasury buybacks. And treasury buybacks are one way that the treasury can contain volatility in the bond market. Issuing a lot of bills clearly helps, but this is buying back uh what are called off the run or stale uh stroke illquid issues in the market and replacing them by new uh shiny new uh issues which are much more liquid and institutions prefer. And that is one way to actually control volatility. What this what the little box is saying is that each 10point increase in the move index has led to an increase in treasury buybacks uh from the US Treasury of almost 30 billion. Uh and that's showing one of the ways they're capping things. So in other words, what you've got going on is a put in the repo and bond markets or the bond volatility markets and that is one of the things that's underpinning the US system. So the Treasury and the Fed have been active in actually trying to smooth the waters if you like on Wall Street and that's one of the factors that has helped the market to rebound strongly uh in the last few weeks. >> That is hugely insightful. We never talked about that uh those data points uh previously I think and uh cuz I was wondering like why why does the U US tenure for example stay somewhat stable given given the macroeconomic and geopolitical backdrop as well like it it tried to break out but it was reeled in rather quickly and now we know sort of the answer to why and how it was reeled in I would assume is that a fair statement there Michael >> exactly right and then you can see another piece of evidence which is looking here at um the repo markets which is a corollery of what's happening in the move volatility index. This is the other side of it. And this is looking at repo spreads. So minus interest and overnight reserve balances shown here, the spread. Look at the big spikes that you've seen at the end of 2025, early 26. And then look at the response that the Federal Reserve has made uh to counter that. Now this chart may be a bit wonkish, but let me just try and explain what's happening. The black line is the inverted version of that previous chart uh looking over the last year or so. So, it's exactly the same data. It's looking at the sofa spread and as that line uh goes down, the black line goes down. That's a positive spike upwards on the earlier chart. The orange line is looking at excess reserves of banks. And what happened at the end of 2025 is the excess reserves of banks plummeted and they were basically about 400 billion below where the banks wanted. uh now by series of of moves such as the RMP which is the reserve uh management purchases and the new QE tool of the Fed which was introduced late last year uh plus changes in bank regulations uh such as the uh the elimination the gradual elimination of the ESLR uh what enabled is banks to actually uh restore liquidity or restore u minimum levels of liquidity quite easily And effectively what the Fed stroke Treasury have done. If you look from the trough to the peak of this chart is they've injected something like $600 billion effectively back into markets. Another reason why you've had stability on Wall Street. Uh uh question is does that persist into the medium term? My view is that what we're seeing is at best uh a rangebound market on Wall Street through this year. Uh that's a view I had you know January 1 and that's the view I still take. I think that's what we're looking at and therefore within the market you've got to be carefully selective and focus on what is what is where the momentum is which I think is definitely in the resource stocks >> 100% our audience will love you Michael uh in in Frankfurt in a couple of weeks here really really looking forward to hosting you there super insightful I got tons of follow-up questions of course but I think we'll do that in person in Frankfurt and we'll record of course another interview in Frankfurt as well because I want you know I've made a couple follow-up questions here that I'll ask you in person there. We got to leave people with a bit of a cliffhanger here so they they tune in or show up in Frankfurt in a few short weeks time as well. Michael, in the meantime, like this was hugely insightful, especially the the part about the buybacks um and the the 600 billion injection because the official number I heard was of the nonQE part was $40 billion. So um not $600 billion. >> It's a little more than that, >> right? So we'll we'll dissect that number together in the in in Frankfurt. In the meantime, where can our audience follow more of your work, Michael? >> Well, I think the most straightforward channel is um Capital Wars Substack Guy. That's that's one uh one great way. We uh we publish about two or three times a week uh using data and narrative uh to communicate. And then the other way is website. We do a lot of uh data analysis. Uh you can get data feeds. GLindexes.com is the best route for that. >> Fantastic. Awesome. Michael, really appreciate your time. I I could chat with you for hours. Super insightful, especially a lot of data that nobody else has. So, really appreciate it and can't wait to see you in Frankfurt, Michael. Really looking forward to that. >> Absolutely. And everybody else, thank you so much for tuning in. Super super insightful. Michael touched on a few points that we've never discussed here on this channel. Just talking about the the buybacks and uh just buying back some old debt and replacing it with new is really interesting because again, a completely new data point for us and our audience here. If you enjoyed this conversation, hit that like and subscribe button. Helps us out tremendously grow the channel. But also, if you haven't done so, subscribe to our to the Do not subscribe, but sign up for the Deutsche Goth. Join us in Frankfurt. It is free for investors to attend. There won't be any online part. Yes, we will upload the keynote presentations and company presentations afterwards, but there will be a delay. And uh I already hear you complaining like was recorded two weeks ago. Well, come to Frankfurt and you won't have that delay. So, thank you so much for tuning in and uh don't let emotions run your investments for you. Take care.
