Michael Howell: Countering the Global Liquidity Crunch

Published on
August 22nd, 2019
26 minutes

Michael Howell: Countering the Global Liquidity Crunch

The Expert View ·
Featuring Michael Howell

Published on: August 22nd, 2019 • Duration: 26 minutes

Michael Howell, founder and managing director of Crossborder Capital, joins Real Vision to talk about his views on global liquidity and capital flows. He says that the global economy is sputtering, and that central banks will have to reengage in quantitative easing in order to inject liquidity into markets. Howell argues that this will ultimately lead to rallies in equities, gold, bonds and bitcoin. Filmed on August 7, 2019 in London.



  • GR
    Grant R.
    26 August 2019 @ 06:45
    Terrible music, do we really have to be assaulted with this negative harmful bad vibrations?
    • dm
      david m.
      11 September 2019 @ 18:21
      really bro?
  • BD
    Brian D.
    30 August 2019 @ 16:27
    Michael - this was excellent. I was curious through what specific financing mechanism do you view the gap between FF and term premia as effectively tightening financial conditions? As a measure of desire to hold safe assets it certainly makes sense, is the logical connection to financial conditions that people are holding safe assets at the expense of funding more risky endeavors or assets, hence tightening overall conditions?
  • MN
    Michael N.
    26 August 2019 @ 01:41
    top notch content thank you Mr. Howell and real vision. would a steepener example just be a bull steeper playing the NOB spread? thank you
    • MH
      Michael H. | Contributor
      26 August 2019 @ 10:33
      We’re equivocal about bull or bear steepener. The key fact is that term premia are absurdly low and any normalisation will hit long yields more that short term rates. There is a reasonable chance the entire term structure could fall, but better odds would be a pick-up in bond volatility.
  • RM
    Robert M.
    25 August 2019 @ 18:10
    Risk assets should rise but they could also collapse. Brilliant.
  • GF
    Gordon F.
    25 August 2019 @ 04:14
    Excellent presentation. And a huge THANK YOU for adding a voice-over to the questions, rather than just flashing them up on the screen. For those of us who prefer to listen to these, this is a HUGE improvement. I've been asking for this for a long time. Thanks for listening!
  • JC
    JP C.
    23 August 2019 @ 04:47
    In regards to Michael's and George F comments. I'm not sure I follow the full implications. Simply stated : Michael does this imply that the current Fed funds rate is too high by circa 500 bps? If not... where do you think the Fed funds rate ought to be based on your analysis? I ask because I've seen a number of economists saying rates are too high, Fed over tightened as well as others saying r* estimates are also too high etc etc.
    • MH
      Michael H. | Contributor
      23 August 2019 @ 11:03
      Our point is that rates matter more in a ‘new financing’ system than in a ‘refinancing system’ where b/s critical. Judged by term premia data FF is really 300-400 higher in practice than it appears. Either rates cut or b/s expands... our expectation is some of both with may be 100bp or rate cuts. Fed liquidity injections through August have already jumped!
    • JC
      JP C.
      24 August 2019 @ 01:55
      Thanks Michael. I hope I'm staying on topic...my thoughts jump to in overly simplified form 1.) Lacy Hunt -Diminishing marginal returns of new debt/b/s in over-indebted economies 2.) David Rosenberg - Pushing on a String that both the absolute level but more the Delta in rate cuts becomes less and less effective at these level of rates, debt levels, length of econ expansion. In summary you need more and more (exponentially more) of both to achieve the same level of "net stimulus". In other words both are becoming increasingly less effective...? Do you agree? Beyond short term impulse (how effective on money supply, velocity ?) what are the longer term outcomes, risks, unintended consequences of more credit like stimulus? I think we need another 1 hour video.
  • FA
    Frank A.
    23 August 2019 @ 16:21
    The FED can't print money.
    • CB
      C B.
      23 August 2019 @ 22:24
      They can print currency!
