MacroVoices #477 Michael Howell: Are We Approaching A Debt Refinancing Crisis
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This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna.

Macro Voices Episode 477 was produced on April 24th, 2025. I'm Eric Townsend.

Cross-border capital CEO Michael Howell joins me as a first-time feature interview guest. Michael's firm specializes in analysis of credit markets, but not by the textbook approach of analyzing individual securities, but rather through a lens inspired by the real-world wisdom that the availability of credit is determined more by the market's need to lend than the borrower's ability to repay.

We'll discuss cyclicality of credit markets, why we should think of them as a refinancing system rather than a credit origination system, and what we can learn by taking this street-smart approach to credit market analysis to heart. And I'm Patrick Ceresna with the Macro Scoreboard, week over week, as of the close of Wednesday, April 23rd, 2025. The S&P 500 index up 190 basis points, trading at 5,375.

The market continues to consolidate after an extraordinarily volatile start to April. We'll take a closer look at that chart and the key technical levels to watch in the postgame segment. The U.S. dollar index up 50 basis points, trading at 99.78, bouncing from an oversold condition. But is this going to be a bigger swing low? June, WTI crude oil up 71 basis points, trading at 62.27.

The June RBOB Gasoline up 147 basis points, trading at 207. The June Gold Contract down 155 basis points to 3294. After hitting 3500, some profit taking finally kicking in. That May Copper Contract up 342 basis points, trading at 484. A strong recovery from the nearly $4 low that we saw a few weeks ago.

Uranium up 92 basis points, trading at $65.65. That U.S. 10-year Treasury yield up 6 basis points, trading at $4.38. And the key news to watch next week, we have the advanced GDP, the core PCE price index, the Bank of Japan monetary policy statement, ISM manufacturing PMIs, and the much-anticipated jobs numbers.

This week's featured interview guest is Cross Border Capital CEO Michael Howell. Eric and Michael discuss liquidity cycles, gold, the 2025 outlook, bond markets, and more. Eric's interview with Michael Howell is coming up as Macro Voices continues right here at MacroVoices.com. And now with this week's special guest, here's your host, Eric Townsend.

Joining me now is Michael Howell, CEO of Cross Border Capital. Michael provided two downloads for our listeners this week. The first one, before the slide deck, is a very interesting write-up about how Cross Border Capital thinks about markets. And I'm going to highly encourage everyone, if you've got time to pause here and read it first, it will give you some really good context on

on how Michael's firm thinks about markets, which I find fascinating because any experienced businessman knows that it doesn't work the way textbooks say, where supposedly you get credit based on an analysis of your ability to repay. It really is based on the system's need to lend more than it's on the borrower's need to

ability to repay and need to borrow. Michael's approach really analyzes markets from the context of understanding how the system really works, not what the textbook says. I really think that that article is worth a read. But for the part of our audience who won't actually do that because they're busy driving or whatever, Michael, give us the quick rundown, 30-second overview of

what the global liquidity cycle white paper says before we move on to the second download, which is your slide deck. And listeners, you'll find those in the usual places in your research roundup email. If you don't have one, just go to our homepage at macrovoices.com. Click the red button above Michael's picture that says looking for the downloads. Michael, global liquidity cycle, Cliff's Notes. Let's hit it.

Yeah, okay, Eric. Well, let's try. I mean, basically, our approach is, as you pointed out, very different. I mean, what we're looking at is global liquidity at the heart of the system. And effectively, we take a flow of funds approach and try to understand how liquidity flows and capital flow shifts are really changing the whole dynamics of the system. We're not focusing on individual securities, which is really the textbook approach. We're looking at

I suppose, behavioral aspects in a way. We're looking at the constraints that are imposed on investors. In other words, investors operate with constraints about their liabilities. Those are often duration constraints. In other words, they've got to time future retirements or insurance companies have got to

time payouts at certain future frequencies. So these things are really critical in terms of asset allocation. And then we also look at the constraints that are operating on credit providers. And credit providers clearly are

operating in an environment which is highly cyclical, where central banks are operating and changing their own liquidity dynamics. And what we've had, particularly since the evolution or the evolution since the global financial crisis, is that the whole financial system now is really based around collateral, where the repo markets are really central. So understanding these various dynamics is important. And that's what we put most of our emphasis really on. It's not

a textbook model of where interest rates are important and interest rate setting drives a sort of capital spending cycle. What we're saying is it's balance sheet that's important, flows of liquidity matter, and the whole system is now a debt refinancing system where something like three out of every four transactions in financial markets involve a debt refinancing trade.

Well, reading your paper definitely resonated for me as being very real world as opposed to textbook. I really love the way where you said the periodicity of credit cycles is not based on business cycles and all that. It's based on the average maturity of outstanding debt because that's what controls when people need to refinance it. This is more of a refinancing machine than a credit machine.

So hopefully that's a good teaser to get people to actually read your paper. So, Michael, let's move on to your slide deck, starting with page two, which says 2025 outlook. But maybe before we dive into the outlook, I just want to ask you kind of a contextual question to set this up because you're a cycles guy, which I appreciate and respect very much. But it also occurs to me that President Trump is contemplating

kind of a bull in the china shop kind of president. If you think about cycles being like waves in the ocean, when something really big makes a splash, it disrupts the waves. So should we be expecting cycles to prove the things that they normally prove? Or do we think that the policy changes that have been so big maybe disrupt those cycles? How should we be thinking about cycles going into this? And then what's the outlook look like?

