The Timeline Extends

The outlook has evolved since our previous conversation with Andrew from Hunt Economics just a few weeks ago, with a moment of reckoning now pushed into 2026 rather than appearing imminent. This extension reflects an extraordinary liquidity surge that has surprised even seasoned market observers. Since Easter alone, approximately $1 trillion in debt monetisation has occurred globally, with China monetising $200 billion monthly and Europe contributing substantially through what amounts to forced bank purchases of government debt. The U.S. has joined this wave through various mechanisms, from Treasury account drawdowns to regulatory changes enabling bank treasury purchases.

What's particularly striking is that this liquidity injection is occurring against a backdrop of economic stagnation. Strip away AI-related capital expenditure, and the U.S. economy has barely grown, consumer spending rose just 0.7% annualised in the first half of 2025. Europe remains stagnant outside Spain, the UK faces recession, Japan is shrinking, and China's domestic economy remains sluggish despite export growth. Yet markets continue to rise, driven  liquidity rather than fundamental growth.

The 2006 Parallel and Capital Flows

The current environment bears uncomfortable similarities to 2006, when domestic credit began weakening but foreign capital flows extended the cycle. Today, despite massive Treasury bill issuance crowding out short-term credit markets and causing repo market stress, the fifth-largest capital inflows in U.S. history (relative to GDP) have kept markets functioning. European, Japanese, and Asian investors are pouring money into U.S. debt instruments and equities, reminiscent of how foreign buyers extended the mortgage bubble by six to nine months in 2006-2007.

This creates an uncomfortable but necessary investment stance: as Chuck Prince infamously said before the financial crisis, "as long as the music is playing, you've got to dance." The pragmatic approach for 2025 is to maintain benchmark allocations to risk assets while the liquidity tide remains strong. Fighting this wave of money creation would likely prove costly, as another trillion dollars of debt monetisation could materialise before year-end.

Preparing for the Inflation Endgame

However, this liquidity-driven rally comes with a critical caveat: inflation expectations are becoming unanchored. With no developed world government enjoying majority public confidence – a historic low – populations increasingly recognise that money printing isn't creating real value. Japan offers a preview of what's coming: households are abandoning cash and short-term credit instruments (which comprise 60% of Japanese wealth) in favour of gold, property, foreign assets, and equities.

The recommended portfolio approach is therefore dual-track. For 2025, stay invested at benchmark weights to capture liquidity-driven gains, but systematically build positions in inflation hedges. This includes gold (which still has room to run), Japanese property companies trading at unrealised valuations, companies with pricing power, and real assets that can preserve purchasing power. Avoid extended duration in nominal bonds, cash positions beyond tactical needs, and any assets with fixed nominal values that inflation will erode.

Some Critical Things to Monitor

Unlike previous discussions suggesting imminent risks, the timeline now extends to early to mid-2026 before Andrew feels that inflation becomes undeniable and potentially problematic. The key in the interim is tracking both U.S. domestic credit creation and international capital flows in order to make sure that this thesis stays intact. If these stall simultaneously the music stops and a sharper tightening could shift the pendulum back to a recessionary contraction which has very different asset allocation implications.

Until then, the playbook remains: surf the liquidity wave, prepare for potentially higher inflation and a higher real rate environment while maintaining the flexibility to pivot when conditions change.​​​​​​​​​​​​​​​​