  • KJ
    Kelly J.
    22 August 2019 @ 15:02
    I thought this was a great presentation, and liked the fact that it provides an alternative narrative to the one I'm following in my investments, which are heavily in the 'bond trade' at the moment, holding a very large slug of long Treasuries. Along with Raoul, I'm betting on either a Doom Loop or a more intense selloff/recession (which would be one of the 'crevasses' Howell talks about, triggered by the extreme flows into US Treasuries and/or the funkification of US corporate debt that he refers to as counter-narratives). It's always good to hear a good counter to your perspectives and an itemization of what to keep an eye on to gauge whether your narrative or a counter narrative seems to be taking hold going forward. I have to say I remain utterly amazed that so very few talking heads across the financial world seem able to get beyond seeing the exponential growth of negative bonds around the world - now supposedly over $17 trillion worldwide & growing $1 trillion/month and over 40% of all bonds outside the US[!!] - as anything other than a central bank manipulation to create liquidity, boost asset prices and growth, as Howell seems to. If we think of markets as actually ultimately self-organizing instead of controlled by central banks, (the opposite of Howell's narrative) the meaning of the massive growth of negative rate bonds globally is quite clear in simple bond terms: global bond markets are pricing in a global economic contraction that may extend for many years into the future - the destruction of capital, the forcing of money into risk assets, which by definition generate partial loss of capital in a world not creating new capital, (Howell says there's no new capital). That dire outcome certainly may not happen, but I'm struck by the fact that almost all financial market players and analysts are so embedded in views that predict and require economic and asset price growth, they seem constitutionally unable to talk about a durable global depression/contraction and the chaos that would accompany that as a possible scenario. That's why I appreciate Raoul putting his 'Doom Loop' on the table, whether it plays out that way or not. As rates go negative for the first time ever, we just aren't going to be able to kick the can forever, so potential Doom Loops and crevasses should increasingly be a possibility to keep in mind and hedge against until the world starts to reflect the hard limitations of the completely absurd notion that central banks printing money by pressing buttons can fix what's wrong with the world, including the investment world.
    • WM
      William M.
      22 August 2019 @ 16:06
      Outstanding comment, Kelly!
    • BM
      Bryan M.
      23 August 2019 @ 03:06
      Well thought out comment Kelly. You should hit on Raoul for a job! Anyway, your comments at the end about central banks, money printing et al have to happen as the CBs have no other acceptable choices so therefore, I am afraid we are all headed for Germany 1923.
    • RA
      Robert A.
      23 August 2019 @ 13:59
      Thoughtful comment Kelly and you expressed what many of us who have become familiar with Raoul’s doom loop may have had in the back of our minds. Personally I’m not sure exactly how much power and control the CBs may ultimately have, but I guess we are going to find out shortly. One the one hand I’m reminded of the old saw “you can make a Pig jump, but you can’t make it fly” and on the other...well maybe we will all wind up in a new Matrix. Excellent comment Kelly and that’s why I’m spending more time in the comments section—which might have been part of the platform engagement that the RV Founders intended.
    • WM
      Will M.
      23 August 2019 @ 18:40
      Kelly I am with the others here. Very lucid comment. However, be assured you are not the only one who is "utterly amazed".......
  • SS
    Steven S.
    22 August 2019 @ 22:00
    Was Bitcoin developed by Goldman Sachs (Highlands Group)? These guys seems to have dug up some interesting stuff -----with patent crumbs and other facts all cited as back up: https://aim4truth.org/2019/08/20/goldman-sachs-is-the-creator-of-bitcoin/ Where's Mark Yusko on this? Lets get RV to shine some light on these shady areas.....either way fellow RV's -if you are building a position you simply must look at all angles of the story. IMO
    • TM
      The-First-James M.
