The Collapse in Global Liquidity

Published on
October 10th, 2018
25 minutes

The Collapse in Global Liquidity

The Expert View ·
Featuring Michael Howell

Published on: October 10th, 2018 • Duration: 25 minutes

Global liquidity is falling at the fastest pace since the great financial crisis, according to Michael Howell of CrossBorder Capital. Amid flat yield curves, collapsing emerging market equities, and weak gold and commodities prices, Howell also details the decline global risk appetite, which he believes is poised to spread to U.S. markets. Filmed on October 10, 2018 in London.


  • RH
    Robert H.
    4 September 2019 @ 12:09
    Most interesting viewing past analysis, October 2018 (Dow joins rest of world and bottoms at Christmas) and the call here for yield curve steepening. We ended up with bond price steepening. The argument to that will be to blame the Fed. Whilst capital flows are a leading signal, what's left out was consideration for the need for yield. Did the Fed not take into consideration the fixed income markets vs the low cost loans? Obviously they did, tried raising rates and many cried so they changed their minds. Let's screw the grandparents who depend on yield to help the economy, (and social security) they can just sit at home, wash the car and hang the laundry, Grandma and Grandpa don't have a lobby group. Either way the Fed is stuck. I still don't see how even a 2% hike will change much except for those balancing on the edge anyway, like the government itself. I think it's too late for the Fed, politicians are gonna screw this up somethin' bad. Corporate debt/assets may be the last thing to worry about.
  • dm
    david m.
    16 July 2019 @ 16:41
    Would be cool to have a downloadable chart-pack.
  • DH
    Dean H.
    14 October 2018 @ 10:13
    What I would give to work for and learn from this man.
    • zy
      zhang y.
      15 October 2018 @ 21:27
      you can start to track liquidity by looking at the data of central bank balance sheets inyection and withdrals, mainly us, europe, china and japan
    • MC
      Matt C.
      4 February 2019 @ 07:03
      As of February 2019 it's astonishing how correct these calls have been.
  • CN
    Christian N.
    16 October 2018 @ 13:18
    Please add voice over to your questions. I have seen many viewers suggest this. I assume, that like myself, many viewers are actually listeners.
    • WS
      William S.
      16 October 2018 @ 23:45
    • SS
      Shanthi S.
      3 December 2018 @ 11:36
      Agreed. I listen while working and rarely view.
  • DY
    Damian Y.
    11 October 2018 @ 05:07
    So China want to do seigniorage, which is printing a $100 bill and paying 25cents for the printing cost so they make $99.75. What a great way to expand an economy, like what could go wrong with that?
    • ah
      ahmed h.
      12 October 2018 @ 04:20
      na just same as wat US does - usd is printed and held overseas - doesn't come back to US - china wants same thing -- so do i actually!
    • BP
      Brandon P.
      17 October 2018 @ 20:00
      Pretty manageable scenario, really. All China has to do is secure its food & energy supply lines, ensure its African colonies are behaving (e.g. pricing all commodities in Yuan), reduce US oil imports and price Russian oil imports in Yuan, and keep the money-printing machine alive to fund OBOR (which is really a mechanism to spread Yuan circulation. In the meantime, all that China needs from the US is to remove USD from circulation. AKA higher rates. It's all in place, let's see how the cards play out.
  • AS
    Andrew S.
    13 October 2018 @ 19:29
    Excellent interview. Agree 100% with his view of the yuan and what China is trying to accomplish. IMO that is the backdrop to pretty much everything that is happening in macro economics and geo-politics. Would very much like to hear Michael comment on China and Russia's relentless purchases of gold and how that plays into what China is attempting to accomplish.
  • PG
    Philippe G.
    13 October 2018 @ 17:19
    Excellent. Many related topics covered in ~25 minutes. Love videos like this!
  • ER
    Ernesto R.
    13 October 2018 @ 15:04
    Great interview, I loved the concept of volatility starting in forex, migrating into fixed income, and ending into equity mkts. Exactly what we have been witnessing over the last 6months. Bring him periodically back...great mind!
  • AG
    Adam G.
    10 October 2018 @ 21:06
    This is a remarkable piece of and profit
    • BM
      Bryan M.
      12 October 2018 @ 21:18
  • NG
    Nick G.
    11 October 2018 @ 11:16
    This was a much more seminal interview than the one with Stan D. That was interesting and amusing. This one attempts to actually teach people the spread relationships that one learnt when trading at Salis, which was head and shoulders above everyone else put together in the prop trading field. There is a sequence to volatility transmissions and it all happens via the yield curve. The whole market is a series of butterfly relationships. Thank you, Mike. Happen to agree with you 100%. Probably the most important interview ever done here. Doubt people will agree with me, but that is a good thing.
    • Nz
      Nicholas z.
      11 October 2018 @ 20:49