Market Refuses To CRASH: Here's Why! | Michael Howell
Summary
Transcript
Well, I think what that what that lines up with is rising inflation pressures. What you're seeing is the one thing that most uh most uh forecasters didn't see January 1, which is the yield curves globally are beginning to flatten. The world has obviously changed over the last 8 weeks, but what does that mean for global liquidity? It's really important to track the global liquidity flows because I want to know is it just a function like is the S&P higher only because it is the cleanest shirt in the hamper or are there other reasons for the S&P 500 rallying. I've invited back the king of liquidity, Michael How with Crossber Capital. He is a keynote at our upcoming Deutsche Gold Messa. Really looking forward to hosting him in Frankfurt because his his knowledge about the global liquidity flows is unparalleled and it really opens our eyes or it really helps us understand why are markets moving the way they are. It's not just headline driven. There's other topics like liquidity that are underneath the surface that are way more important sometimes. So really looking forward to hearing his latest and really excited for you to hit that like and subscribe button because it helps us out tremendously. And did I mention that you can register for free for the Decea or Germanold show.com? Thank you so much for doing that. We'll see you in Frankfurt. Now let's get Michael on the screen here. Michael, it's great to welcome you back on the program. It's good to see you again. >> Well, good to see you, Kai. Always a pleasure. >> Yeah, really looking forward to hosting you in Frankfurt in about 3 weeks time. But uh in the meantime, we we got to analyze what is happening in the world of liquidity. Michael um two two big topics I want to tackle with you today. Of course, are global liquidity flows. How have they changed over the last seven eight weeks? And then of course we got to talk about the S&P 500. Is it the cleanest shirt in the hamper? But let's start at the top. What's the status of the global liquidity cycle right now? >> Well, I think the way that we've got to address it is to say that first up, uh money moves markets. um economies are downstream of markets and geopolitics is downstream of economics. So if you kind of look at it in that uh in that sequence uh we've got to sort of start really at the beginning which is to say what's happening to money flows and our view basically now and actually even prior to the Iran tensions is that liquidity is basically rolling over uh we've seen a period of abundance abundant liquidity in markets uh for much of the last two to three years. I mean that really explains the bull market in assets generally. Um you know clearly we're seeing markets hitting you know all-time highs yet again. But I think you got to put that into perspective and try and understand the underlying currents already what's happening. And alongside this uh rally or this this rebound and all-time high in the S&P, what we've got is further strength out of commodity markets. And it's this stage of the cycle which is really typically a very strong one for commodities. And the irony maybe or the paradox within this situation with Iran is it seems to us looking at the data the world economy has strangely been unaffected so far at least by uh what the tensions and what the implications of higher energy prices mean. And maybe put into context what this is telling us is that this shock that we've had so far is nothing like as big as the COVID shock back in 2020 and probably even smaller than the uh tariff tantrum that we saw about a year ago. In other words, the world economy seems to have shaken it off remarkably well. And that's maybe a headscratching fact, but it's a reality. And that's what the markets pretty much are telling us right now. Yeah, it's really like as you said a bit of a head scratcher because the question is is it not priced in? Is the market ignoring it? Because we have to admit like the market is always right. But um why is it behaving that way? Maybe you can elaborate on that topic a little bit. Why is it ignoring like the oil crisis that seems to be a massive lag of course u before it really hits the economy. Why is that not being priced in? Well, let's let me put some slides up and let me um uh sort of focus on maybe what's happening with the background of of liquidity. And the first chart that I put up which hopefully you can see is looking at world central bank liquidity and you can see that is uh there are two measures there. One is a simple count of what policy makers are doing and that's the dotted