Can't Stop, Won't Stop: The Sheer Force of the Fed's QE (w/ Michael Howell and Ed Harrison)

TL;DR

Central banks are injecting an unprecedented amount of liquidity into markets, which is buoying asset prices. There are concerns over potential inflation and the shift towards a multi-polar world with China challenging the US. The dollar may weaken, and currencies like the euro and gold could benefit.

Transcript

ED HARRISON: Welcome to Real  Vision Live. I am your host today,   Ed Harrison, here for Real Vision. I am talking  to Mike Howell of CrossBorder Capital. Mike,   welcome to the show. MIKE HOWELL: Thank you. Great,   great pleasure to be here. Hiya. ED HARRISON: But we're going to talk   about liquidity, actually. I was thinking  about the story yo... Read More

Key Insights

• 🐎 Liquidity injection by central banks is unprecedented, with a much larger scale and speed compared to previous periods, including the global financial crisis.
• 🧑‍🏭 Factors such as inflation, underinvestment, and changing dynamics in the US-China relationship are important to consider when analyzing the future direction of markets.
• 🐻‍❄️ The shift towards a multi-polar world, with China challenging US dominance, may impact currency dynamics and trade relationships.
• ⚖️ The balance between liquidity and inflation will be crucial in shaping future investment strategies, as well as the potential for stagflation in the current economic environment.

Questions & Answers

Q: How long can the current liquidity surge in markets continue?

The surge in liquidity is driven by central banks, and their commitment to injecting liquidity suggests it can continue for some time. However, potential inflation and the need to refinance debt may lead to changes in liquidity policies in the future.

Q: Which asset classes are most affected by liquidity and why?

Liquidity primarily affects fixed income and forex markets, with about 80% of their movement driven by macro fundamentals, including liquidity. In contrast, about 80% of stock market movement is influenced by psychology and behavioral factors.

Q: How does liquidity impact global perspectives on inflation?

The surge in liquidity poses the risk of higher inflation rates in the future. Leading indicators such as supply delivery times, interest rates, and the ISM survey suggest the possibility of rising inflation about 12 months out, particularly if the liquidity surge feeds into the real economy.

Q: What is the impact of steepening yield curves on equity markets?

Initially, a liquidity surge leads to a steepening yield curve, which can increase risk appetite and elevate equity markets. However, as the curve continues to steepen and fixed income yields rise, it could become a problem for equities, as higher interest rates may constrain future growth.

Summary & Key Takeaways

• Central banks are pumping an enormous amount of liquidity into markets at a rate unseen before, driving asset prices higher.

• The massive injection of liquidity, combined with the underinvestment in certain asset classes, is increasing risk appetite and buoying equity markets.

• However, the steepening yield curve and potential inflationary pressures pose challenges for the future, especially as central banks may reduce liquidity and interest rates, leading to volatility in financial markets.