      affirmative! that was a great interview. Michael attempted to explain how a lot of the links work, what the Macro trends are and he also made some trade suggestions. very interesting.
    • BM
      Bryan M.
      12 October 2018 @ 21:15
      This one's gonna require a couple of more listens as he is hard to listen to but also, what a ton of info for an old guy to absorb! However, it was well worth the effort.
  • FB
    Floyd B.
    11 October 2018 @ 21:50
    Good background information but I am always wary of someone that prefaces a great long-term outlook or trade ie. china,japan emerging markets with but watch out for the next six months.
  • MS
    Matt S.
    11 October 2018 @ 20:12
    I wish the "Japan stock market as proxy" idea could have been expanded on... seems like the only way non-institutional traders can trade this! (if so desired)
  • SZ
    SALEH Z.
    10 October 2018 @ 13:07
    Pretty good. Just a few things he could have clarified 1. What is he using to calculate global liquidity? Seems pretty arbitrary since there is no specific index to my knowledge and it’s likely not as simple as just the bid offer spreads in liquid asset classes like SPX and the USD pairs 2. History suggests yield curve flattening occurs when the economy hits peak velocity and stocks have done extremely well. But the slow down is usually 12-18 months away not imminent. 3. On the yen and japan - perhaps I misunderstood - the yen is a pro cyclical ccy now yet the BOJ is monetising the debt? Didn’t make sense....
    • MH
      Michael H. | Contributor
      11 October 2018 @ 06:11
      Flow of credit and savings thru World financial markets. Calculated by summing together Central Bank injections, private sector (banks, shadow banks, corporate cash flow and household savings) and cross-border net inflow. Global total US$125 trillion; US and China both around US$30 trillion. World GDP at US$80 trillion. See our website
    • MS
      Matt S.
      11 October 2018 @ 20:08
      Nice domain name, Michael! ;)
  • HH
    Hall H.
    11 October 2018 @ 13:15
    Smart guy! Too hard to understand.
  • MT
    Mike T.
    10 October 2018 @ 10:02
    over an above the factors the speaker refers to affecting Liquidity, as a generalization there needs to be a concerted effort to educate particularly European politicians and regulators that having multiple HFT Market Makers competing for order flow from Brokerages is highly desirable. It is particularly important for retail traders that orders are NOT routinely routed to 'The Exchange' . Only the US seem to have embraced the benefits to everyone of enhanced liquidity from active HFT Market Makers. Personally if I see a spread wider than $0.50 I steer clear. Using SPY as a bench mark, during regular hours your Broker should be showing spreads of a penny wide and no more. Ask your Broker where your orders are routed to, what Market Makers they use and if unable to get an answer consider changing.
    • SL
      Stephen L.
      10 October 2018 @ 11:27
      Couldn’t agree more. This is a benefit that is largely misunderstood in the public. I’m curious, what is Europe specifically not doing that the US isn’t? I work at a market maker and my understanding is that they have competing market makers similar to the US but the order flow is just much more thin (ie capital being gambled with is just less)
    • MT
      Mike T.
      10 October 2018 @ 14:55
      one specific example of European regulators apparently not appreciating the benefits of liquidity were seen with the introduction of new regulation back in June this year The effect was to stop European retail investors having access to US listed ETF's. It was probably an 'unintended consequence' of poorly thought out legislation. I have an ongoing email dialogue with a 'suit' at the Commission in Brussels where so far they have simply said its all part of MIFID and European investors should use equivalent European listed underlyings. But with smaller product selection and lower levels of liquidity particularly for Europe listed etfs, European investors are actually disadvantage by a regulation designed to offer protection. The cynic in me has wondered if the unstated real objective is too limit retail capital flow from Europe to the US. To date my representation to EU Commission bureaucrats that to force investors into less liquid markets is a real negative has fallen on deaf ears. It's quite possibly due my own limitations to explain myself but they appear to have little idea of how markets actually work and the enormous benefits of liquid markets.
    • GS
      Gordon S.
      11 October 2018 @ 00:04
      @Mike T.: I had this issue too, but ironically, it is very easy to circumvent it... Here are the options proposed by Interactive Brokers after inquiry: "1) Only opening trades are restricted. Holding or closing the position is permitted. 2) We have CFDs on most of the US ETFs. 3) European equivalent funds exist, you can search for them on the websites of the ETF issuers. 4) Options exist on many of the US ETFs and these are not restricted including acquiring the position through exercise and assignment. The OCC has provided KIDs. (That option is particularly funny...) 5) Futures exist on many of the US ETFs. The OCC has provided KIDs. (KIDs = Key Information Document (EU regulation preventing the buying of foreign ETFs), OCC = Office of the Comptroller of the Currency (?))
