Constan / Howell framework
MacroDefinition
A pragmatic global-liquidity model popularized by Andy Constan (Damped Spring) and Mike Howell (CrossBorder Capital). The core insight: asset prices follow the supply of liquidity available to financial markets, not just the price of money (rates).
US Net Liquidity formula:
Fed Balance Sheet (WALCL) — total Fed assets
− Treasury General Account (WDTGAL) — Treasury's checking account at the Fed
− Reverse Repo Facility (RRPONTSYD) — money parked overnight back at the Fed
= dollars actually circulating in the financial system
When this number rises, risk assets tend to follow within weeks. When it falls (QT, TGA refill, RRP buildup), liquidity-sensitive assets (long-duration tech, crypto, growth) get squeezed even if rates haven't moved. Combined with US M2 and China M2 (the two biggest currency pools globally), it gives a better read on financial conditions than rates alone. The arsenal.finance dashboard's Liquidity composite uses this exact formula at 50% weight.
US Net Liquidity formula:
Fed Balance Sheet (WALCL) — total Fed assets
− Treasury General Account (WDTGAL) — Treasury's checking account at the Fed
− Reverse Repo Facility (RRPONTSYD) — money parked overnight back at the Fed
= dollars actually circulating in the financial system
When this number rises, risk assets tend to follow within weeks. When it falls (QT, TGA refill, RRP buildup), liquidity-sensitive assets (long-duration tech, crypto, growth) get squeezed even if rates haven't moved. Combined with US M2 and China M2 (the two biggest currency pools globally), it gives a better read on financial conditions than rates alone. The arsenal.finance dashboard's Liquidity composite uses this exact formula at 50% weight.
Formula
Net Liquidity = WALCL − WDTGAL − RRPONTSYD
Example
In late 2022, Fed BS ≈ $8.3T, TGA ≈ $0.4T, RRP ≈ $2.4T → Net Liquidity ≈ $5.5T. By late 2023 RRP had drained from $2.4T to $0.7T, releasing ~$1.7T into markets — coincided with the AI rally despite the Fed still raising rates. Andy Constan called it in real time on Twitter / Damped Spring.