| Dimension | What It Measures | Key Indicator |
|---|---|---|
| TOTAL | Is global liquidity expanding or contracting? | Fed balance sheet, M2, SOFR, fiscal deficit |
| DIRECTION | Is capital flowing INTO or OUT of the USD? | DXY, TIC flows, gold flows, EM outflows |
| SPEED | Panic or calm? | VIX, HY/IG spreads, TED, swap basis |
| State | Total | Direction | Speed | Portfolio Response |
|---|---|---|---|---|
| COLLAPSE | Contracting | Centripetal | Accelerating | Cash is king. All risk assets under pressure. |
| DRAIN PHASE | Contracting | Centripetal | Normal | USD accumulating. Wait for the release valve. |
| DIFFUSION | Expanding | Centrifugal | Normal | Risk-on. Capital flows to EM and commodities. |
The 2026 thesis: the US needs to refinance $40T of debt. To do that, it must attract global capital
into Treasuries. The mechanism: open the Middle East inflation valve → global capital flees weak
currencies → floods into USD → Treasury issuance succeeds → offshore dollar freeze
(centripetal collapse) → distressed assets get absorbed → dollar re-deployed.
The three flows are the seismograph for every stage of this cycle.