    • GS
      Gordon S.
      11 October 2018 @ 00:07
      @RV Team: And please reallow formatting... If this "bug" is somehow a feature that is supposed to restrict reply length, then I would suggest introducting a more adequate rule... (e.g. max number of characters). Thanks!
    • MT
      Mike T.
      11 October 2018 @ 09:44
      in response to Gordon T. You are absolutely correct in methods to circumvent e.g. Options. As a little more background info. Using real time market data for IVV (US listed) and CSSPX listed on Eurex LSE (both ETF's are iShares Core S&P500) both denominated in USD i.e. identical products, I showed the folks in Brussels my Brokers real time pricing when both European & US markets were open how the spreads for the Eurex listed UL were 400% wider than the equivalent NYSE UL. To date they simply will not comment on the negative liquidity 'effect' of the legislation. All they have done is send me a link to information on MiFID.
  • RM
    Robert M.
    10 October 2018 @ 23:22
    His global liquidity charts are always zoomed out 40 years, without vertical lines showing annual dates, and without any asset series. Never says what the composition of GL is, even in broad terms. Frustrating.
    • MH
      Michael H. | Contributor
      11 October 2018 @ 06:30
      See my earlier reply to a comment or our website
  • sw
    shaun w.
    10 October 2018 @ 12:44
    What does Michael mean (in a time range of years) by short term, medium term and long term?
    • MH
      Michael H. | Contributor
      11 October 2018 @ 06:07
      Short term up to 6 months Longterm 3-5 years and longer. Medium term in between
  • DR
    David R.
    11 October 2018 @ 01:47
    Good one and nice length too. I agree, the divergence amongst international equity markets for 2018 is likely to close in part by US markets correcting. Until the gutless Fed pumps up the sickly economic patient with another shot of QE steroids. Will it work again? Greg Walden said nope, that it'll crash the dollar and create a moonshot for gold. We'll see.
  • SF
    Simon F.
    10 October 2018 @ 09:48
    Incredibly coherent and well argued thesis based on decades of academic and real world experience. This is the kind of incisive contribution that puts an ocean of clear water between RV and the others. Is he right? We will see. What we do see now is a thesis that we can compare with others espoused elsewhere in RV, and make up our own minds. Terrific stuff guys!
    • SL
      Stephen L.
      10 October 2018 @ 11:29
      Does anyone know how to gamble on rate volatility without access to otc structured products? Nancy Davis didn’t like TLT as a proxy. Thanks
    • SZ
      SALEH Z.
      10 October 2018 @ 13:09
      Buy straddles on TLT prob the only way if retail I am guessing
    • JO
      JOHN O.
      10 October 2018 @ 13:30
      If there is an option or futures contract on the Merrill Lynch MOVE index, which is essentially the VIX for rates, you can use that. But I don't know if such an animal exists. Also Proshares has a number of inverse ETFs that track various bond indices. Then there's always Atlantic City and Las Vegas, and the odds might be better. Keep in mind what happened to the masses that were in the short-vol (VIX) trade earlier this year. These are not markets for the faint of heart. And if you have a day job and cannot keep an eye on your positions, or have your algo do the same, you might want to sit this one out. Good luck though! Let us know how it goes.
    • PD
      Peter D.
      10 October 2018 @ 22:52
      Agreed. But your comments are hardly "Hotly Debated," The RV guy is that is producing those red labels needs to get a grip.
  • MN
    Maverick N.
    10 October 2018 @ 22:12
    Original. Excellently articulated. We should get Mike to keep coming every six months or so!
  • CW
    CC W.
    10 October 2018 @ 17:13
    How can there be a money shoot-out between the USD and RMB if the belt & road fail? Didn't Pakistan went to the IMF and get dollar loan to fend off Chinese debt invasion?
    • AP
      A P.
      10 October 2018 @ 19:39
      This is a key issue very few are talking about. As far as African concessions were given, the matter was kept quiet. Except now, 'strategic' infrastructure is being handed-over on debt to equity swap basis. And that's how Sri Lanka just handed over the management of their port until 2114 (yes, 100 years). Both the US and EU are paying close attention to this and launching their 'initiatives' - // . Let's see which country is next facing this issue.
  • AM
    Alonso M.
    10 October 2018 @ 18:25
    Some really good insight into the long-term consequences of shifting monetary policy in China. I liked this a lot.
  • NH
    Neil H.
    10 October 2018 @ 17:24
    Very well thought out and articulated
  • AR
    Abishek R.
    10 October 2018 @ 16:12
    Can somebody please tell me how I can track the "Merrill Lynch Open Volatility Move Index" ? Cannot seem to find it on tradingview.
  • VC
    Vince C.
    10 October 2018 @ 14:26
    Really enjoyed Michael Howell's thinking and approach to the topics. Some new things learnt and some things I'd already come to the conclusion of although spoken here much more concisely than I could have.