It is the liquidity, stupid!

The Cyclical Nature of Global Liquidity

The infographic given below presents a fascinating analysis of global liquidity trends over the past 24 years. According to the data, there appears to be a recurring cycle of liquidity in the system, lasting approximately 65 months.

Understanding the Cycle

This cycle is characterized by periods of rising liquidity, followed by periods of declining liquidity. During the upward phase of the cycle, investors have more money to invest, which can drive up prices for various assets. Conversely, during the downward phase, investors may become more cautious, leading to a decrease in demand and lower prices.

The Current Cycle

We are currently in the early stages of an upward cycle in global liquidity. This cycle began about 12 to 14 months ago, and based on the historical pattern, it has a long way to go before reaching its peak.

The Impact of Liquidity on Markets

Rising liquidity can have a positive impact on various asset classes, including equities, gold, and real estate. As liquidity increases, investors have more money to invest, which can drive up prices. However, it’s important to remember that the cycle is cyclical. Eventually, the upward trend in liquidity will reverse, and liquidity will start to decline.

The Downward Phase

When liquidity declines, it can have a negative impact on asset prices. Investors may become more cautious and reduce their spending, leading to a decrease in demand for goods and services. This can, in turn, lead to lower corporate profits and lower stock prices.

The Importance of Understanding Liquidity

Understanding the cyclical nature of global liquidity is essential for investors. By recognizing the current phase of the cycle and anticipating potential future trends, investors can make more informed decisions about their portfolios.

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