Well, I think Trump's trade bomb is clearly a big splash. I'm not mixing my analogies up. I mean, the way that we think of markets is there are, if you like, two moving parts, Eric. I mean, one is the flow of liquidity that we've discussed. And liquidity moves in a cycle. That cycle is about five to six years. It's a debt refinancing cycle, but it's hard.

And that clearly matters. And Trump's actions will, I think, interfere with that in time. It's very difficult to say that that's happening right now. But on the other element, which is the other moving part, which is effectively how that liquidity is being allocated, how new liquidity is allocated into markets, that is being disrupted.

And what you've seen is a turndown in the risk exposure of investors, really beginning, I would say, around the middle of December of 2024. And that has accelerated markedly over the last four to six weeks. And what investors are doing, particularly in the US, are actually paring down their risk allocations very noticeably. So if you look at the effective flow of money into risk assets, it's been curtailed significantly since the Trump trade bond.

Okay. So with that in mind, let's dive in starting on page two, the 2025 outlook. What is the outlook? What do you expect? Well, I think coming into 2025, even before the tariff tensions emerged, it was not looking to be a great year. And I think we've got to put this in context as to say where we've come from. And

And broadly speaking, this bull market in liquidity and in financial assets has been actually a pretty normal one. And we show on the following slide, slide three, a picture of the MSCI World Equity Index, which is shown as an orange line there. And we put that or we benchmark against that, against a normal cycle. And that normal cycle is an index that is

averaging all past MSCI equity cycles since 1970. So you see the average cycle and you can compare that with where we are now. What you can see is that actually the timeline looks remarkably similar. So we're tracing out a very, very average cycle

And that's more or less underpinned exactly by what's happening in liquidity. Now, liquidity conditions bottomed in October of 2022, and they've been rising higher ever since. They're beginning to wobble a bit right now. I mean, that's for sure. There are a number of reasons that we can go into for that. One of the main ones is that the Federal Reserve is sort of...

maybe uncertain about the future expansion of his balance sheet. There's a lot of noise coming out about whether the Federal Reserve should have a bigger balance sheet, a smaller balance sheet or whatever. That I think is a great, great mistake. The Federal Reserve needs a bigger balance sheet simply because it needs to help the system refinance or

rollover debt. And we know that that debt pile is growing all the time. So from a policy standpoint, the Fed is uncertain. And then secondly, we've got the other major central bank, the People's Bank of China, that's really been operating a kind of stop-go policy over recent months because it's been trying to defend the yuan against what has been until now a strong US dollar.

Michael, let's talk in more detail about liquidity. On page four, you've got global liquidity, and then you've got a sequence of slides showing us different aspects of liquidity cycles and how they work. How should we be thinking about liquidity and what it means to markets today, especially in these stressed times where liquidity is everything? The main point about liquidity, the way that we think of it, is that we're thinking about the flows of liquidity through global financial markets.

And what we think of as liquidity is basically all cash savings on all forms of credit that flow through those markets. Now, one of the things to emphasize is this is not the conventional monetary aggregates like M1 or M2. This is basically financial liquidity. It's a measure of the capacity of the financial system balance sheet. Now, the reason that's important is that

The whole financial system, as we alluded to, is really set up now as a debt refi system, a debt refinancing system. And we've got huge debts out there, something like $350 trillion of debt, which needs to be refinanced. Spoiler alert, debt's never repaid. It's only rolled over. And the fact is that if that debt has an average maturity, just to keep the math

straightforward, of five years, you need to roll over $70 trillion of debt every year. Now, that's clearly a big ask for financial markets to do, and balance sheet capacity is really critical. So what we're analyzing here is the changing balance sheet picture for the world financial markets. And that, as we've noted, is cyclical. So you can evidence the cycle either in terms of dollar amounts on the

the following slide, slide five, which actually happens to show there's a very, very tight correlation between swings in global liquidity, which is the orange line, and movements in asset markets, which is the black line on the chart. So the correlation there is particularly close.

And then we go on to show on a following slide, a more longer term picture where we've indexed the global liquidity cycle and actually put it into a cyclical framework. Now, that data, as an aside, was taken and...

and studied by an independent institute, which is the study for cycles. They did independent analysis and actually confirmed our conclusions that there's a very clear 65-month cycle operating in the world economy around global liquidity. And it's that debt refinance, refi cycle, which is really critical to the movement of asset markets globally.

Michael, I noticed looking at page six back in 1973, we only got about halfway up on the black line and something happened and it made a nosedive there. It seems to me like if there was ever a moment in history where liquidity might dry up in global international trade, it's when the president of the United States suddenly changes the rules of the game and tells a bunch of other countries that he's not going to do business with them the way he used to.

Are we looking at the potential, even though it looks at 2025 here as though we're only halfway up the cycle? Maybe we're not going to make it all the way up and maybe this is as far as we're going to go. Yeah, this is very much our fear. I think there are a number of factors to throw into why that may be the case.

One of those is that there is uncertainty about U.S. policy or clearly U.S. trade policy. And that is something which is also, I think, constraining the Federal Reserve's actions. So the Federal Reserve, which may have...

operated, let's say, a looser monetary stance looking forward through year end, I think now is more likely sitting on its hands, particularly with regard to its balance sheet. And one of the things that is not coming forward in terms of what the Fed is saying is any guidance really about future balance sheet

size, which I think is a critical element. The other is really what China is doing. And the other major central bank operating in the world system is the People's Bank of China. And, you know, as I alluded to earlier on, Chinese monetary policy has really been affected significantly by the yuan and by the periodic weakness of the yuan over the last few months against what has been until now a very strong dollar. Now,

The weakness of the dollar is giving the Chinese an opportunity to weaken the yuan. And we can come on a little bit later to what China's policy is. But I think actually it really is centered around the yuan. One of the things that China is desperate to do is to devalue the yuan, but not necessarily, and this is the key point, against the US dollar per se, but against other units and particularly against gold. But we can come on to that particular thought later.