black line and the other is to look at the orange line which is kind of a size weighted measure of the amount of liquidity that policy makers are injecting and you can see that's pretty elevated. I mean both indexes are so there doesn't seem to be any clear evidence from this that policy makers are tightening um but you know that maybe is a decent uh fact in terms of supporting markets and if you look at a heat map this heat map just take the impression of that the red splodge in the middle is where they were tightening and where we are now on the right hand side you know we're in a relatively benign sort of green or sort of pale orange area so there's nothing really untoward going on and what we need to understand therefore is the nature of the liquidity cycle and as I said front up um you know broadly speaking uh liquidity is driving markets markets uh lead economies and economies lead geopolitics and what we've tried to show on this slide here is that you've got the liquidity cycle in red which is probably about 15 to 20 months ahead of what's happening in the real economy. So in other words, inflections that you're looking at in uh in liquidity are likely to appear at some stage down the track in terms of the of the economy. Now, why is that important? And this is getting onto the meat of what's happening right now in economies and markets. This is looking at two leading indicators of the US economy. One of those is the ISM uh uh um sorry the ISM orders um factor minus inventories which is the orange line and the other is looking at the Philly Fed activity index. In other words, the manufacturing survey that comes out of the uh Philadelphia Federal Reserve and both of those indicators which are actually tried and tested and remarkably robust indicators of US growth look to be heading uh northwards quite rapidly. In other words, there's a lot of momentum in the economy and you know we do an AI based measure u you know using lots of different uh data inputs uh from around the world as to what the world economy is doing at any one time. And this is as I say you know basically looking at price data it looks at volume data. It looks at exchange rates credit spreads etc. And what that shows as you look towards the right hand side of that chart is a little V. I mean, clearly there's been a drop, but it's rebounded quite rapidly. And that's saying that's the effect that all this data is telling us is having on the world economy. It's nothing like as big as what we saw a year ago. Uh and what's more, it seems to be borne out in stock markets because this look at this evidence which is showing uh in black the performance of cyclical stocks versus defensive stocks in the MCI world index. So in other words, this is saying that cyclicals are strongly outperforming defensives and they continue to do that uh you know as we speak. This is latest data up to late April. Uh and the orange line is basically a series of business surveys from around the world which admittedly has dipped back a little bit but that's probably because the media have spooked all these media bad media headlines have spooked uh businessmen into sort of feeling a little bit more downbeat. But the financial markets are on a roll. I mean just looking at this this is what Stanley Ducker Miller the famous uh you know US investor says uh is the best economist out there. This is telling us uh from the markets uh you know internals what people are discounting about growth and it looks like it's a very bullish story. Now that plays into the commodity story really really well. >> Yes. Like I'm I'm trying to understand like what are we not understanding about what is happening in in markets in the economies cuz we've been on even on this channel we've been talking about well the US is cracking unemployment is rising. Um but it seems like the only negative indicator right now that I'm seeing is a consumer sentiment which doesn't really line up perhaps but maybe it lines up with a geopolitical but I'm curious what you're seeing. >> So >> well I think what that what that lines up with is rising inflation pressures. Um and that's what's hitting the consumer. But you look at a whole range of indicators whether it be consumer spending whether it be capex spending uh you know clearly the government deficits big etc all these factors so manufacturing you know throw that in I mean the US is almost having a manufacturing renaissance given the underlying strength in the uh in the PMI um uh you know so this is something we you know we haven't seen for a long long time so I think the underlying tenor of the of the of the US economy looks pretty robust now the chart that I've just put up maybe goes somewhere way to explaining this and this is dissecting some of the sources of stimulus that are going through the American economy coming out of the Federal Reserve and out of the US Treasury. Now, one of the things we've been arguing uh of late is there's a subtle shift going on, which will likely be underscored by uh new chair Walsh uh taking the helm at the Fed, uh of a switch from what we've always known as Fed QE, in other words, Fed balance sheet expansion or liquidity, subtle liquidity injections by the Fed, which is shown by the red and orange areas of the chart I've put up, or what we think of as Treasury QE, which is basically the monetization of debt through the issuance of lots of bills by the