Nov 4, 2026 · 1h 5m
Liquidity slows as AI investment competes with financial markets
The Liquidity Cycle Has Turned | Michael Howell on What It Means for Investors
Michael Howell argues that slowing liquidity, heavy refinancing needs, and debt-dependent markets could make the next several years unusually fragile for investors.
- 1Global liquidity has peaked, shifting the backdrop from broad asset support toward more selective and defensive positioning.
- 2AI investment is strengthening the real economy while competing with financial markets for scarce capital and liquidity.
- 3A growing debt-refinancing burden could force central banks into renewed support, raising systemic risks rather than resolving them.
Don't miss
Michael Howell warns that a debt-dependent financial system could face a major crisis within the next several years if refinancing pressures outpace new liquidity.
The brief
Michael Howell tells Justin Carbonneau that global liquidity growth has already peaked, creating a tougher backdrop for financial assets even as AI earnings remain strong.
Howell defines liquidity as the flow of funds through financial markets, where Wall Street now competes with Main Street as companies redirect cash toward AI capital expenditure.
His framework links roughly five- to six-year liquidity cycles with asset allocation: declining liquidity favors defensive positioning, while bonds may regain appeal as risk assets lose support.
The sharpest warning concerns refinancing: markets increasingly use liquidity to roll over existing debt, leaving the system vulnerable if central banks cannot provide another rescue.
Howell also sees China’s debt problems as a longer-term support for gold, while Europe’s institutional constraints weaken its position in the AI capital competition.
What was said on this episode
37 statements · 9 positive · 21 negative · 7 neutral
Gold prices will rise substantially as liquidity supports them.
“extremely bullish in my view for the gold price.”
Listen at 1:22
Global liquidity growth peaked in late 2025.
“we've already seen the peak of the cycle, at least in terms of the growth rate of liquidity that occurred in late 2025.”
Listen at 2:55
Slowing liquidity growth makes asset gains more difficult.
“that's making asset gains a lot more difficult.”
Listen at 3:19
AI increasingly supports markets, but that support may eventually end.
“the market is being increasingly sort of held up by the monotrade, which is AI. And that may well be coming to an end at some stage.”
Listen at 3:45
Capital-intensive industries are cyclical.
“capital-intensive industries are always cyclical.”
Listen at 4:01
Debt-to-liquidity above 200% creates serious refinancing problems.
“if you look at a level of debt to liquidity above about 200%, you start to get really, really serious problems in terms of refinancing problems.”
Listen at 8:46
Financial-market liquidity and real-economy strength move inversely.
“when liquidity is strong, the real economy is weak. And when the real economy is strong, liquidity is weak.”
Listen at 9:34
The liquidity cycle is currently between speculation and turbulence.
“right now, we think we're on the cusp between speculation and turbulence.”
Listen at 11:35
The turbulence phase is unfavorable for risk assets.
“when you get to turbulence, that's not a great time for risk assets.”
Listen at 11:53
Long-duration government bonds tend to perform best during turbulence.
“the best assets for that regime tend to be things like non-dated government bonds”
Listen at 12:07
Global liquidity cycles average approximately 65 months.
“there's actually a fairly constant cycle that lasts in length, that lasts about 65 months or in last 65 months on average, which is between five and six years.”
Listen at 13:11
The Federal Reserve is decisive during financial crises.
“if you've got a financial crisis, then the Federal Reserve is all important.”
Listen at 20:18
The Treasury and Federal Reserve are operating closely together.
“the Treasury and the Fed are really, I'd say, joined at the hit.”
Listen at 22:00
The Federal Reserve is reluctant to tighten monetary conditions.
“this is a Federal Reserve that is reluctant to tighten.”
Listen at 23:55
Risk assets will increasingly underperform as liquidity tightens.
“as the liquidity cycle continues to tighten, so risk assets will increasingly underperform.”
Listen at 26:48
Investors should consider bonds because the cycle is late.
“this is exactly the time we should be thinking about bonds right now. because we're moving very late cycle.”
Listen at 28:28
Commodity indexes rose approximately 40–50% during the year.
“the commodity indexes are up sort of 40, 50% for the year”
Listen at 29:01
Technology earnings will prove cyclical again.
“I think the same is going to happen again.”
Listen at 30:57
Capital-intensive businesses are cyclical.
“any capital intensive business is cyclical”
Listen at 32:48
Major technology booms have historically ended with financial crises.
“Every major technology boom that you look back in in history, has always ended it with some sort of financial crisis”
Listen at 33:13
The real-economy cycle lags the liquidity cycle by 15–18 months.
“the real economy cycle follows the liquidity cycle. uh by around about 15 maybe 18 months”
Listen at 33:42
Authorities have responded to post-GFC crises by injecting liquidity.
“we've seen since the GFC, the response of the authorities to any crisis has been thrown liquidity at the system.”
Listen at 36:59
Advanced economies face approximately $50 trillion in debt refinancing.
“we're talking about a total roll of something like $50 trillion for advanced economies.”
Listen at 39:51
Another debt-refinancing crisis will occur because debt grows while liquidity cycles.
“My view is yes, because that's the nature of the system. Liquidity is cyclical. Debt is growing exponentially. So it's going to happen again.”
Listen at 43:04
Monetary-inflation hedges will perform well after renewed liquidity injections.
“it will mean that monetary inflation hedges perform well”
Listen at 43:23
Bitcoin would perform strongly after another liquidity response.
“you would expect that Bitcoin would be a very strong performer”
Listen at 44:07
A major financial crisis may occur within the next two to three years.
“probably in the next two years, three years, you've got a real chance of a major financial crisis.”
Listen at 49:32
U.S. long-bond yields should approach 6% absent radical economic change.
“the long bond should get to 6, plus or minus a term premium”
Listen at 54:37
China is experiencing severe economic weakness and likely debt deflation.
“China is suffering really badly. And it's probably seen debt deflation”
Listen at 56:09
The United States has won the capital war with China only in 2026.
“It's only won it in 2026, Justin, yeah.”
Listen at 57:20
Europe currently has very low ability to commercialize innovation.
“the ability to innovate is zero or very, very low.”
Listen at 58:48
“you've definitely got a slower growth environment”
Listen at 1:01:10
China needs to address its debt problem.
“China needs to do something about debt.”
Listen at 1:01:31
China’s internal debt devaluation would strongly benefit gold prices.
“That is extremely bullish in my view for the gold price.”
Listen at 1:02:17
China will eventually devalue its debt internally.
“it's going to happen.”
Listen at 1:02:29
Aggregate P/E multiples are unreliable for evaluating stock markets.
“if you start to think about PE multiples at the aggregate level, you're going to fail badly.”
Listen at 1:03:30
European stock markets have consistently underperformed U.S. markets despite lower valuations.
“European stock markets are cheaper than the U.S., but every year pretty much consistently they've underperformed.”
Listen at 1:03:41
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
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