The other factor which is coming into that equation is something called the debt maturity wall. Now, the debt maturity wall refers to the terming out

of a lot of debt, both from corporates and from governments during the period of the COVID emergency. And what corporations did was they took an opportunity at zero interest rates to basically reborrow at low interest rates and then think about refinancing that debt, pushing it out towards 2026, 2027, 2028. Now that is beginning to come back into the system. Now that turned down debt.

And that is what is referred to as the debt maturity wall. It begins from about the middle of this year. And I think that's another factor which is likely to sit on the amplitude of the global liquidity cycle.

Michael, you've got such a terrific slide deck here. I wish we had time for all of it. Listeners, I do encourage you to peruse the whole deck, but I'm going to skip ahead to this chart on page 13. I've heard you talk about this on other podcasts. Give us an understanding of what's going on here as you look at advanced economies debt. Well, this is trying to understand the risks at the heart of the system. And as we've been stressing over

The global liquidity cycle is really a debt refinancing cycle. And in terms of understanding those risks, what you need to look at is the ratio between debt and liquidity for each economy. And what this slide is looking at is the aggregate debt to liquidity ratio for all advanced economies worldwide. Now, that data goes back to 1980. And unlike the debt finance,

to GDP ratio, which is the more favored metric by economists, which I think is a misleading and not particularly robust statistic. The debt liquidity ratio basically drills down to say what this is telling us is the ability of the system to refinance debt.

Now, if you have a very high debt to liquidity ratio, and you can see on the chart, there's a horizontal line that we draw, which is the average, just over two times. If you get a significantly higher debt liquidity ratio, what you find is there are debt financing tensions or refinancing tensions.

And that's where you often see financial crises. So what we've identified with the annotations there are past financial crises. So my contention is that every past crisis has fundamentally been a debt refinancing crisis in some shape or form.

equally, if you go to the opposite side of that division to go to a very low debt liquidity ratio, then you find there's an abundance of liquidity. And during periods of abundant liquidity, what you find is you get asset bubbles. So almost all asset bubbles have coincided with a very low debt liquidity ratio. Now, this is important because

The latest data shows not only that we've come out of a huge asset bubble where the debt liquidity ratio was extremely low for reasons that policymakers in the wake of the GFC and in the wake or during the COVID emergency used balance sheet and liquidity was thrown at markets.

And then equally, debt was turned out into the 26 to 28 years. So the debt liquidity ratio effectively came right down. So that was the history. And you can see that we've just labeled that the sort of cryptocurrency boom or the everything boom period.

What you're seeing now in the projection is a very sharp upward move in that debt liquidity ratio. And that is because central banks have slowed down their liquidity injections, as I evidenced earlier on. And secondly, you've got the debt maturity wall coming back to bite markets over the next two to three years as debt refinancing demands start to hit. Now, you can see that

that tension in the following diagram, which is really a schematic diagram, which is showing the outline of how the world financial system has evolved really since the global financial crisis. And I want to pick out a couple of points there, and I can go on to evidence those tensions following that. But

At the heart of that system is the repo market. And the repo market really is the interaction between collateral and global liquidity. Something like 80% of all lending in the world economy now requires some form of collateral.

Now, for many people, that's an obvious statement in the form of their main borrowing is a home mortgage. So that's collateralized against the value of the real estate. But equally, if you're looking at financial markets, most lending now is collateralized against some financial security. And that's typically a

a US government bond, a treasury, or a German Bund, or some high quality form of collateral. Now, the issue that we face is that because of regulations on banks in particular, or just a growing regulation in the system, there's been a migration or a collateral arbitrage

away from government-issued safe assets like treasuries to more use of private sector debt instruments, which have an embedded high credit risk in them. And that credit risk is very sensitive to the economic cycle. So if you start to get an economic downturn,

which we may be getting now, the credit risk in the system starts to heighten and you get a pro-cyclical and highly risky financial system that becomes in great need of bailout by policymakers and central banks. Let's move on to page 20, where you talk about the risk cycle. What is this chart showing us? Is it equity market risk? Is it credit market risk? What kind of risk are we talking about? What is the cycle and where is it headed?

Well, this is the key point, I think, as a follow on to those remarks about the instability of the system area. What this is showing is the positioning of investor portfolios. So what we take here is holdings data. This comes from flow of funds accounts. So we look at holdings data for investors worldwide. And we've actually picked out in that slide as well, U.S. investors.

Now, the average, the zero line that runs across the page, the horizontal, is looking at an average asset allocation. Now, you can take that sort of generically to be, let's say, a 60-40 equity bond mix, for example.

And if you move above that average, so a 20-unit move on the scale is a one standard deviation move, you're moving more and more into risk assets within the portfolio. And if you move below the line, you're moving more into safe assets like cash or G7 government bonds. So risk assets we take here as equities, corporate debt, emerging market debt, etc.,

Now, what that cycle seems to show, and I don't want to overemphasize this, is a nine to 10 year cycle in risk. And what we were already seeing prior to the Trump trade bomb was that risk cycle being pared down. Now, you can see if you look at it closely, the US investor line that's drawn out of that page absolutely collapses dramatically.

over the last three to four months. And there's a very clear risk off move by US investors. And in fact, the following slide on page 21 actually identifies where in the overall cycle US investors are. So what this is really telling us that there is some extreme risk off moves being currently undertaken. Investors, you know, investor risk appetite is skidded badly in America.

and there's some extreme moves. Now, if you look at that in context, you'd have to say that there is value coming back into markets because asset allocation by definition is very, very cautious. The only question about that or the issue that one has to raise is that that particular metric works well on an 18-month view, but between now and that 18-month horizon, markets clearly could go down further.