      22 August 2019 @ 23:41
      Managed to almost get through the first video before I stopped playback out of sheer exasperation. These guys come across as conspiracy theorists who see Goldman Sachs around every corner. Their assertions are full of generalisations and hyperbole (all Bitcoin Exchanges are corrupt, etc...), and it's clear the concept of the decentralised architecture is beyond them. They keep asserting that it must be centrally controlled, and Goldman Sachs holds the lever. Given the intellectual firepower working on Bitcoin core development, coupled with the fact the entire code base is open source, if there was any link in the code to a centralised controller, better minds than mine would have found it by now. Annoyed with myself for wasting my time listening to conspiracy theorists like these guys. They've clearly never used one of any number of legit Crypto Exchanges... Maybe the Goldman Sachs - Highland Group link is worth exploring, but most of this comes across as straw grasping - especially given that most of the referenced patents were filed in 2017. Maybe somebody with more patience than me can take the time to follow the various alleged linkages, but that first video completely put me off from even attempting to try.
    • SS
      Steven S.
      23 August 2019 @ 15:37
      I agree with you on the video delivery format -but don't shoot the messenger without looking at the core of the message. They bring up the risk of the "missing" 780,000 Satoshi bitcoins being used by clowns (aka real creators- ?) to crash the price on a massive scale at the worst possible time for investors....kind of like a 'Charles Ponzi' release value. You have to admit -that's a risk that should not be discounted..especially if the creators have government connections......timing could be quite negative for price. Speaking of the Highlands Group...Look into one of the investigators on that article/video - Michael McKibben of Leader Technologies, unreal claims about corruption in US patent law....but they seem to back it with some creditable documentation and certainly some strong circumstantial evidence. Now if REALVISION took some time to give these guys a platform - now that would turn some heads!
  • WB
    William B.
    23 August 2019 @ 13:28
    Anyone know what those three "red lines" were from the Chinese back in May? The trade issues which are no longer negotiable??
  • RH
    Robert H.
    22 August 2019 @ 12:43
    I misunderstood one of his points. He said bonds are risky, in part because pension fund managers are going to come under great pressure to buy bonds?? This makes no sense. What did I misunderstand?
    • KJ
      Kelly J.
      22 August 2019 @ 14:27
      I think he's saying there's a dual dynamic, Robert (actually, he's saying that about his whole positive liquidity, positive for financial assets narrative - that there are 'crevasses' that can flip his positive liquidity narrative into negative crash/breakdown scenarios). He says he thinks as rates go down, there's an increasing gravitational pull that fund managers - especially pension fund mgrs with long term liabilities to feel they have to buy longer duration bonds, even at low yields, as you say, in order to have safe long term assets to meet long term needs. If that pull creates a 'black hole' gravitational pull, it could flip liquidity and equities into a crash scenario is my interpretation, while bonds fly higher. But he thinks that's a 'crazy investment' that's short term and risky, because the generally increasing liquidity and easier financial conditions he expects often or usually cause fear of inflation and higher rates that hit bonds and longer duration bonds in particular. So, longer duration bonds could drop a fair amount if deflationary/liquidity/collateral squeeze sentiment eases or reverses into its opposite, a perception of increasing liquidity. I pay a lot of attention to this dynamic because I've got portfolios with 20-30% long US Treasuries, including zero-coupon T-bonds that are up 30%+ in the last 4-5 months. My guess is that he's too sanguine about central banks being able to liquify markets, about equity prices rising, and bonds reversing to raise long rates. We've got a world that is pressing further into negative bonds - 40% of all bonds outside the US are negative rate now apparently - that's a very threatening, deflationary wave IMO. However, I appreciate Howell's well-articulated view as the narrative that I and my long bonds have to beware of. I'm going to let the market tell me how to trade my bonds from here, and when and if to take profits, not talking heads.
    • MH
      Michael H. | Contributor
      22 August 2019 @ 15:41
      Negative yield make no sense long-term and the more that PFs are 'forced' to buy now, the bigger the future 'snap back'
    • HK
      Hari K. | Contributor
      22 August 2019 @ 15:51
      When rates go down, the *present value* of liabilities goes up, forcing pensions to hedge rate risk more aggressively
    • ST
      Steven T.
