Global Liquidity, Debt, and the Four Horsemen

Here’s a number that should get your attention: 25%.

That’s the potential drop in global financial liquidity that Michael Howell, managing director at GL Indexes and author of Capital Wars on Substack, sees taking shape right now.

I sat down with Michael this week, and what he laid out was sobering. We covered gold, China, oil, bond markets, and more—but the thread running through all of it was liquidity and how it’s drying up at the worst possible time.

Let me back up for a second because “liquidity” is one of those terms that gets thrown around in financial media without much explanation. Michael puts it simply: Modern financial markets aren’t about raising new capital anymore. About 80% of all primary transactions globally are now about refinancing existing debt. Roll it over, keep the lights on, repeat.

The system runs on circular logic. Debt needs liquidity to get refinanced. But liquidity itself is collateralized—roughly 77% of all global lending is collateral-based. Liquidity needs the integrity of that debt to function. Break either side of that loop and you’ve got a problem. Michael calls this the “debt-liquidity nexus,” and it’s one of the most important concepts for an investor to understand.

Four Horsemen at the Gate

So, what’s threatening that loop? It comes down to four key drivers, which Michael calls the “Four Horsemen of the Liquidity Apocalypse.” Ominous, sure, but the data backs him up. The charts Michael walks through in this week’s episode help clarify how past periodic and sharp financial crises in markets surfaced… and how new ones can form.

Where do things stand now?

For starters, most central banks globally don’t have a dual mandate like the Fed. They have one job: control inflation. And with commodity prices climbing, inflation is likely heading higher, which suggests tightening is coming, not easing.

Then there’s the fact that oil prices are spiking. Energy is an enormous absorber of liquidity; the working capital intensity of tankers, transit, and storage soaks up financial capacity that would otherwise fund debt rollover.

On top of that, the US dollar has been strengthening, which is a global liquidity headwind.

And finally, there’s bond market volatility. Michael notes the MOVE Index, aka the “VIX of bonds,” which has been surging and forces lenders to demand bigger haircuts on collateral, shrinking the amount of lending per dollar of collateral.

All four working against you at once—that’s where we are.

And here’s the trap: Central banks need to tighten to maintain their inflation-fighting credibility, but the system is groaning under a massive wall of debt that needs to be refinanced—much of it termed out during the COVID-era zero-rate bonanza and now coming due.

Scarce liquidity meeting enormous refinancing demand. That’s not a formula anyone wants to see.

What the Cycle Says

Michael tracks a global liquidity cycle with a frequency of roughly 65 months, and it has been remarkably consistent going back to the 1960s. According to his data, that cycle peaked at the end of Q3 2025 and is now heading down.

His framework maps the cycle onto four investment “seasons”—rebound, calm, speculation, and turbulence. His read? The US market has been in the late speculation phase. Turbulence may be next.

“Is the bull market over?” Michael asks. “I think it probably is.”

And this isn’t about one geopolitical event. It’s about the structural reality of a system where liquidity is the oxygen and the supply is being cut.

Are there safe havens in this environment? Michael’s answer: dedicated monetary-inflation hedges. Gold and silver, for starters. Not as trades but as core holdings you own for the long haul. He also makes a strong case for raising cash and moving into the front end of the yield curve.

Michael digs deeper into specific allocation moves in this week’s Global Macro Update. You can watch our full conversation here. You’ll want to see and hear Michael walk through the charts himself.

Click the image above to watch my full interview with Michael Howell.

Other topics discussed include:

• The gold-to-oil ratio: a long-term equilibrium measure that currently implies oil could be heading to $250 a barrel

• China’s monetary expansion: why the People’s Bank of China (PBOC) is printing at an accelerating pace; what it means for the yuan gold price; and why Shanghai, not London, is now the marginal gold price setter

• The bond market signal everyone’s misreading: how falling term premium is telling you demand for safety is surging, even as rates rise

• Japan’s role: why the yen carry trade may be far less important than the market thinks

• A full asset allocation roadmap tied to the liquidity cycle, including which sectors to own and which to dump at each phase

A transcript of our conversation is available here.

You can subscribe to Michael’s Substack, Capital Wars, here.

Thank you for watching and reading,

Ed D’Agostino

Partner & COO