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Michael Howell Interview Summary
Why does global liquidity matter for gold and silver?
Global liquidity became a focus when markets turned international, and capital flows started moving rapidly across continents. Salomon Brothers emphasized understanding these flows to grasp bond market movements. Liquidity is cyclical, with a five to six-year cycle tied to debt refinancing, unlike the traditional 10-year business cycle. This cycle influences markets significantly and is more crucial than interest rates, as shown by events like COVID-19 and the 2008 financial crisis.
How would you invest $1 million?
It depends on the investment horizon. For a short-term horizon, asset allocation would differ from a 10 or 20-year perspective. The trend now is fiscal dominance, meaning central banks serve government funding needs, leading to monetary inflation. This environment requires a shift from the traditional 60/40 equity-bond mix. Instead, investors should reduce bond exposure and increase holdings in assets like gold and real assets that perform well in inflationary times.
Will gold be part of the new 60/40 portfolio?
Yes, I’m more positive on gold and also on crypto, particularly Bitcoin, which acts as a modern equivalent of gold. While gold acts as a monetary standard, crypto provides liquidity indicators. Governments may resist giving in to gold’s dominance, recalling measures like the 1934 Gold Act. Despite risks, demand for gold is rising globally, especially in countries like China and Russia. It’s wise to diversify and consider potential government actions affecting gold holdings.
Are we at the beginning or the end of a cycle?
The business cycle may peak around 2026, while the liquidity cycle could peak a year earlier. We’re likely in the early stages of this business cycle, with distortions like fiscal spending and China’s economic slowdown. These factors affect global growth and commodity markets. However, as China increases spending, we can expect a stronger global economy. I foresee a yield curve steepening, indicating growth. Overall, we are at the start of an upward trend in the business cycle.
Will fear be pushing gold and silver higher?
Gold’s movement is more about monetary inflation than uncertainty. Gold serves as a benchmark for monetary value. When paper money devalues, gold appears to rise, but it’s more about currency decline. We expect continued devaluation of paper assets due to government commitments. While inflation drives gold up, liquidity hasn’t yet boosted gold equities significantly, possibly due to short-term market behavior and generational preferences for assets like Bitcoin.
Why isn’t liquidity coming into gold stocks?
Several factors might explain this, including short-term market behaviors and generational shifts towards assets like Bitcoin. Gold’s rally is still early, and equities often lag behind price movements. Institutional capital plays a role, but index funds dominate the market now, emphasizing momentum. Gold equities are small in indices, but they could grow with rising momentum. It may take time, but once momentum builds, institutional interest will likely follow.
Will institutional capital come back into gold stocks?
Yes, but it’s complex. The market structure has changed, with index funds and specialized products dominating. Gold equities could benefit from momentum once price rises. As institutional investors focus on specific sectors, retail investors’ actions and advisor recommendations drive momentum. While institutional capital may take time to return, once it does, it could lead to significant growth in gold equities.
How long is this cycle expected to last?
Differentiating between liquidity and business cycles is crucial. The business cycle might peak in 2026, while the liquidity cycle could peak a year earlier. We’re likely in the early stages, with fiscal spending and China’s economic activities influencing the global economy. As China increases spending, global growth may strengthen. The yield curve is expected to steepen, signaling economic growth. Overall, this cycle is in its early stages, with growth potential ahead.
Will central banks keep buying gold?
Yes, central banks will continue purchasing gold due to geopolitical factors and trade surpluses. Countries like China, Russia, and others are accumulating gold to diversify reserves away from US assets. While China aims to reduce reliance on the dollar, gold offers an alternative. This ongoing demand from central banks supports rising gold prices, as the market cannot absorb these flows without price increases.
Will the dollar remain the world’s reserve currency?
The dollar’s status as the world’s reserve currency remains intact. Despite challenges, the Bretton Woods system still dominates, with the dollar at its core. Floating exchange rates have reinforced the dollar’s dominance. No viable alternative exists, and China’s currency is constrained by capital controls. The dollar’s position is secure, but future challenges may come from non-paper currencies like Bitcoin or gold.
Will China keep investing in natural resources?
Yes, China’s involvement in Africa’s natural resource market is strategic. China’s economy is imbalanced, with the state controlling significant income. Growth relies on government spending and exports. China seeks opportunities outside its domestic market, making resource-rich regions like Africa attractive. This strategy aligns with China’s need for resources and aligns with its broader Belt and Road Initiative.
Does Michael Howell own gold stocks?
Personally, I invest in gold ETFs and miners, diversifying to mitigate risk. It’s essential to spread investments across themes and avoid concentration. Diversification is vital in higher-risk areas, including geopolitical risks. Investing around fiscal dominance and monetary inflation, gold remains a key hedge. Other hard assets, such as real estate and commodities, also serve as inflation hedges.
Which jurisdictions does Michael Howell not like?
Monetary stability is crucial when investing in commodity-rich countries. Countries like Zimbabwe, with political and monetary instability, pose risks despite resources. African nations, facing competition from China, are stabilizing, offering investment potential. However, stable environments like Canada, the US, and Australia provide politically and monetarily stable options for resource investment.
What is the biggest challenge in global macro?
Currency issues are central, especially concerning the dollar and the Chinese Yuan. The Chinese Yuan is structurally overvalued, conflicting with traditional trade surplus theories. As a dollarized economy, China’s trade surplus supports the dollar’s strength. China’s efforts to reduce dollar reliance will take decades. Currency dynamics remain a crucial aspect of global macroeconomic challenges.
Michael Howell Full Interview (VIDEO)
In this in-depth interview with Michael Howell, CEO of CrossBorder Capital, we explore the significance of global liquidity in today’s financial landscape. Howell discusses the implications of liquidity cycles on asset allocation, the future of the traditional 60/40 portfolio, and the potential roles of gold, crypto, and real assets in a fiscally dominated world. He provides insights into the current state of the global economy, including the role of central banks, the impact of monetary inflation, and the strategic importance of China’s financial policies.
Key takeaways include the importance of adapting investment strategies to align with fiscal dominance and the potential rise of gold and crypto as critical components of future portfolios.