      22 August 2019 @ 19:18
      For me, imho, it is easier to express the deflation view through shorter term bonds like at the 2y point. It will capture the monetary easing that will have to take place and avoid the potential steepening effect in the curve where the long end doesn't move much. The playbook of monetary easing with fiscal austerity that was used to deal with the 2008 financial crisis will likely not be repeated. QE can be thought of as one large asset swap, where the central banks took in some really questionable assets and swapped them for pristine CB reserves. This alloweed CB to provide a backstop to the system and kick the can down the road This is not to say all banks are fixed because it doesn't seem European banks have fully cleaned out everything yet. Instead it seems like fiscal policy will take front and center, once policies begin to be enacted. From the BIS speech: Time to ignite all engines ...monetary policy cannot be the engine of higher sustainable economic growth. More realistically, it is better regarded as a backstop. The plane cannot fly on one engine only; it has to ignite all four. Economic performance continues to rely on extraordinary support from central banks, even with global growth that is still sound. Thus we need a better balance between monetary policy, fiscal policy, macroprudential policies, and structural reforms. Fiscal authorities can help where space is available. Factors such as the levels of public and private debt will influence whether and when to use fiscal policy, as well as the appropriate balance with monetary policy. When the scenario presents itself, fiscal policy should be used judiciously to boost sustainable growth, supporting aggregate demand with targeted and temporary expansions. In the process, it is important to avoid the trap of carrying out procyclical policies. And often it is best to undertake structural fiscal reforms, like reducing the bias of tax systems in favour of debt or strengthening automatic stabilizers.
    • KJ
      Kelly J.
      22 August 2019 @ 22:04
      It's worth considering that if we do end up in a synchronized global recession - a definite possibility, before long, we could have a LifeAlert global economic situation, "I fell down and I can't get up!" Then the language around the role of national fiscal stimulus and infrastructure programs might be a little more desperate than reflected in the gentle descriptions of fiscal action from the BIS, which sound a little like a laxitive commercial: "When the scenario presents itself, fiscal policy should be used judiciously to boost sustainable growth, supporting aggregate demand with targeted and temporary expansions." Clears that stuffy, 'oversupplied' feeling and boosts your aggregate demand. Gently. Overnight! So you wake up feeling light and refreshed in the morning. ;-)
    • ST
      Steven T.
      23 August 2019 @ 12:13
      Lol... agreed that after a global synchronized recession, the fiscal stimulus will not be gentle at all. It would not be surprising they throw the kitchen sink at it globally. My guess is after the US election, the starting point of discussions for US fiscal stimulus package will begin at 2T. Also, would love for RV to have an interview between Ed Harrison and Paul McCulley discussing fiscal and monetary cooperation. They both have written a bit about the subject.
  • LW
    Lorenz W.
    23 August 2019 @ 09:21
    One interesting comment Michael made was the idea that there could be a “scramble for natural resources” (think mission-critical resources such as uranium, rare earth metals, etc.). We can already see some first signs (see uranium’s 85% drop and now the petition 232, etc.)! Interesting stuff!
  • TS
    Trevor S.
    22 August 2019 @ 18:06
    Great video but this is assuming the Fed begins easing. What happens if they hold onto their EFFR view?
    • MH
      Michael H. | Contributor
      22 August 2019 @ 18:39
      Balance sheet is more important than rates. And the two are largely independent with FF set in a corridor fixed by ODR and IOER.
    • DS
      David S.
      22 August 2019 @ 21:57
      I on several other discussion on RVTV it has been said that the main reason for the yield inversion is the carry trade and $16 trillion dollars of negative yields. The slowing of manufacturing is real, but only 15% of the overall US economy. Negative press could lower consumer spending and force more bad decisions by investors. DLS
    • DS
      David S.