US Treasury. In other words, they're funding themselves at the very short end of the market. Something like nearly 90% of all debt issues in the US now are under two years. I mean, that's an eyewateringly large statistic. I mean, it's it's mindboggling, but that's what they're doing. And as Stanley Duckerman again to quote him uh saying, I mean this is really the uh the sort of uh this is the economics or uh the fiscal economics of Latin America, not the US. Uh but this is what's going on. It's monetization. Now what this chart is telling us is if you look into 2026 uh in that bigger chart, the black area is showing that Treasury QE, the shift away from using the Fed as a source of stimulus is basically picking up fast. And if you take that data and you maybe can see that little window and we show the data again on the little window and on top of that window we show the changes in the US PMI index. In other words, the ISM um indexes for services and manufacturing and you can see that lines up pretty well. And what that's saying is maybe this is why the US economy is doing so well because there's a lot of government spending and that's being monetized and that is basically forcing the economy into a faster growth track. Add in the AI spending uh etc. and then you've got actually a pretty robust US economy. Now is that inflationary? Well, probably. The underlying level of inflation may well be higher than people have been suspecting. But it looks as if growth so far seems to be robust. And isn't that exactly what the markets are telling us because commodity prices have been on a roll and this is exactly what you'd expect to see at this stage of the cycle. Yeah, it's interesting like the commodity cycle because I was looking at the copper price and I was looking at the rally especially since September from uh was it like let's say 450 to over $6 which is a a 33% move in copper and I was looking at it and I might have mentioned it in a couple interviews as well just as a side note but uh it's it's a bit puzzling where the strength for copper is coming from because Dr. Copper is always an indicator and it tells us well if copper is going higher then the economy must be doing well. We're not moving into a recession here. Yeah, exactly. And if you look at the uh this chart I've put up, which is our asset allocation cycle, what that is illustrating is that you know you get different um you know different seasons for different assets and the phase of the cycle we're in now. um looking at that right hand side of the chart is around the peak of the liquidity cycle which I'll evidence in a moment and that is basically saying this is where commodities generally do extremely well and that's exactly what we've seen the equity rally where equities were uniquely the best asset class is in the past I mean that was in the upswing of the cycle you can see on the left that's when equities do well commodities are now the phase to to think of and within the equity markets you've got a bias towards resource related equities. Now, that cycle clearly moves moves forward. It's sequential. So, we've got to be wary of when we start to dip down significantly and that's the really the time to be worried. Uh but I think what you're going to see is that being flagged in the commodity markets first by some strong run-ups in commodities. And it's not just uh you know geopolitical tensions that are causing this. This is actually also being triggered by the underlying economic background. And I'm just about to go back to looking at the liquidity cycle. This is the evidence of the liquidity cycle globally and you can see on this chart what it demonstrates is the red dotted line is a sine wave that we fitted to the data. The black line is the underlying growth rate of global liquidity going right back to the 1960s. It seems to move in a five to six year cycle and around the peaks of the cycle you tend to find strong commodity markets. Uh and uh at the trough you tend to find strong bond markets. uh but the transitions tend to be uh in the upswing equity related and that's clearly what we've been we've just come through now is the phase for commodities and that's what we've got to look at now I think if you start to move towards the commodity question there are sort of two rabbit holes we can go down one of those is basically thinking about the gold market what's happening to gold because gold is principally the leading commodity uh in that uh in that constellation it tends to be the pole star that uh people guide by uh and all other commodities tend to catch up and then to broaden out and say is the oil crisis or the oil crisis we're looking at something which is purely geopolitical related or is it something deeper about the underlying uh backdrop in the world economy and what I want to show is a chart that I'm just going to flip on to in a second which is basically looking at uh at commodities sorry I've got here we here we go on the commodity story Now, what this is looking at is a ratio that I've long looked at and this is looking at the gold to oil ratio. Now, many of your viewers may be familiar with that. It tends to be uh a statistics that that economists dismiss as being irrelevant, but I think it's actually really really valuable. And if you look at the long run average, you can see there that it's averaged around about 20 times. Now, if we go back to 1970 when gold