And that's really the risk. So you need the two ingredients, rising liquidity and low investor exposure before you can guarantee strong risk market gains. Let's move on to page 24, World Weekly Economic Activity Index or WEI. What kind of activity are we talking about here? Well, this is a metric that we use to try and show that problems are building up. So even

even before the trade bond was let off, what you were seeing was a skidding economy, world economy beginning to evolve. Now, let me just say something about that chart. What it's indicating is a slowdown in the world economy, a marked slowdown that really began from the middle of December, but has accelerated very noticeably through the month of April. Now, that data or that series is an AI-based system

And what we do is we basically put into the hopper lots of different ingredients, you know, like credit spreads, like commodity prices, like the currencies of trade sensitive economies, etc. All that evidence is thrown in and the model sifts out what it thinks is

the pattern in terms of world economic growth. And this correlates very closely with later reported GDP data. But this gives us a very immediate view as to what's happening in the world economy. And it's clear that there was a slowdown beginning from the middle of December, but that has now accelerated. Now, the problem comes is that that particular slowdown is

souring credit markets. And if credit markets are soured, what you get is a negative feedback within the stability of the financial system because a lot of collateral is now private credit based. And so what you can see is a downwards move in the global liquidity cycle as a result of that, which would necessitate

in my view, central banks coming in to support the system. And that clearly is a major ask. And we don't think it's currently on the page of the Federal Reserve's agenda right now. Michael, you've got a series of slides coming up about the U.S. bond market. Why don't you walk me through it? Yeah, I think the one to start with, Eric, is to look at slide 27, which is looking at, if you like, the

the key benchmark bond in the world economy, which is the US 10-year treasury note. The orange line at the top of that page is looking at the actual yield. And I think the tram lines that we put on that really tell the story. But what you're seeing is a bond yield that is kind of refusing to drop, but seems to be sort of progressively edging up.

And if you look at the lower line, the black line, that's looking at something which is a wonkish concept in a way, which is the term premium that is embedded in the bond. Now, the term premium is a measure of the compensation that investors require for holding interest rate risk over the horizon of the bond. And this premium, this black line, has been progressively rising. Now, that's something which is

bad news for the value of collateral within the system because clearly that's worsening. But it's also particularly bad news for new Treasury Secretary Scott Besant, who has something like nine to 10 trillion of US debt to refinance or fund this year. And what he wants to do is to fund that against a low yield, not a rising yield background. And that's really an issue. Now, one of the problems that the

the US faces in terms of our view is that the US Treasury has really become a price taker in global bond markets and no longer a price maker. And if you look at the data very closely, you can see evidence, certainly from 2020, that this has really been evolving in this way. Now, what this means is that it's bad news in the context.

that not only is maybe the environmental confidence in the US treasury market changing or worsening because of President Trump's actions, but equally, the environment in global bonds is not great. And we try and evidence that in the following slide, slide 28. Now, what this is looking at is world bonds

bond term premier alongside US bond term premier. And what that chart is trying to show is, and you can see this if you look closely, is that what is happening is that US term premier are being elevated and lifted, dragged up if you like, by rising world bond term premier. Now, why should world bond term premier be increasing?

Number one, because Germany has just released the debt break. So we know there's likely to be a flood of Euro denominated debt coming into markets to fund Europe.

defense and infrastructure spending in Germany and probably Europe wide. And secondly, Japan has got a growing inflation problem, which is worsening the outlook for JGB yields. So in other words, the U.S. is no longer an island here. It's operating within a global context and global bond term premium are rising. So the ability of Scott Besson to actually get yields down is difficult unless somehow they

they engineer a recession. And that may be something that we need to think about very seriously. Let's move on to China on page 33. What's the story there? China is definitively changing. And what you can see evidence in that chart is liquidity injections by the People's Bank of China. Now, I think there's a number of sort of immediate statements to make about China. One is that it has, let's say, a

a fairly simple financial system, nothing like as complex as we're used to in the West. And China's financial system, therefore, is...

probably more transparent and potentially more stable, but it really rests on the ability of the People's Bank of China to guide it and to source liquidity for the system. And so it's very important to look at what the People's Bank and the state banks are doing within the Chinese system. Now, what this chart

shows is liquidity injections into Chinese money markets. We show it here as a rolling three-month total. And we seasonally adjust the data because China's financial system is still highly seasonal, notably because of the floating New Year holiday. And

And what this is demonstrating is a clear increase in liquidity injections by the People's Bank. Now, that has been made easier by the weakness of the U.S. dollar. But it seems as if even before the weakness of the dollar, the Chinese were particularly

to actually inject liquidity and risk a lower yuan. Now, we think this is actually part of a deliberate policy. And to put this in context and show what China is doing, slide 34 is looking in isolation at the debt liquidity ratio of China. Now, what you can see in contrast to what we were looking at earlier for the advanced economies in the West is a debt liquidity ratio that is high

That chart

attests to China's debt problems and the difficulty China was having in terms of refinancing its debt while it was constraining the amount of liquidity within the Chinese system. And that liquidity was being constrained largely because for a long time, the Chinese authorities were trying to target the yuan-US dollar cross rate. And as a result of that, they basically were snagging liquidity out of the system.

