Politics generates headlines. Liquidity moves prices. This update is mostly about the second one.
A comprehensive look at where markets and the economy stand — the macro season we are in, what the dollar is doing to global liquidity, why retail sentiment is worth reading backwards, and how the Federal Reserve's balancing act shapes the months ahead.
Liquidity, Policy & the Macro Season
Gary Korolev, CFASovereign Wealth Management
Reading the Macro Season
A new administration brings a new set of unknowns, and markets are pricing them in real time. That is unsettling to watch and difficult to act on, because the news arrives faster than its consequences.
Which is why the update opens with a framework rather than a headline. Breaking the macroeconomic environment into seasons — the recurring phases of growth, inflation, and liquidity through which every cycle passes — puts current events in a context that survives the next news item.
The Dollar and Global Liquidity
The dollar sits at the centre of global liquidity, and its level determines how much of that liquidity reaches the rest of the world. A strong dollar tightens conditions everywhere; a softer one loosens them.
The Global Central Bank Net Liquidity Index — which aggregates what the major central banks are collectively adding or withdrawing — points toward expansion. Historically, that condition has preceded a rise in asset prices rather than followed one.
Sentiment, Read Backwards
Retail sentiment is decidedly bearish. Taken at face value, that is discouraging. Taken as a contrarian signal — which is how it has more often been useful — it is the opposite.
An investor who has already sold cannot sell again. When sentiment reaches an extreme, the selling that drove it there is largely complete — and the marginal participant left is a buyer. This is why deeply bearish readings have historically clustered near bottoms rather than near tops.
It is not a timing tool. Sentiment can stay depressed for months while prices go nowhere. But as one input among several — particularly alongside improving liquidity — it argues against joining the pessimism at precisely the wrong moment.
The Fed's Balancing Act
The Federal Reserve faces two objectives pulling in opposite directions, and the resolution of that tension will shape the coming period more than any single data release.
Lower rates ease pressure on borrowers, support employment, and prevent a slowdown from deepening into something harder to reverse.
Cutting too early risks reigniting inflation before it is genuinely contained — an error that has historically cost far more to correct than waiting.
Whichever way that resolves, it resolves through liquidity — which is why the measure is worth watching more closely than the commentary around each meeting.
What Global Money Supply Explains
The clearest evidence for treating liquidity as the central variable is how well it accounts for what already happened. The contraction in global money supply maps closely onto the drawdowns in the NASDAQ and in Bitcoin — two assets separated by almost everything except their sensitivity to how much money is circulating.
Liquidity drained
Global money supply contracted, and the assets most dependent on abundant capital fell hardest — technology and digital assets together, on the same schedule.
Liquidity improving
The same measure has begun to turn. If the relationship holds — and it has held reliably — a recovery in those assets would be expected to follow rather than precede it.
On Staying Objective
Political change makes objectivity harder and more valuable at the same time. Our research is built to describe how policy and economic shifts actually transmit into market conditions — not to argue about whether they should.
That distinction matters for portfolios. A view of the world formed around what one wishes were true tends to be expensive. Data-backed analysis will sometimes be wrong, but it will be wrong for reasons that can be examined and corrected.
Understanding these dynamics is itself an asset — arguably the one that determines how well every other asset is managed.
This analysis reflects our views at the time of recording and is not financial advice, nor a recommendation of any security, sector, or strategy. Liquidity measures and sentiment indicators describe conditions; they do not predict outcomes. Investing involves risk, including the possible loss of principal.
What Does This Mean for You?
Improving liquidity argues for one posture in a portfolio still accumulating and quite another in one already funding withdrawals. We're glad to work through which applies to yours.
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