was 35 bucks an ounce and oil was about $2 and a bit uh uh a barrel, that gives you a pretty rough average of around about 20 times. If you look in 1990 with gold at 400, oil was then 20 20 time ratio. And if you look as recently as 2022, gold was $2,000 an ounce and oil 100 bucks a barrel. Now, that neatly gives you that 20 times ratio. What you see on the right hand side are two spikes and those spikes basically shot upwards and then came rapidly downwards within a basically a 2 to threeyear period but it looks like we're getting an adjustment now. If you look back historically uh there's one clear fact that emerges from this data and that is that when you get an adjustment of this ratio uh the adjustment tends to be oil prices going up not gold prices falling. And that's a very important consideration because if you say to if we ask ourselves the question what is the fair value for gold? I think many people would argue that around current levels seems to be fairly decent. So you know $5,000 per ounce if that's a given looking forward or at least a given. Divide that by 20 and what do you get? You get $250 a barrel for oil. Now, we presented this uh this idea uh a few weeks ago to a group of clients and they said, "You're just insane. That's never going to happen." Um I mean, absolutely ridiculous. Well, my point is, well, let's not take that as a forecast. Let's just look at the math behind it. And one of those three assumptions must be wrong. Either gold at 5,000 doesn't work. Either the ratio at 20 is now no longer relevant, but you've clearly got a long long history which shows that it seems to work. or the projection of an oil price at 250 is wrong. One of those three things is out. Now, I think that of those the softest is the the idea of oil at 250. That's the one that uh that is we've got to start exploring because it may not be 250. It may be 200. It may be, you know, 175 or whatever the figure is. Let's not dancing ahead of a pin, but let's just basically say this is telling us that commodity prices are generally going up. Think not oil, think copper, think aluminum. uh you know think fertilizers, think food prices, all these things are going up because we've had a monetary inflation and that's what the gold market is telling us. Now the interesting thing is that if you put this in context and what I've done is to merge the two previous thoughts that is what's happened to the global liquidity cycle which we repeat as the sine wave as that black line and then we show the gold oil ratio in log terms is red. Now, isn't it interesting that almost every time you see an end to the liquidity cycle, when that liquidity cycle goes down, the oil gold ratio tends to adjust lower. And one of the things that I said earlier was the adjustment is almost invariably oil prices, let's read, and other commodities going up and that's forcing the ratio lower and looks like it's happening right now. So, it's not geopolitics that may be driving the oil price up. clearly it's had an effect, but it's much more the underlying tenor of number one the robust world economy and number two the fact we've just had a big monetary inflation and probably we're going to get more because it was a path of least resistance and that's what we're seeing. So commodity prices I think are our role and they may be the factor that end this investment cycle but we're still in the midst of that rally. >> Michael, global financial institutions like the IMF had have adjusted their growth forecast for this year. they've adjusted them lower actually. Um, how does that fit together like what you're seeing in the liquidity cycles here versus what they're seeing? Like are they being guided by headlines or uh are they maybe misinterpreting the data? >> Well, I think they're being inter they're probably a combination of the two kind. I think the fact is that if you look at what I mean the markets are are rarely this wrong uh in terms of judging uh economics or the tempo of economies at least and I think everything that we look at seems to line up pretty well. uh with this picture. Okay. Uh what we're seeing is robust economic data now cast data which is very high frequency uh is coming out uh above expectations. Uh that's clear. Uh I've given you the evidence of what's happening in the US economy already. New orders look pretty robust. Uh you know latest sentiment surveys are clearly holding up pretty well. Consumer spending looks okay. Um etc. We're looking at strong commodity markets. Now you could argue that's geopolitics but I think it's more than that. Um and the within the market what you're seeing is evidence of cyclical strongly outperforming defensive stocks which you shouldn't be think we shouldn't be seeing if there's a recession upcoming. Uh and then on top of that what are the bond markets doing? What you're seeing is the one thing that most uh most forecasters didn't see January 1 which is the yield curves globally are beginning to flatten. Now that flattening uh is completely consistent with the picture we're looking at right now. Um and that is telling us that investors are basically starting to shift rotating out of financial assets more into real assets and probably more into uh defensive plays. So they're moving away from the high-risk financial stuff into something which is more which is more solid. And I think that makes sense. Um so you know the other question