Now, what you can see on the chart is a move back of the debt liquidity line back towards its normal level. Now, our original estimation was that China, to get out of its debt problems, would need to expand its liquidity base by about one third.

And if you pair that up with currency movements, by definition, if you're increasing liquidity to that extent, you would expect to see something like a

a 30%, one-third devaluation of your currency. But the key point is that it's not necessarily against the US dollar that you would expect China to devalue against. It's against real assets. So paper assets, which is where debt is denominated, need to be devalued against the value of real assets. And what better benchmark of real assets is the yuan gold price? Now, we therefore said that if you

Draw the analogy here with gold. What gold has to do is rise to an equivalent level of a 30% devaluation, which would mean something like 26,000 yuan per ounce of gold.

And if you look at the chart that follows on slide 35, we show the yuan gold price. And you can see that it's skyrocketing northwards as the yuan devalues dramatically against gold. And we think this is a deliberate policy. Now, you can see this evident in the gold market because of the change in emphasis away from London towards Shanghai.

there's now a constant premium in the Shanghai gold market. And that's evidencing the fact that there is big demand for gold in China. And what you're seeing here in parallel is a devaluation of the yuan vis-a-vis that gold. So going back to early 2023, the yuan gold price was only 11,000 yuan pounds. It's now close to 25,000. And actually, you know,

inches away from our original target of 26. So China is fast getting out of its debt problems, which I think is a very significant point to note in terms of international financial markets.

Let's talk a little bit more about gold and how far it can go because, you know, anytime that you see a parabolic move in any asset, it's usually headed toward a blow-off top. The question is, how much further does it have to go before you get to that blow-off top? Based on your understanding of the drivers, the Chinese drivers behind this, is this just getting started or is it just wrapping up? Well, I think that the

I think one has to say that to acknowledge your point, Eric, that when you see accelerations like this in markets, one does have to be wary about a pullback. And I think that's a very fair observation. But I think what we're really saying here is that if you come back to what is the heart of the argument that we're putting is that debt and liquidity need to move in parallel.

And if you get excessive amounts of debt being issued within the world economy, you need to match that ultimately with liquidity because debt needs to be rolled over. And therefore, you need that balance sheet space or liquidity to do that. Now, in the context of the world economy,

If you believe that we're in a world of accelerating debt, and I think the evidence is all there, you know, the US budget deficit, for one example, is continuing to rise significantly. The US debt burden, one would envision, is growing at something like 8% per annum at least. Therefore, you've got to have liquidity to match that. Otherwise, you get financial crises.

And central banks clearly don't want financial crises. So they're already in the business of supporting that liquidity increase. Now, if you look at it in a broader context, China clearly has to do the same thing. So medium term, we are looking at expanding liquidity because we're looking at expanding debt.

And unless that debt binge stops, and I don't think it's likely to, we're in a world of monetary inflation in our view. Now, monetary inflation is not high street inflation. The two are very different concepts. But monetary inflation is basically devaluing your paper money. And the best long-term monetary inflation hedge is the price of gold. We know that through history. That's

clear and well established. And therefore, I would say that maybe in the context of this long-term debt binge, gold is probably only just getting started. Now, if you start to think about this particular example of the Chinese gold price, and maybe China is pulling the strings here, starting this process.

If you are thinking of 26,000 yuan per ounce of gold and you triangulate back to the US dollar, assuming that the yuan-US dollar cross rate, the paper currency rate, stays pretty much intact at around about 7.3 per US dollar, you are looking at a 3,500, 3,600 US dollar gold price. That was a

fanciful, maybe not even a month or two months ago, but clearly we're inches away from that particular fact. But I think that the gold market can go further in the medium term. I wouldn't like to say that it's going to move at this pace over the next few weeks. There may well be a pullback. I'm sure that's right. But then start thinking about other monetary inflation hedges. And one of the recent examples of a viable monetary inflation hedge has been Bitcoin.

Let's touch on Bitcoin then briefly before we close. There are some slides that we show in terms of Bitcoin. And I think the two important ones are slides 38 and slide 40. And

On slide 38, first of all, we show the movement of the Bitcoin price against movements in global liquidity. The black line here is global liquidity. We look at a six-week change. Now, a six-week change is purely an arbitrary number. It's not a fiddle. It's just basically taken to take the noise out of the data series. We could have used another filter, but this is convenient.

And we show that against an equivalent six-week change in the price of Bitcoin, again taken to remove the noise in the data series. The global liquidity line has been advanced by about 12, 13 weeks. And what you find is a very close correspondence between those resulting series. And it looks as if global liquidity is a very good predictor of global liquidity.

Now, the pie chart that I referred to on slide 40 actually looks at a more detailed analysis of what drives Bitcoin. This is looking at a decomposition of the systematic influences. And what we've done here is to use a vector autoregression methodology for those that are familiar with that, which actually looks at the influences of

on the price of Bitcoin. Now, what comes out of that is an interesting array of data. One is to say that global liquidity is a key factor. It's probably over 40% of what drives the Bitcoin price. There is a slice there of about 20-odd percent

which shows risk appetite. Now, what does that really tell us? That tells us that actually, unlike gold, Bitcoin is very sensitive to maybe moves in Nasdaq or moves in risk appetite. So if Nasdaq collapses, it's very clear that Bitcoin will come off, even despite what global liquidity may be doing on the other side of the page. And equally, if Nasdaq goes up, then you'd expect a positive influence from Bitcoin. But the other elements, the other slices of referring to gold

And that rather sort of complex slices, which are talking about gold per se, and then the gold Bitcoin ratio is something which mathematically is thought of as an error correction process. And what that really is saying is that in the long term, gold and Bitcoin are very closely positively correlated. So a much higher gold price is consistent with a much higher Bitcoin price. So they act as monetary inflation hedges.

