Lesson 5
The ~65-Month Cycle
Know where you are in the ~65-month cycle. Early cycle = be aggressive. Late cycle = be defensive. The cycle doesn't care about your portfolio — align with it.
Michael Howell's research identifies a ~65-month (5.4 year) global liquidity cycle driven by debt maturity walls and refinancing needs.
The Mechanism:
- Corporate and sovereign debt is issued with typical maturities of 5-7 years
- Debt issued during booms clusters in 'maturity walls'
- When walls hit, massive refinancing demand arises
- Central banks must accommodate or face credit crunch
- Accommodation creates new liquidity → new cycle
Historical Troughs:
- 2009: Financial crisis bottom
- 2015-2016: China devaluation, Fed tightening
- 2020: COVID crash
- ~2025-2026: Next potential trough?
The Phases:
- Early Expansion (Months 0-15): Liquidity troughed, now rising. Maximum upside.
- Mid Expansion (Months 15-45): Sustained growth, some volatility but trend up.
- Late Expansion (Months 45-55): Liquidity growth slowing, risks building.
- Contraction (Months 55-65): Liquidity declining, risk-off, crisis possible.
Investing with the Cycle:
- Early expansion: Maximum risk (cyclicals, crypto, EM)
- Mid expansion: Quality growth, ride the trend
- Late expansion: Reduce risk, move to quality
- Contraction: Defensive, preserve capital, prepare for next trough
Check your understanding
Lesson Quiz
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Quiz Check
What drives the ~65-month global liquidity cycle?