Veteran strategist Michael Howell warns that the global liquidity cycle is now entering a sharp contraction phase. He believes this raises the chance of a long downturn in equity markets. Speaking on the MacroVoices podcast, Howell said liquidity conditions are weakening fast and that this shift is ending what he calls a speculative bubble in US stocks. He expects a correction that may last for the next 2 to 3 years as liquidity continues to be withdrawn from financial markets. He also expects gold and bitcoin to act as hedges since governments may turn to money printing and currency debasement to handle rising debt loads.
Howell’s view is based on his framework of global liquidity cycles. He believes these cycles, which reflect how capital flows through world markets, strongly influence how asset prices behave. According to his research, liquidity cycles usually last around 5 to 5.5 years, which lines up with the average maturity of global debt. The current cycle began around the start of the pandemic in 2020, which places markets near the end of the expansion phase. Howell estimates global debt is now near $350 trillion. With average maturities in mind, about $70 trillion needs to be refinanced every year. He says this constant refinancing rhythm creates a predictable liquidity pattern that is now clearly moving downward.
He also sees warning signs showing up already. Repo market tensions have been rising in a way that reminds him of 2019. He views this as an early alert of tightening liquidity. Historically, the S&P 500 reacts to liquidity changes with about a 6 month delay. Because of this, he believes pressure on stocks could get stronger soon as the contraction deepens.
Even though he is cautious on equities, Howell says some sectors tend to perform better in late cycle liquidity contractions. Commodities and mining stocks often benefit because investors look for real assets and inflation hedges when liquidity tightens. His wider macro view is shaped by what he sees as the unavoidable long term trend of money expansion. With global debt still rising, he believes governments have very few options to manage refinancing stress. Printing more money becomes the easiest choice, especially when political pressure increases around election periods. He points to Japan and China as examples where heavy debt issuance led to monetary deflation and currency weakening. Central banks let exchange rates fall so economies could cope with the burden. He believes similar situations may appear in other countries as debt levels rise.
Looking ahead, Howell expects a new wave of quantitative easing by 2026. He thinks the weakening of fiat currencies will make alternative stores of value more appealing. In his view, both gold and bitcoin will play key roles. He forecasts gold could reach $10,000 per ounce by the mid 2030s as inflation and global money supply continue to grow. He sees bitcoin as a supporting hedge rather than a competitor, even though bitcoin has recently fallen about 30% from its all time high.
Politics may also affect near term liquidity conditions. With US midterm elections less than a year away, Howell thinks policymakers will focus on supporting households rather than financial markets. He mentioned President Donald Trump’s recent comments about possible $2,000 household checks as an example of this shift. As liquidity continues to shrink, Howell believes equity markets could face several years of difficulty. He expects more investors to move toward hard assets as financial conditions tighten.
