Henrik Zeberg - Doesn't understand the Liquidity Cycle drives all Cycles as its downstream of the Refinance Cycle.
Refinancing Liquidity Injections Creates ALL CYCLES.
I’ve been on walkabout — and, frankly put, lost access to my company’s operations along the way, thanks to a cascade of security devices imploding, likely from voltage swings in the middle of nowhere.
I’ve moved past the flustered stage and into acceptance — recognising that we’re always at the mercy of the markets, at the whims of chaos itself. And perhaps that’s a good thing. Short of one of the corporate lawyers chartering a chain of planes and mini-prop jets, landing on some dirt airstrip surrounded by lions and rampaging elephants just to hand me new access devices, I am, in essence, riding the storms and testing my conviction.
Which brings me to the following article — written by none other than this season’s self-styled contrarian. Since 2022, we’ve watched a parade of macro commentators get slaughtered by the markets for their misplaced convictions. We — the so-called liquidists he references in his piece — stand apart, and I intend to dissect his article to show precisely where his assumptions and claims go astray.
Don’t get me wrong, he’s a slippery one. In 2022 he managed to be “bullish” while simultaneously forecasting the market’s imminent demise (after, of course, one last blow-off top). He now claims the business cycle has ended — that it isn’t downstream of liquidity, but upstream. I’ve seen it all before.
He wrote the following article:
Claim 1 — Henrik’s Assertion that Liquidity Follows the Business Cycle
Henrik presents Michael Howell’s Liquidity Cycle chart as evidence that liquidity is delayed — that it follows the business cycle rather than leading it. His interpretation frames liquidity as a reactive variable, a downstream effect responding to the expansions and contractions of real economic activity, he also shows old data…
This reading fundamentally misrepresents the framework Howell himself established. Howell’s Liquidity Cycle was never designed to depict liquidity as a byproduct of the business cycle — rather, it illustrates the causal architecture by which liquidity drives the business cycle through credit creation, asset valuations, and balance-sheet capacity.
Henrik’s inversion of that causality is the same conceptual trap that caught most post-Keynesian and neoclassical macro practitioners through the 2010s: confusing observable lag for directional dependence. The delay between liquidity inflection and macro reporting isn’t proof that liquidity is subordinate; it’s a reflection of how transmission operates — through collateral channels, confidence, and cross-border capital flows — long before GDP, employment, or inflation data register the shift.
Empirical chronology refutes Henrik’s claim entirely:
2018-2019: Global liquidity (CrossBorder Capital data) bottomed months before global PMIs and trade volumes recovered.
2020-2021: The liquidity impulse turned upward while economic output was still collapsing under lockdowns.
2022-2023: Liquidity contraction began with QT and TGA rebuilds well before industrial activity rolled over.
The evidence is unambiguous — liquidity leads, the business cycle follows. Henrik’s interpretation treats the symptom as the cause.
The issue is this is an out-of-date image, either he’s too cheap, or he is being malicious in his intent.
Context the most recent version from Crossborder Capital.
The following chart is Crossborder Total Global Liquidity up until May (as i have restricted access here - non-db direct access i can’t do up until to-day) - available for free within terminal here.
In the following chart, Global Liquidity (YoY) is shifted forward by 75 weeks — effectively showing what total global liquidity was doing roughly a year and a half earlier, and how that movement later feeds into the U.S. ISM PMI.
Now look at the version where Global Liquidity isn’t shifted — notice what happens around 2020: Global Liquidity peaks first, while the Business Cycle peaks later in 2021. In other words, the Business Cycle lags roughly 75 weeks behind Global Liquidity, not the other way around.
In the following chart, you have the U.S. ISM PMI plotted against Fed Net Liquidity (YoY), shifted forward by 48 weeks (monthly average). As shown, Fed Liquidity — in this case, Fed Net Liquidity — lags Global Liquidity by roughly 20 to 30 weeks, with the U.S. ISM PMI then lagging further behind that.
So yes, liquidity is everything, Henrik — and M2 is not liquidity.
Additionally following chart is our version of GMI’s Coincident Business Cycle Index, its printing higher, much higher.
Likewise the one from GMI… Higher, much Higher…
The following claim is likewise discredited by the charts above, which clearly show that it is the liquidity cycle that drives the business cycle, not the other way around.
Moving On…
Claim 2 — “The U.S. Consumer Is Strapped and Stocks Won’t Save Them”
Yes, there are two economies in the United States — but there’s also the global economy, which too many U.S. commentators routinely ignore.
I’m often reminded of the post-COVID period, when many were loudly declaring that China was collapsing. Meanwhile, I was standing on the deck of a yacht off an island near Phuket. Beside us was a super-yacht owned by a Russian oligarch, and in front of us were streams of vessels unloading groups of Chinese tourists onto Racha Yai Island. Around the same time, a neighbour told me about a property up the road — a place where rooms were filled with cash. Chinese visitors were being paid to carry the legal limit out of the country, hand it over upon arrival, and that money would then circulate through Thai and international markets. Classic capital-control evasion by the wealthy, fuelling the hawala system and offshore liquidity flows.
When you can see people and cash moving like that, it’s clear the market isn’t collapsing — not yet, at least. And I was right. Many analysts were caught off-guard by roughly twelve months. In finance, there’s nothing worse than being early.
Now, when it comes to the U.S., about ~1% of Americans own roughly ~50% of the stock market. Add to that pension funds (both onshore and offshore), sovereign entities like Switzerland’s government holding assets as part of their balance sheets, and insurance companies operating under similar structures. The portion of the market actually held by non-wealthy U.S. households is marginal.
