Summary

Michael believes China is going to inject lots of liquidity into financial markets and right now we’re seeing a major inflection in the global liquidity cycle. Michael is saying that 2023 is about getting the dollar down a tad, and getting the effective Fed balance sheet up, in other words the amount of liquidity in the system. Right now, he argues the global liquidity cycle is inflecting upwards. Michael expects because of that, the major stock and bond markets will be largely range-bound through 2023 with some upward bias towards the end of the year. What you will see are some very strong areas of absolute return, which is the unusual feature. Michael suggests outperformance is going to be related to things like a weaker dollar, the China reopening and stimulus, and stronger commodity markets. Michael points out that the central banks globally have woken up to the idea that they've got to maintain the integrity of their sovereign debt markets. That wakeup call last September, Michael thinks has caused policy to change. What we can see is a very deliberate flatlining of U.S. bank reserves and federal liquidity. If you put everything together, we are at the trough of the six-to-seven-year global liquidity cycle.

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