Friday Haymaker
Friday Haymaker
Friend of Haymaker, Kevin Muir (the MacroTourist), on liquidity
Hello, Subscribers:
In my view, Kevin Muir has been one of the few market observers to consistently map the liquidity terrain with clarity and precision. He has also ably described the market and economic impacts of the liquidity deluge that has characterized this decade. His constructive stance in late 2022 and early 2023, a period marked by elevated recession fears and multiple high-profile bank failures, was not one of blind optimism, but of a deeper awareness of how liquidity quietly shapes market outcomes beneath the surface.
His focus on liquidity trends enabled him to ignore less timely considerations, such as stock market overvaluation and avoid premature disaccumulation syndrome. In other words, he stayed mostly bullish in recent years because of the torrents of liquidity he saw sloshing around the world.
For example, with the consensus focused narrowly on the Fed’s balance sheet contraction, he turned his attention to the broader picture of fiscal and monetary flows. He tracked the Treasury General Account (the government’s de facto checking account) and the Fed’s Reverse Repo Facility, both of which were being drawn down in tandem. These amounted to over $1 trillion of liquidity infusions. When combined with persistent fiscal stimulus (i.e., massive deficit spending), they effectively neutralized the Fed’s Quantitative Tightening. The result was a liquidity backdrop that, despite the headlines, remained largely accommodative.
But that dynamic may be changing, as the buffers that once absorbed QT are now depleted. The RRP has fallen sharply from its pandemic-era peak and the TGA is being replenished, pulling liquidity from the system at a moment when risk assets are priced for perfection. And while investor attention has shifted to other narratives, the structural fragility beneath the surface is quietly mounting.
In Muir’s view, the return of liquidity stress is not just a possibility, it’s increasingly probable. As the Fed continues to shrink its balance sheet and the Treasury moves to rebuild its cash position, the financial system may soon face a liquidity environment that is meaningfully tighter than anything seen in recent years.
Given the speculative fervor embedded in current market pricing, and the diminishing availability of offsetting liquidity channels, the potential for dislocation is rising. Just as Muir’s early optimism proved prescient, his present caution offers a timely lens into a dynamic that remains underappreciated, but no less critical.
Follow-up note on the Bubble 3.0 Epi-epilogue
Two weeks ago, we posted Part I of a previously unpublished second epilogue (hence epi-epilogue) to my 2022 book, Bubble 3.0. We were happy to see that a number of you were interested in reading the second part, which is why we’ve posted the material in its entirety for all to access and read at their leisure. We hope you’ll all first spend some time engaging with Kevin Muir’s top-notch work before following the provided link to the promised Epi-epilogue. Enjoy both and please be sure to share Haymaker with your friends, family, colleagues, and peers. We’re always looking to grow the readership and appreciate every bit of help our loyal subscribers can provide in that regard!
Excerpted MacroTourist piece below (originally published August 25th, 2025)
I’d like to take you back to August 2022. At the time, the Federal Reserve had just begun its Quantitative Tightening program, and many market pundits were worried about the negative effect it would have on the stock market. It’s quaint to think about now, but with the higher interest rates and shrinking balance sheet, most forecasters were convinced a severe recession was just around the corner…
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