But in the short term, they may well be negatively correlated for short periods as Bitcoin surges, gold then lags and ultimately catches up. Then gold picks up and Bitcoin lags, but then catches up, etc. So what one would expect now, if this is correct, is that the gold market may well go sideways or even down, but Bitcoin gets a little bit more momentum in the short term.

Michael, I can't thank you enough for a terrific interview. But before we close, please tell us a little bit more about what you do at Cross Border Capital, what services are on offer there, and for our listeners who want to follow your work, how they can do so.

Well, thanks, Eric. Yeah. Cross Border Capital is an advisory firm. We advise institutions, we collect data, we have an array of liquidity indexes. We've been doing this for more than three decades. So we know liquidity data intimately. And that data is available for clients through data downloads or whatever ATP files, etc. So API files. And if you look at the other side of our

our business. We provide narrative research as well that institutional clients can take for

high net worth or retail clients, we have a different service that is operated through Substack, which is called Capital Wars. That is a shorter, briefer analysis. Less data is available. We don't offer that, but we do give insight into what our thinking is through those pages. So Capital Wars on Substack or the institutional site, which is crossbordercapital.com. And then we do occasional tweets on Twitter,

where the handle is at Cross Border Cap. Patrick Ceresna and I will be back as Macro Voices continues right here at macrovoices.com. Now back to your hosts, Eric Townsend and Patrick Ceresna.

Eric, it was great to have Michael on the show. Now let's get to that chart deck. Listeners, you're going to find the download link for the postgame chart deck in your Research Roundup email. If you don't have a Research Roundup email, that means you have not yet registered at Macrovoices.com. Just go to our homepage, Macrovoices.com, and click on the red button over Michael's picture saying looking for the downloads. Okay, Eric, let's start off with your thoughts on the equity markets.

Well, Patrick, the market gapped higher on the Tuesday evening futures reopen after news broke that President Trump said, OK, he didn't really mean it. He's not going to fire Fed Chairman Jay Powell after all. That left a gap on the S&P E-mini futures chart on the June contract down to about 5330 that probably needs to be filled.

I see plenty of room for a big move in either direction here, but it's downside risk that I'll be hedging. The only thing that's completely clear here is that President Trump is on a mission that does not involve showing his cards. So the advice we've heard to take President Trump seriously, but not literally, definitely comes to mind. And it's also clear that President Trump is not afraid to break things in order to achieve his goals.

So look, if what he does next is to kiss and make up with several different trading partners over tariffs, well, that could easily take us back to new all-time highs. Likewise, another round of tough love from the president toward those same trading partners could easily take us down to 4,000 on the S&P. And I don't think we're going to get any warning from the White House as to what their plans are or what they're intending. So as we've said all year, volatility will continue to be the theme for 2025.

So, Eric, I want to break this down into answering some simple questions. For instance, we just want to step back and reflect on what is the primary trend. And the primary trend at this point is down. And we are below all the moving averages, sequences of lower lows and lower highs. Almost all rallies end up meeting resistance and start rolling over.

And so there is no evidence that we have begun a new bull phase in this market. Now we do get these bear market rallies and they can be violent. For instance, right now with the volatility index of the VIX on page three there being at 29, those are daily implied ranges of pretty much close to 100 S&P points and 220 S&P point weekly implied ranges.

Point being that the market swinging several hundred S&P points higher and lower is just par for the course in these heightened volatile environment. So what is going to be the driver of the next trend? And while the focal point is on Trump, like you suggested, I do believe that we're coming to a really interesting moment in the earnings cycle and the jobs numbers coming up.

And so here we have a market that is below its Fib zones, below its moving averages. We could easily still have a rally toward that 5600 area where the 50 day moving average is. But we do have the major MAG7 stocks all coming up. So Google's up to bat. We already saw Tesla moving.

And and then we have four of the other major mag sevens all reporting next week, all within almost 24 hours of each other.

And so we're going to get a lot of clarity on earnings at that moment. So on page four, I have that MAG7 ETF just showing how these MAG7 are trading. And what we see is that there is a very distinct distribution cycle, still incredibly weak price action.

The bounces in the MAG-7s were far weaker than what we have seen in the broader market. This only confirms that the primary trend is the bearish one. But this is where the earnings will play a pivotal role. What if everyone is overworried about this and then we have a relief rally that happens almost the way Tesla popped

dropped on its earnings. Could that drive, let's say, the MAG-7 ETF back to $46.47, even hitting $50 under the right circumstances? It could.

That could temporarily alleviate the S&P to rallying above 5,600. Maybe we even see 5,700 or more on the upside. Those are bear market rallies. Now, I want to reference what a bear market rally is by simply observing the way that, for instance, past bear market rallies behaved.

For instance, let's just go to the most recent bear market of the 2022 period where the stock market had a material decline for close to a year. When that short-term low first came in in March of 2022, there was a trough to peak rally of about 22 days there.

And then it didn't take then the breakdown below the 50 day moving average really resumed. The selling didn't happen until 45 days after the previous low. The point is, is that bear market rallies can last a month, sometimes two months, even in 2008. Once the January financial crisis started again.

There was almost a three to four month bear market rally before the real big breakdown started to happen. And so we're in the midst of some sort of a bear market rally and it can still actually make short term progress higher.