within that frame that one's got to ask is uh what's happening to the gold price? Why is gold is is gold going to remain elevated for some time? And my answer is I think it is because I think that comes back to China and China is doing something very different right now that maybe people don't fully understand. And that is China is devaluing internally the value of the yuan because it has to simply because of the debt burden that China faces is is too too immense. >> How how does that affect us here in the west? China devaluing the yuan like how does it keep China competitive um on on a global market? >> Well, let me let me just run through the the backdrop briefly of what's happening in China. The chart that I just put up is looking at the underlying return on capital in different regions or different countries worldwide. So you've got the Euro zone as the dotted line. You've got the red line, the US. Uh Japan is orange, China is black. Now if you look at what's happened to China, the returns on capital in industry have basically collapsed uh over the last 10 years, right? Uh they're now, you know, barely above or let's say they're matching US levels. US has revived. uh Europe is probably, you know, bumping along the bottom. Japan clearly had very high returns back in the 1980s. Those have since collapsed. So what you're looking at is that China, which is now on par with other economies. But why is it that that big return on capital has collapsed? And the reason is is the debt burden has been just too too much for China to swallow. And if you look at the debt burden, this is a parallel with what happened between Japan and China. Now just go go go back to this past this previous chart and look at the Japanese data in 1989 uh early 1990s. The return on capital in Japan collapsed through that period and what Japan was doing was basically taking on huge amounts of debt which was saddling the economy. And it's only been recently through abonomics and a huge monetization within the Japanese economy, evidenced by the collapse in the yen, that Japan has managed to get out of that huge debt burden. In other words, the BOJ was buying huge amounts of JGBs. Uh, and through that monetization, the yen has since collapsed. Now, the only way in a developed economy with a large credit system you can get rid of debt is not default it, but devalue it. So you've got to print money. This is the evidence for the debt liquidity ratio, the ratio between debt and the pool of liquidity in Japan and China uh over the last um you know uh 2030 years. And what you can see is the dark red line is what Japan has done. It has basically brought its debt liquidity ratio down by printing huge amounts of liquidity and that's how it's you know managed to dig itself out of the hole. China is in a similar situation and China is doing exactly the same thing or at least it has been up until maybe the Iran conflict. Um sorry let me u go to here. This is showing uh the injections by the PBOC into China's markets. Uh it's fallen off a little bit uh through the Iran conflict but this is looking at the yearon-year change in net liquidity. In the last 12 months, China has injected about $1 trillion dollars equivalent into its money markets. So to put that into perspective, the US did about two trillion after the GFC. So China is well on the way to matching what the US has done previously, but it's basically devaluing or trying to devalue the yuan internally. Now, who is the buyer of uh of gold worldwide? It tends to be Asians, but particularly Chinese retail. They're big big buyers. On top of that, which we'll come on to, the P PBOC itself is buying gold, but effectively what you're seeing is an internal devaluation uh of the yuan. Now, they can keep the pretend that they're not doing anything because they've got capital controls which are stopping any of that money flowing out. They've banned crypto which means it can't flow out through that channel. And the only vent it's got is domestic asset prices, i.e. the stock market or gold. and the gold market has basically been reflecting that. So in our view, what you've got to look at is the gold price in yuan, not in US dollars, because that seems to be what's going on. And my uh my uh proposition is that what's happening is they're moving the gold price up probably in 5,000 yuan steps. And this is what this chart is trying to show. And it's interesting, I think, that what you saw was the gold price in yuan bounce exactly on the 30,000 yuan level and it's now starting to make uh you know to reclim or retest those earlier highs. Uh it needs liquidity to do that. As I said, China has basically turned the tap off a tad uh through the the Iran tensions, maybe because it's uh it's sort of pondering what to do next, but I think it's going to have to start injecting a lot more liquidity into its system. And if you want the evidence against gold, this chart is showing what's driven the gold bullion price. This is looking at gold in yuan on the right hand side. Uh and that's shown in orange. The black line is PBOC liquidity. And that is the story. That's why gold is going up. >> No, it's fantastic. It's it's super clear why why that is happening. And you you shown a couple interesting slides. One of them, of course, was the rate of return there uh from China and the US. And I'm trying to make a segue to the S&P question that I phrased earlier