This Drives All Markets: Why Liquidity Matters
If you want to predict where markets are heading—stocks, crypto, bonds—focus on liquidity.
1. What Liquidity Means
Liquidity is simply the money flowing through the economy.
When liquidity rises → asset prices go up.
When liquidity falls → markets weaken.
It doesn’t hit all assets at once—risk assets react last.
2. Where Liquidity Comes From
Most new liquidity comes from borrowing.
70–80% of loans are backed by collateral.
When collateral drops, forced selling can trigger crashes.
Liquidity is shaped by:
Monetary policy (interest rates, Fed balance sheet)
Fiscal policy (government spending)
Real demand for loans driven by things like tariffs or tech hype
The key: real loan demand drives the cycle.
3. What Performs Best in Each Cycle Stage
Cycle Stage Best Assets
Rates falling Bonds
Rates rising from bottom. Stocks
Rates peaking. Risk assets & commodities
Rates falling again. Cash
Right now: We’re late in the cycle and close to the cash phase, as liquidity drains.
4. The 4–5 Year Pattern
Liquidity cycles last 4–5 years, and history shows the Fed often keeps policy tight too long—leading to downturns.
Bottom Line
To understand market moves, watch liidity—it’s the real engine behind every boom and crash.
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