To me, this thesis is still valid so long as the market stays at or below this kind of 5,600, 5,700 area. We'd have to rethink the entire narrative if the market started doing more bullish things than that. But earnings and jobs are all going to play a really important thing. The other observation I wanted to make is on page five, I have the Russell 2000 small cap index here.

And I just want to highlight how incredibly weak the rally has been in the small caps. On a relative basis, it's probably as weak as the MAG-7s, but the S&P 500 was much stronger on the bounces. And to me, seeing some stability in the small cap space, I think is really important in order to...

to see a potential major bottom in the stock markets and a turning point. Like when green shoots start to appear for the turnaround, you have to believe that we'll start seeing some sort of responsiveness in these small caps. And that's simply not evident.

The last thing I want to leave our listeners with is just where is the failure point? And that was, I think, very clearly defined earlier this week when we were trading down near 5,100. And at this stage, if we have a breakdown below 5,100, especially if it's in the post-jobs number period into next week, then the downside window would reopen significantly.

for another leg lower. At this stage, I don't believe that this week will usher that breakdown. Odds are pretty reasonable that the bear market rally can still continue and several hundred more S&P points upside will appear. But

That primary trend down is still there, and this is still a bear market rally, and inevitably we will get another leg down, and that's the puzzle we're going to try to solve here in the weeks to come. All right, Eric, let's move on and touch on the dollar here. After testing a 97 handle on Monday, we're bouncing back up toward the top of the channel, but the trend is still down, and it's still strongly down. I don't see any reason to expect it to reverse.

Well, Eric, in my mind, the U.S. dollar is incredibly oversold on the short term. Now, it may be the beginning of a bigger U.S. dollar bear market, but we are now way overdue for a reactionary bounce, some sort of a retracement, a reflexive rally from the fact that the Dixie lost 12 points essentially in a span of three months.

And so now that we have seen this kind of selling, a rally on the dollar index back to 101 or 102 would be par for the course. But the bigger question becomes, will it fail along its 50-day moving averages? Will the consolidations roll over for another round of selling in the late second quarter, if not the third quarter of the year?

those are all puzzle pieces that we're going to try to solve. Number, uh, on page seven, I have particularly the U S dollar yen chart. And here I wanted to highlight simply, uh, a very key support line that, and that could very well define, uh,

why we're going to be bouncing here sometime soon. You can see that that US dollar yen has traded right back down to those that 140 to 142 range down at the bottom, a support level that has held both in 2023 and in 2024. It doesn't mean it's going to hold long term, but often when you get to a major support like this with this kind of oversold condition is where you get the

reactive bounce. And this is exactly what we're looking for in the dollar. You can really see it far more evident here in the U.S. dollar again. And this could easily be bouncing back to 146 or 148 on the upside before we see another round of U.S. dollar bearishness

Since we're on currencies, the last thing I wanted to touch on here is the cryptocurrency looking at Bitcoin. And particularly, I wanted to highlight the fact that we've spent almost the entire year trading below the 50-day moving average. And back in January, it crossed below the 50-day.

And we've been pretty consistently in a downtrend throughout the first part of the year. Now, all of that selling has actually held Fibonacci retracement zones and fits the characteristics of a wedge consolidation. So with this breakout that happened this week that got it back above this 50-day moving average,

It certainly puts it on the radar as to whether or not Bitcoin has got the potential to start a new bull trend. There's a lot of work that still has to happen. A couple day rally is not enough evidence to say that it's definitively a new bull market.

But what I'll be looking for in the next week is whether or not Bitcoin consolidates to the 50 day moving average. All dips are being bought, whether the price action continues to confirm that there's some accumulation here. And if that is, if we start seeing price action clearing ninety five thousand and

taking a shot at $100,000, then that could really start to build on itself into a new bull trend. The failure point, of course, is a breakdown below that $85,000, $84,000. So we've got a wiggle room for Bitcoin to pull back $5,000, $6,000, $7,000 and still be bought on dip in this trend.

So let's move on to crude oil here, Eric. What's your thoughts? News of some OPEC members pushing for an accelerated production increase appears to be behind the sudden failure of the rally, which until that happened, looked like it might have some legs. So we're going to have to watch the news flow for a tell on what comes next for the market.

So Eric, in my mind, when I look at crude oil, I ask the simple question, what is the primary trend? And the primary trend definitively is a bearish downtrend.

And we've been consistently seeing oil distribution for over a year. Every rally failing, breakdowns to lower lows now. Everything has those characteristics. Now, in technical analysis, when you have a major support line established like we did around that $66, $67 area for close to a half a year,

When you have a support line that gets broken, then when the market rallies, what was previously support now acts as overhead resistance. And so now we had crude oil basically approach $65 and that now is overhead resistance.

conveniently, the 50-day moving average is tucking in around $66. So you now can very clearly see where the rejection points in crude oil are. If we see that crude oil cannot beat this huge overhead resistance level, then anticipating another technical breakdown for a minimum of double bottom retesting of $58,000

But also still entirely possible that we can go into the low 50s for a short trip as that prevailing downtrend just continues to squeeze the longs and force some margin selling and so on. Nonetheless, it's a primary downtrend that still is very challenging. On page 10, Eric, we got the gold chart. What are your thoughts here?

Well, Patrick, as you said last week, we've definitely entered the parabolic phase of this gold bull market, and that's not good for the gold bulls. You know, I'm reminded of an interview must have been, oh, I don't know, 15 years ago. I heard Jim Rogers being interviewed by a young and eager new podcast interviewer, and the gold market had just been up, I don't know, 20% or so in just the last few weeks.

