Episode summary
Michael Howell: Pain Now, Money Printing Later
Monetary Matters
· · Hosts: Jack Farley · Guests: Michael Howell
Summary
Michael Howell argues that the global liquidity cycle has already turned down, peaking in late 2025 after a roughly three-year advance, and that markets are moving from a speculative phase into a turbulence phase. In his view, this late-cycle setting favors defensives, longer-duration government bonds, healthcare, and energy, while small caps and credit are already showing strain. He says the AI buildout is not a source of liquidity but a major consumer of it, with hyperscaler financing needs approaching $1 trillion a year and much of the funding now coming from markets rather than cash flow.
A central theme is that modern finance is built around refinancing, not just new capital formation. Howell says the debt-to-liquidity ratio matters more than headline debt levels, because debt needs liquidity to roll over. He argues that the Fed and Treasury are managing funding stress through reserve management purchases, a larger bill share in Treasury issuance, and buybacks that reduce volatility in the collateral system. He sees this as a quiet form of accommodation rather than overt QE.
Looking ahead, Howell expects a slower economy to emerge into 2027, with that slowdown helping set up a more benign Fed posture. He is not calling for an immediate recession, but he thinks the probability of a marked slowdown has risen. On assets, he remains constructive on bonds relative to the past decade of ultra-low yields, and he expects Treasury policy and Fed balance-sheet management to stay supportive of market stability rather than aggressively restrictive.
Key takeaways
- Howell says the liquidity cycle peaked in late 2025 and is now rolling over, which he thinks favors defensives and longer-duration government bonds.
- He argues AI capex is a liquidity drain, not a liquidity source, and that hyperscaler financing needs are now close to $1 trillion a year.
- He says the Fed and Treasury are prioritizing funding-market stability through reserve management purchases, bill-heavy issuance, and buybacks.
- He expects a slower economy into 2027, but not necessarily an immediate recession, and sees that slowdown as the path to easier policy.
- He thinks the Fed balance sheet will be larger by 2030, not smaller, because rising debt requires more central-bank capacity.
Notable quotes
“the liquidity cycle is going down. I mean, that that's for sure. It peaked in late 2025”
“The AI buildout is draining liquidity and Michael How says the global liquidity cycle has turned”
“We're talking at maybe not quite at a trillion dollars but we're getting pretty close to a trillion dollars both this year and next year”
“debt needs liquidity to roll itself over. In other words, for refinancing because of this term issue”
“the Fed is trying to maybe trying to understand that and maybe trying to fight that”
How the episode opens
I always hence in the second half of 2027 for an inflection in the liquidity cycle and that's what the normal tempo would say but it may well be that this occurs sooner given these developments.
The AI buildout is draining liquidity and Michael How says the global liquidity cycle has turned. He's calling for a sharp slowdown in 2027 for Bitcoin to retest 70,000 for bonds to beat stocks and a bottom in liquidity by late 2027. Monetary Matters viewers get 20% off an annual subscription to Michael Howell's Capital Wars Substack.
Link in the description. First, a word from today's sponsor. This episode is brought to you by Sarmia Partners, who manages the Return to Tangibles ETF, Lens, ticker lens ns, the Seraya thematics ETF, built for a return to tangibles.
Learn more at surmayaf.com, and see the show notes for disclosures. Let's get into it. I'm joined once again by the liquidity godfather Michael Howell of the Capital Wars Substack.
Michael, great to see you.
Always a pleasure to be here.
How are you thinking about markets right now? Just had the Fed meeting, some balance sheet announcements, but how are you measuring liquidity across the various indices that you look at central bank liquidity, crossber, private sector, the rest, and then its implications for asset markets. Just give us a broad view to start out Well, I think the broad picture is that the liquidity cycle is going down.
I mean, that that's for sure. It peaked in late 2025. That was after an upward run of pretty much 3 years.
So, it's inflicted downwards. And the important thing to say is that this is really measuring the growth of liquidity into financial markets. So, it's not looking at the level.
The level is still relatively high.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai liquidity drain
- debt maturity wall
- fed balance sheet
- bond volatility and yield curve
- bitcoin and gold outlook
Companies and tickers mentioned
- Sarmaya Partners
- CoreWeave
Watch the episode
Watch “Michael Howell: Pain Now, Money Printing Later” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Monetary Matters, this episode and its artwork belong to Jack Farley. Octagon is not affiliated with the show; this page is an independent summary.
