Andrew Hunt's market perspective has shifted in recent weeks from measured confidence in continued liquidity flows to warning of potentially binary outcomes that could reshape global markets.

In early October, Hunt maintained cautious optimism, noting strong foreign capital inflows into U.S. markets and expecting a typical year-end rally supported by Federal Reserve rate cuts. His analysis showed U.S. capital inflows in 2025 were "some of the largest ever recorded," with foreign investors—particularly from China and Europe—continuing to chase U.S. equities and AI-related investments. The domestic liquidity picture, while showing some orange flags, seemed manageable as long as foreign flows persisted.

However, cracks have begun appearing in this narrative. We read with interest his "Return to the Murky Depths" report a couple of weeks ago which explicitly parallels to 2006-2007, when foreign banks provided the final liquidity before the GFC. Almost concurrently we then saw troubling signs in private credit markets, including the First Brands failure revealing potential malfeasance, and emerging market credit events exposing underlying economic weakness from Chinese dumping. These don’t appear to be isolated incidents but symptomatic of broader fragilities and eerily reminiscent of when Bear Stearns started running into trouble.

A more decisive shift came earlier this week when Hunt's weekly data showed foreign capital inflows, the lych pin of the post Liberation Day Rally, had "moderated" while domestic conditions "actually got worse." The government shutdown appears to have created an unexpected $300 billion fiscal tightening, the Treasury General Account jumped $50 billion, and critically, repo lending appears to be falling significantly. 

Hunt now frames the near-term outlook as binary. Either foreign flows continue, validating current valuations and enabling a relief rally, or they stall, triggering what he is suggesting will be a "big week" for risk assets. The implications of the latter are severe: without foreign funding, closing the U.S. current account deficit would require a 4-5% GDP contraction. 

However, Hunt's medium-term outlook remains consistent: policymakers won't tolerate such economic pain. He expects any significant market stress to trigger immediate policy responses, either forcing banks to fund deficits or implementing outright quantitative easing "by another name." This leads to his long-term view of inevitable inflation as governments globally resort to monetary financing.

This suggests a challenging period ahead. His recommendation to avoid "providing liquidity at the top" reflects the historical pattern of surplus countries losing wealth during crisis transitions. While he still sees buying opportunities in a selloff—particularly in inflation hedges and quality companies with cost control—he warns against chasing momentum in overvalued AI and growth stocks.

Overall, we think this analysis suggests that we're witnessing the late stages of a liquidity-driven bubble sustained primarily by foreign flows, with U.S. domestic fundamentals already deteriorating. Whether this resolves through gradual adjustment or crisis, Hunt's central message remains clear: the current dependence on foreign capital at extreme valuations is unsustainable, and investors should position defensively while maintaining dry powder for the dislocations ahead.

Given the binary near term outlook we are comfortable with a moderately defensive positioning that is expressed largely within asset classes than being overtly light on risk assets. Furthermore, it is encouraging that the areas we are overweight enjoy higher long-term expected returns (according to our modelling) and could also enjoy a tailwind from the pre-emptive stimulus driven environment that Hunt Economics are expecting in the medium-term. The simple message for clients might be that the politics of the day would seem to preclude any degree of austerity, especially in the event of a setback. Therefore, regardless of one’s political leanings one might have to go with the flow for the foreseeable future. If we can find fairly valued assets in a late-cycle, fizzy market to do that then so much the better.