      23 August 2019 @ 02:20
      Sorry - in several discussions ...
  • LM
    Leighan M.
    23 August 2019 @ 02:14
    More of this guy please! Very clearly spoken and well explained! To the point!
  • CL
    Charles L.
    22 August 2019 @ 09:07
    Mr. Howell, you suggested the US (as other central banks) will have to start QE in order to increase liquidity in the system to stop the USD shortage and to fight this currency war (basically a race to the bottom through currency devaluation). In previous presentations you mentioned you studied USSR economic dynamics too. Would it not be in US's interest, assuming they stand in a stronger (less fragile) economic condition, to NOT apply such stimulus, let the USD rise and break China's economic growth with all its implications in order to avoid further future and more evenly matched conflict? Or is the US not prepared to take such actions? i.e. US psychology would be "fight now and on our terms"
    • HS
      Hubert S.
      22 August 2019 @ 12:56
      good question but he already provided the answer implicitely: he assumes - probably but not necessarily correctly - that DJT wants to be reelected in 2020 and has no use for a deep recession here and now .....
    • MH
      Michael H. | Contributor
      22 August 2019 @ 15:43
      As a 'game strategist' right on! But there could be a lot of near-term pain ahead of an Election year?
    • JS
      John S.
      22 August 2019 @ 19:24
      Other dynamic in the game theory is that Fed wants to maintain independence and Powell not likely to remain Chair beyond the next election. A Fed that retards needed liquidity to preserve itself is an instinct carrying a reasonably high probability in my view
  • RM
    R M.
    22 August 2019 @ 15:40
    Excellent talk Michael! Would like to ask, when the liquidity starts to flow, which of the global assets has the most upside alpha (gold, EEM, oil, etc).
    • MH
      Michael H. | Contributor
      22 August 2019 @ 16:10
      Crypto, EM, gold
    • RM
      R M.
      22 August 2019 @ 18:57
      Thank you!
  • DH
    Dabangg H.
    22 August 2019 @ 18:30
    Thank you for reading out the topic "aloud". It helps to listen during driving.
  • GF
    George F.
    22 August 2019 @ 17:16
    He said: term premia, the premium that investors prepared to pay for long-term debt, long-term Treasury debt in the US, compare that to the Fed Funds Rate. The collapse in term premier is equivalent to a significant or it implies a significant monetary tightening. And that monetary tightening could be equivalent, on our estimates, to a Fed Funds Rate which looks at around about 5% points. So way, way above reported levels. Where is that 5% from? Fed Term Premis web page: https://www.newyorkfed.org/research/data_indicators/term_premia.html
    • MH
      Michael H. | Contributor
      22 August 2019 @ 18:02
      When you plot the term premium adjusted for inflation inverted and alongside FF since 1990 you will see the relationship. The recent yawning gap suggests excess demand for ‘safe’ assets and is equivalent to circa 300-400bp of tightening
  • KO
    Kieran O.
    22 August 2019 @ 16:21
    Michael is one of the best guests RV has. Wonderfully nuanced view. Thanks for bringing him on!
  • TC
    Tom C.
    22 August 2019 @ 11:48
    Mike always brings it
  • BS
    Ben S.
    22 August 2019 @ 08:45
    Bring Richard Koo on the show!
  • SS
    Shanthi S.
    22 August 2019 @ 07:35
  • BH
    Bernard H.
    22 August 2019 @ 07:23
    Top drawer analysis
  • CD
    Chris D.
    22 August 2019 @ 07:02
    Fantastic video, two fantastic videos in two days! Bravo :)
  • JW
    Jason W.
    22 August 2019 @ 06:26
    The 5th bullet point is the same as the 3rd when summarising at the end.... or is it twice as important 😎?
  • JW
    Jason W.
    22 August 2019 @ 06:05
    When ever I see Mr Howells name come up I have to drop what I’m doing and watch what his take on current events are! It’s people like Mr Howell which make me a subscriber!