here, Michael. Is is the S&P 500 perhaps the cleanest shirt in the hamper and the only home that is somewhat available for global liquidity right now given the geopolitical backdrop as well. Asia running out of fuel um and putting pressure on the markets over there. Is that really the only home right now? >> Well, I think the the to my mind, I mean, what we're looking at is a world where commodities are are run. I think that the home for global liquidity is going to be increasingly into real assets. Uh and therefore I think within stock markets you've got to veer towards resource stocks still. I think there that's where the momentum clearly is. So what I would uh argue is that that is basically the channel. Now why is the US getting impetus right now? uh you know I would say that there are two reasons for for that and let me just maybe to move back into uh sorry move into the pres move back in the presentation just show >> and Michael maybe you can throw in as well because we talked about capital leaving the US around the tariff tandrum as well um just out of political spite perhaps as well so maybe we can connect those two dots >> yeah I think that the I mean a lot of the concern that people have have got is that we're looking at the demise of the dollar or the end of the I just think that's that's nonsensical. There's no way that this is going on. And I think that if you look at uh you know, if you look at why the why the dollar is such an important currency, it's because it's the it's it's the currency of invoicing that most people will use and it's the currency of lending that most bankers will lend will lend uh you make loans in. So at the end of the until that changes, the dollar is still going to be the main currency worldwide. uh whatever central banks at the margin decide to do with their reserves, that's kind of irrelevant. Uh they're really responding in many cases to other factors. They need to diversify reserves. But ultimately, if you look at, you know, where the opportunities are, the opportunities, I think, are very clearly in the US uh in terms of long-term opportunity. I mean, what why invest in Europe? Because of the given the challenges Europe's got. Uh and I think that you know the US is uh is where you've got most opportunities to in terms of investment and that's really where uh from a stock market investment point of view you've got the you've got the the the sort of the the big technology stocks which are clearly going to attract more money in the future. So I would say that's that would be you know my counter to that argument in terms of what the of what the US is doing to if you like to cement and embed that process. The US is trying to stabilize its markets and what I would argue and this may be a contentious point uh you know upcoming given the uh the appointment of uh or the pending appointment of chair Walsh of the Fed is that you know what's really important in the US system now is not so much setting Fed funds rates it's much more about maintaining stability in the Treasury market because the Treasury market is so big and collateral is so important in terms of lending and what I've shown here is the move volatility index. Now, many people in equity space will look at the VIX index of equity volatility, but that's not really the most important variable. Uh the bond market volatility is a much much more important statistic, and this is showing it. Why is it so important? It's important for two reasons. Number one, that the federal government in the US is getting a lot of its uh support from hedge funds who are doing so-called basis trades. And those hedge funds are buying cash treasuries uh and they're effectively arbiting between cash treasuries and futures. So they're shortselling futures and they're basically uh non-cash treasuries. And that trade depends on low volatility. If volatility spikes that trade is vulnerable. So that's point number one. That would affect adversely the bond market and the ability of the US government to fund itself. The second point is that global liquidity is is now collateralbased. Something like 80% of all lending worldwide requires collateral and the bulk of that collateral is US treasuries. Therefore, you need stability in the bond markets. This is showing US Treasury volatility. This is far more important in my view than Fed funds rate. Uh and this is what I think the Treasury is deliberately controlling. What this next chart illustrates is uh this latest or the last spike that you can see in the move index is what happened during Iran. And this next chart is illustrating what the treasury is doing. This is something called treasury buybacks. And treasury buybacks are one way that the treasury can contain volatility in the bond market. Issuing a lot of bills clearly helps, but this is buying back uh what are called off the run or stale uh stroke illquid issues in the market and replacing them by new uh shiny new uh issues which are much more liquid and institutions prefer. And that is one way to actually control volatility. What this what the little box is saying is that each 10point increase in the move index has led to an increase in treasury buybacks uh from the US Treasury of almost 30 billion. Uh and that's showing one of the ways they're capping things. So in other words, what you've got going on is a put in the repo and bond markets or the bond volatility markets and that