And this interviewer said to Jim, Jim, do you think there's room for the gold to rally another 20% in the next few weeks? And Jim said, God, I hope not. If it did that, I'd be forced to sell it and I don't want to sell it. Well, that's definitely apropos for today's market because there is no doubt in my mind when you get into a parabolic move like this,

It's going to end in tears for the longs that get suckered in at the top of the market just before the final blow off top obliterates them. And all of a sudden, before you know it, a few days later, we're trading hundreds, if not thousands of dollars lower.

But whether that final blow-off top comes at $3,600 or $8,600 is anybody's guess. And President Trump is clearly not showing all of his cards. So we don't know how much he's willing to break and how many foreign leaders he's willing to piss off and how far he's willing to piss them off. Those are the things that are going to decide whether that final blow-off top comes at $3,500, has already happened, or at $8,500. So...

you know, my guess is this is probably not over yet and higher numbers are still to come. But my real point is this is a very high risk trade from here since it's nearly certain to eventually blow off and reverse hard to the downside eventually. But the timing of when that final top comes is going to be nearly impossible. Well,

Well, Eric, we talked about in last week's episode this parabolic acceleration to the upside, and we've seen that. Now we hit a short-term swing high at $3,500, and we saw a pretty violent correction. And I want to talk about the nature of these corrections. First of all, gold's implied volatility went from trading in the mid-teens in the 15%, 16% range up.

to now jumping near 30%. That creates a daily implied range of about $60 an ounce. So what we have to immediately acknowledge is that gold is just going to be very volatile higher and lower

in almost every daily move. And now we did have a very sharp sell-off, but this is not uncommon because often during parabolic rises, the magnitude and velocity of the rise on the way up, the corrections often have very similar velocity to the downside and range. And so seeing a 100 plus point pullback is just normal in these kind of conditions.

Now, what is going to be really critical here in the very short term is whether the 3200 level holds and whether this correction only lasts a few days. In these very accelerated moments in gold, when you have very short-term corrections and they get bought on dip, then the next leg higher can still be this extraordinary rip

higher and we could see even 36 37 3800 or more on the upside within the next week but if it is a swing high if this is the short-term high i mean obviously a number of technicians observing the very overbought conditions of gold and that's very typical during parabolic rises

But the question in my mind is, is the top in or not? And to me, if $3,200 is given out and more importantly, if the selling persists for three, four or five days rather than just being a one or two day pullback.

will mean that the upside momentum is dissipating and the chances of a top become much greater. And so if this is going to keep bullying, it shouldn't take more than a couple of trading sessions to find out. And if we're already in the middle of next week or going into next week's jobs numbers and gold is not making new highs,

Odds are pretty good that that's a swing high. And then we're talking about testing 3000 and we could see a prolonged consolidation into the summer as a short to intermediate high may be there. That doesn't make me bearish gold or think that we're going all the way back to like 2000 or 2500.

But if we do see that there's a swing high, then it could mean that gold is just going to find and settle in into a trade range and consolidate there deep into the summer. And finally, Eric, let's just touch on uranium. What are your thoughts?

The primary trend is definitely still down, but we're finally seeing what might be some green shoots of hope that maybe we're finally trying to grind out a bottom here. It's going to depend, though, on what happens to the S&P, but at least on a relative performance basis, the URNM divided by the SPX, that's the relative performance chart, is finally starting to turn up after double bottoming.

We're through the short-term moving averages to the upside now on most of the charts in the sector, but we're still below the 50-day moving averages. So there's still more work to be done before we could say that there's a sign of trend reversal in the works. I guess as optimistic as we can get for this week is it looks a little better than it has for the last several weeks.

But we've seen plenty of false signals before where it looked like the market had bottomed. Thought, OK, surely that's got to be the bottom. And it just turned out that we ended up taking out new lower lows after that. I really think broad market risk is still the big elephant in the room. If President Trump does something further on the tariff front that upsets everybody and we end up at 4000 on the S&P, we're definitely going lower on uranium.

But I do see a few green shoots here that maybe there's signs that we're trying to grind out a bottom if the broader market holds up as well. Well, on page 11, I have the chart of Sprott Physical Uranium Trust, particularly this is in the Canadian dollars. But what we continue to see is the spot price of

of uranium continue to be incredibly stable, but we continue to see distribution in the Sprott Physical Uranium Trust creating a bigger discount as we continue to see retail and hedge funds selling pressure just force this ETF lower.

What we can observe is that uranium itself has stabilized. The bigger question, of course, is, is this where uranium will bottom?

And is this low enough? Well, as a uranium, as a commodity price, we probably are very close to the lower boundaries of where this will go. But the second question is, well, if these are going to be where the lows are, how long will it take for it to start being bulled?

And this is the challenging part is that even if we identify that this is a short-term low and this is where the intermediate or longer-term low may actually come in, the question is, do we have to wait six months for it to start doing anything bullish? And so right now I'm very neutral on this. I like the price level. I think this is levels where we're going to ultimately see the lows. But the question is, how long are we going to have to wait for this to start turning up?

Folks, if you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of Big Picture Trading. The details are on the last pages of the slide deck or just go to bigpicturetrading.com.

Patrick, tell them what they can expect to find in this week's Research Roundup.

And we are always looking for suggestions on how we can make the program even better. Now, for those of our listeners that write or blog about the markets and would like to share that content with our listeners, send us an email at researchroundupatmacrovoices.com and we will consider it for our weekly distributions.

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