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

In a podcast interview on July 19th, Michael Howell, founder of CrossBorder Capital and a liquidity specialist, stated that the core indicator tracking global liquidity momentum peaked in the fourth quarter of last year and has been decelerating ever since. This means the liquidity tailwinds that previously propelled stock market gains are fading. Continuing to bet on the old logic will entail increasing risk.

Within Howell's asset rotation framework, the market has now entered a "speculative phase"—characterized by strong commodity performance and a bear-flattening yield curve, both aligning closely with his model. He warns that the commodity trade has been active for 12 to 15 months, which, according to his cyclical map, is a feature of a late-cycle stage, not an early-cycle signal.

Analysis suggests that for portfolios still heavily weighted towards commodities, Howell's framework implies a need to closely monitor the next switching point—from commodities to cash, and then to long-duration government bonds—rather than assuming the current trade can sustain compound growth.

The 65-Month Cycle: An Unmodified Curve for 25 Years

Howell's analytical framework is built upon a core tool: a 65-month global liquidity cycle. He first fitted this curve using Fourier analysis in 2000 and has never re-estimated its parameters since.

This adherence is not stubbornness but is supported by independent verification. It is reported that the Foundation for the Study of Cycles independently input his data into their own algorithm and arrived at the exact same 65-month cycle figure, providing cross-institutional validation for the curve.

On this data foundation, CrossBorder Capital currently tracks approximately 90 financial systems, collecting about 30 data series per country, and increased the data update frequency to daily nine months ago.

With over three decades of experience in this field, Howell's core thesis remains consistent: money flows precede economic fundamentals and geopolitics in driving market prices.

Howell emphasizes that his judgments are based on the rate of change in liquidity, not its absolute level. On the 65-month cycle, momentum bottomed in late 2022, subsequently recovered, peaked in the fourth quarter of last year, and has since begun to decelerate.

This distinction is crucial. Even if the absolute size of global liquidity remains high, the inflection point in momentum alone is sufficient to alter the relative performance ranking of assets. It is precisely this turning point that drives his asset allocation adjustments.

A Fixed Rotation Sequence: From Equities to Commodities, Then Cash and Long Bonds

Howell overlays a fixed sequence of asset rotations onto the liquidity cycle:

During the rising liquidity momentum phase: Equities lead the gains.

Near the cycle peak: Commodities reach their zenith.

During the momentum decline phase: Cash outperforms risk assets, while volatility in risk assets increases but returns diminish.

At the cycle bottom: Long-duration government bonds perform best.

According to this sequence, the optimal window for equities occurred during the rising liquidity momentum phase, and that stage has passed. The current "speculative phase" sees strong commodities coinciding with a bear-flattening yield curve, matching the model's predictions perfectly. The commodity trade has persisted for 12 to 15 months, which in Howell's framework is a classic feature of a late cycle, not an early one.

It is noteworthy that Raoul Pal, founder and CEO of Global Macro Investor (GMI), has constructed a similar underlying logic in his "Everything Code" framework—the global liquidity cycle drives all risk assets at a similar frequency, making it costly to go against the tide.

However, a key operational divergence exists between the two. Within the long-term narrative of currency debasement, Pal opts for a structural long position on risk assets. Howell's near-term judgment, in contrast, is that liquidity momentum has already begun to wane, and now is not the time to increase risk exposure.

In a nutshell, they are using the same engine, but Pal is keeping it in high gear while Howell has already started downshifting.