The stock market is not the economy. The people outside that top tier don’t dictate its direction — credit and liquidity do. The top 1% typically borrow against their holdings for tax efficiency, while institutions move in and out based on allocation rules and internal mandates. The real reason for any sustained sell-off is a liquidity crunch, as we’ve seen time and again since 2008. Everything is propped up by liquidity, and when the underlying holders need liquidity to cover obligations, they sell a portion — it’s that simple.
As for “Main Street,” Trump is already laying groundwork in several areas:
Allowing partial equity drawdowns in real estate, which supports middle-class liquidity.
Enabling equity and MBS to be further financialised, which drives speculative valuation in segment A of the market.
Investing in infrastructure and domestic industry through tariff structures that incentivise companies to move back onshore.
Tariff redistribution and stimulus mechanisms that cycle capital back through targeted channels.
Those measures — some already underway — expand access to liquidity for the real economy.
Moving on…
Claim 3 — Yield Curve Inversion
Yes, the Fed’s 10s–2s spread is inverted — but that doesn’t tell the full story. Since 2008, the Federal Reserve has accumulated mortgage-backed securities (MBS) on its balance sheet in significant size, and that directly affects Main Street.
To get an accurate picture, you can’t just look at the nominal Treasury curve. You need to calculate the convexity of the 30-year MBS and derive a synthetic 10-year yield from it. Once you have that, you then discount the Fed-reported 2-year, producing what I call the Synthetic 10s–True 2s.
As you’ll notice in the chart below, these two series — the synthetic and the reported — historically aligned closely. That relationship broke during COVID, when market structure and balance-sheet mechanics were distorted. Since 2022, the re-alignment process has been underway, reflecting the gradual normalisation between the MBS complex, Treasury curve, and short-term funding markets.
The use of YCC-Not-YCC (and the intermittent withdrawal of YCC-Not-YCC) is essentially about controlling yields on both ends of the curve to engineer a re-alignment — bringing the financial and real economies back into relative balance.
The common narrative that Main Street is struggling while Wall Street thrives misses this underlying mechanism. Wall Street is kept afloat by liquidity — or more precisely, by monetary debasement — while that same liquidity and debasement pressure erode Main Street’s purchasing power.
The current policy mix aims to restore alignment: to let the liquidity/debasement cycle continue operating quietly in the background while giving the appearance of equilibrium between Wall Street and the broader economy. Historically, Wall Street has always led Main Street — because Wall Street is liquidity-driven. The cycle begins there, and everything else follows.
You’ll also notice that the Synthetic 10s–2s didn’t remain below zero (inverted) for long. This brief inversion was managed through the alternating use of YCC and Not-YCC, effectively orchestrating the so-called “soft landing” — at least for the financialised economy.
The period from March to May represented that soft-landing window, where policy intervention stabilised yields just enough to maintain market functionality while preserving the liquidity backstop.
Some other charts below expand on this dynamic.
Liquidity to Debt is far more important than Debt to GDP, because GDP itself is driven by liquidity, while debt is never truly repaid — only refinanced. Liquidity is therefore the essential ingredient that keeps the system functioning.
The entire global economy operates downstream of liquidity for this reason. When the U.S. Liquidity-to-Debt ratio approaches its red line, it signals a period of tightening — the point where liquidity availability begins to constrain refinancing capacity.
Naturally, this ratio evolves over time, but our focus here is on the current surplus level — the present balance between available liquidity and outstanding debt capacity.
If we look at a self-adjusting version of the 3-month Debt-to-Liquidity momentum overlaid with volatility bands, we get a structure that clearly highlights alternating risk-off and risk-on periods — effectively mapping the rhythm of tightening and easing within the liquidity cycle itself.
If we zoom in from 2021 onward, using the 2.5% line as reference, you can see we’re entering a period of constricting liquidity. The Fed and Treasury are actively trying to push this down, but it all stems from the Biden administration’s reduction of U.S.-side liquidity between October and January — leaving Trump to deal with the aftermath, as he now tries to find a bottom and push liquidity back out again (see above).
Other areas to watch on a forward basis include running the economy hot, re-evaluating gold, and the possible introduction of open YCC, all of which will have an impact alongside the measures mentioned earlier.
There are two sides to liquidity that together create total global liquidity: one is central bank induced liquidity, and the other is the shadow monetary base. The latter moves up and down as the MOVE index fluctuates, since it represents the hypothicated liquidity base that expands and contracts with changes in collateral value and leverage capacity.
This provides periods of risk on and risk off.
We can also see, over time, how global liquidity moves through periods of extreme expansion before rolling over. Yes, we’ve entered such a phase now, but it’s still early. Note the green backdrop indicating risk-on periods; when it shifts to red, risk-off conditions begin to take hold.
Now when it comes to correlations, the Nasdaq shows a 95% R-value correlation with global liquidity, while Bitcoin sits around 90%. Directionally, Bitcoin tends to lag by roughly 8 to 12 weeks, though as more people have caught on to this relationship (obviously not Henrik), that lag is shortening as the pattern gets gamed.
Here is Bitcoin versus the shadow monetary base, which is influenced by MOVE volatility within its bands. The price levels aren’t exact due to other contributing factors, but directionally the relationship is clear. Once I’m back in civilisation, I’ll run this against the shadow monetary base from 2010 onward.
