Liquidity expert Michael Howell: Global liquidity has peaked, the best window for the stock market has passed

The global liquidity cycle is turning, and the golden window for asset allocation may have closed.

Michael Howell, founder of CrossBorder Capital and liquidity expert, stated in a podcast interview on July 19 that the core indicator tracking global liquidity momentum peaked in the fourth quarter of last year and has since continued to decelerate. This means that the liquidity tailwind that previously drove the stock market rally is fading, and sticking to the old logic will carry increasing risk.

Under Howell’s asset rotation framework, the current market has entered the "speculation phase"—commodities are strong, and the yield curve is bear-flattening, both of which are highly consistent with his model. He warns that commodity trading has been ongoing for 12 to 15 months, and according to his cycle map, this is a late-cycle characteristic, not an early-cycle signal.

Analysis suggests that for portfolios still heavily allocated to commodities, Howell’s framework implies a need to closely monitor the next rotation point—from commodities to cash, then to long-duration government bonds—rather than assume that current trades can continue to compound returns.

65-month cycle: a curve unchanged for 25 years

Howell’s analytical framework is built on a key tool: the 65-month global liquidity cycle. He first fitted this curve using Fourier analysis in 2000 and has not recalibrated the parameters since.

This persistence is not stubbornness, but is backed by independent validation. Reportedly, the Foundation for the Study of Cycles independently input his data into their proprietary algorithm, and ultimately produced the exact same 65-month cycle figure, providing cross-institutional confirmation of this curve.

On a data foundation, CrossBorder Capital currently tracks about 90 financial systems, collecting roughly 30 data series from each country, and nine months ago increased their data update frequency to daily.

Howell has worked deeply in this field for over thirty years, and his core thesis remains unchanged: monetary liquidity precedes economic fundamentals and geopolitics, driving market prices.

Howell emphasizes that his judgment is based on the rate of change in liquidity, not the absolute level. On the 65-month cycle, momentum bottomed out at the end of 2022, then rebounded, peaked again in the fourth quarter of last year, and has since begun to slow down.

This distinction is critical. Even if the absolute scale of global liquidity remains high, a turning point in momentum alone is enough to change the relative rankings of asset performance. It is precisely this inflection point that has driven his asset allocation adjustments.

Fixed rotation sequence: from stocks to commodities, then to cash and long-term bonds

Howell overlays a fixed asset rotation sequence onto the liquidity cycle:

• Liquidity momentum rising phase: Stocks outperform;

• Near the cycle peak: Commodities reach their peak;

• Momentum declining phase: Cash outperforms risk assets, risk asset volatility rises, but returns fall;

• Cycle bottom: Long-duration government bonds perform best.

According to this sequence, the best window for stocks appears during the liquidity momentum upturn, and that stage has already passed. The current "speculation phase" features strong commodities and a bear-flattening yield curve, perfectly matching the model’s forecast. Commodity trading has persisted for 12 to 15 months, and within Howell's framework, this is a typical late-cycle, not early-cycle, feature.

It is noteworthy that Global Macro Investor (GMI) founder and CEO Raoul Pal has constructed a similar underlying logic in his "Everything Code" framework—the global liquidity cycle, at similar frequencies, drives all risk assets, and going against the tide can be very costly.

However, there is a key difference in execution. Pal, under a long-term currency depreciation narrative, chooses to structurally go long risk assets; whereas Howell’s recent judgment is that liquidity momentum has already started to fade, so now is not the time to add risk exposure.

In a nutshell: Same engine, Pal stays in high gear, Howell is already shifting down.