is one of the things that's underpinning the US system. So the Treasury and the Fed have been active in actually trying to smooth the waters if you like on Wall Street and that's one of the factors that has helped the market to rebound strongly uh in the last few weeks. >> That is hugely insightful. We never talked about that uh those data points uh previously I think and uh cuz I was wondering like why why does the U US tenure for example stay somewhat stable given given the macroeconomic and geopolitical backdrop as well like it it tried to break out but it was reeled in rather quickly and now we know sort of the answer to why and how it was reeled in I would assume is that a fair statement there Michael >> exactly right and then you can see another piece of evidence which is looking here at um the repo markets which is a corollery of what's happening in the move volatility index. This is the other side of it. And this is looking at repo spreads. So minus interest and overnight reserve balances shown here, the spread. Look at the big spikes that you've seen at the end of 2025, early 26. And then look at the response that the Federal Reserve has made uh to counter that. Now this chart may be a bit wonkish, but let me just try and explain what's happening. The black line is the inverted version of that previous chart uh looking over the last year or so. So, it's exactly the same data. It's looking at the sofa spread and as that line uh goes down, the black line goes down. That's a positive spike upwards on the earlier chart. The orange line is looking at excess reserves of banks. And what happened at the end of 2025 is the excess reserves of banks plummeted and they were basically about 400 billion below where the banks wanted. uh now by series of of moves such as the RMP which is the reserve uh management purchases and the new QE tool of the Fed which was introduced late last year uh plus changes in bank regulations uh such as the uh the elimination the gradual elimination of the ESLR uh what enabled is banks to actually uh restore liquidity or restore u minimum levels of liquidity quite easily And effectively what the Fed stroke Treasury have done. If you look from the trough to the peak of this chart is they've injected something like $600 billion effectively back into markets. Another reason why you've had stability on Wall Street. Uh uh question is does that persist into the medium term? My view is that what we're seeing is at best uh a rangebound market on Wall Street through this year. Uh that's a view I had you know January 1 and that's the view I still take. I think that's what we're looking at and therefore within the market you've got to be carefully selective and focus on what is what is where the momentum is which I think is definitely in the resource stocks >> 100% our audience will love you Michael uh in in Frankfurt in a couple of weeks here really really looking forward to hosting you there super insightful I got tons of follow-up questions of course but I think we'll do that in person in Frankfurt and we'll record of course another interview in Frankfurt as well because I want you know I've made a couple follow-up questions here that I'll ask you in person there. We got to leave people with a bit of a cliffhanger here so they they tune in or show up in Frankfurt in a few short weeks time as well. Michael, in the meantime, like this was hugely insightful, especially the the part about the buybacks um and the the 600 billion injection because the official number I heard was of the nonQE part was $40 billion. So um not $600 billion. >> It's a little more than that, >> right? So we'll we'll dissect that number together in the in in Frankfurt. In the meantime, where can our audience follow more of your work, Michael? >> Well, I think the most straightforward channel is um Capital Wars Substack Guy. That's that's one uh one great way. We uh we publish about two or three times a week uh using data and narrative uh to communicate. And then the other way is website. We do a lot of uh data analysis. Uh you can get data feeds. GLindexes.com is the best route for that. >> Fantastic. Awesome. Michael, really appreciate your time. I I could chat with you for hours. Super insightful, especially a lot of data that nobody else has. So, really appreciate it and can't wait to see you in Frankfurt, Michael. Really looking forward to that. >> Absolutely. And everybody else, thank you so much for tuning in. Super super insightful. Michael touched on a few points that we've never discussed here on this channel. Just talking about the the buybacks and uh just buying back some old debt and replacing it with new is really interesting because again, a completely new data point for us and our audience here. If you enjoyed this conversation, hit that like and subscribe button. Helps us out tremendously grow the channel. But also, if you haven't done so, subscribe to our to the Do not subscribe, but sign up for the Deutsche Goth. Join us in Frankfurt. It is free for investors to attend. There won't be any online part. Yes, we will upload the keynote presentations and company presentations afterwards, but there will be a delay. And uh I already hear you complaining like was recorded two weeks ago. Well, come to Frankfurt and you won't have that delay. So, thank you so much for tuning in and uh don't let emotions run your investments for you. Take care.