The Hidden Tide // Episode 3
It Was Never About Earnings-The Real Fuel of Markets is Something Else
Every day, someone explains why the market moved. This is about what they’re not explaining.
Every time the market moves, someone on television tells you why.
“Stocks rose on strong earnings.” “Markets fell on Fed uncertainty.” “Nasdaq rallied after CPI came in soft.” Different explanation every single day, same tone of certainty. If you watch enough of it, you start to notice a pattern — not in the explanations, but in the explaining. Whatever happened in the market, there is always a reason. And the reason always sounds like it should have been obvious.
These explanations are more downstream than they are dishonest.
The thing actually driving the rise and fall of almost every major asset class is a force that financial media almost never names directly. This episode is about where that force comes from, how it moves, and why understanding it changes how you read almost everything else.
The explanations that don’t quite hold
I’ll start with earnings.
If corporate earnings were the primary engine of stock prices, the market should have collapsed in 2020 and stayed there. But the S&P 500 fell roughly 34% in the spring, then recovered all of it by August, going on to gain 70% from the March lows. Corporate profits cratered and the market didn’t give one you know what.
More recently: in a span of just a few quarters, 83% of S&P 500 companies beat earnings expectations — one of the highest beat rates on record. At the same time, consumer sentiment hit (and is still at) multi-decade lows. Strong corporate earnings and widespread financial strain existed in the same economy, in the same quarter. If earnings were the primary driver, that combination shouldn’t be possible. But it is, and it keeps happening.
Interest rates don’t hold up much better. The standard logic says lower rates push stocks higher and higher rates push them lower. But markets rallied during the 2022–2023 hiking cycle. After an initial shock, they kept climbing even as the Fed raised rates at the fastest pace in decades. Bitcoin hit all-time highs in late 2024 with rates still elevated. The relationship between rates and asset prices is real but not deterministic. Something else is doing the heavier lifting.
And GDP? The economy and the stock market have been visibly decoupled often enough that most serious investors have quietly stopped treating growth data as a reliable market signal.
None of these variables are irrelevant. The problem is that each of them is downstream of something that not enough people talk about, and nearly none of the mainstream voices talk about.
The only reservoir that really matters
“Liquidity” is one of those words that gets used to mean everything. Trading volume, easy credit, cash on hand. These aren’t the same thing.
Michael Howell, who has spent decades studying global capital flows, offers a more precise definition: liquidity is the capacity of the financial system to fund wants and needs. It includes central bank reserves, the ability to use financial assets as collateral, cross-border lending, and the shadow banking system’s capacity to multiply credit. M2 money supply is a slice of it. The Federal Reserve’s balance sheet is a slice. Neither one tells the whole story.
A more useful picture: imagine a reservoir behind a dam. The Fed’s interest rate decisions are one valve. The Treasury’s debt issuance strategy is another. Cross-border capital flows are a third. The total water level is global liquidity. Most financial commentary watches the valves. Howell and some others watch the water. You should too.
Dr. Jeff Ross, a portfolio manager who follows this framework closely, frames it this way: think of global liquidity as a blob. The blob has a size and a location. Both matter.
Size is the obvious part — when the blob is large, more capital is available to move into assets. But location is equally important and far less discussed. When central bank liquidity floods bank reserve accounts (think COVID 2020), the Federal Reserve expanded its balance sheet by roughly three trillion dollars in four months. Those reserves often can’t reach ordinary businesses or households, and when they do its extremely slowly. The money hits financial markets first and asset prices surge. Wages don’t. That’s not a mystery or a conspiracy. It’s the blob’s address.
The pool party
Howell uses a metaphor that I keep coming back to.
Think of the market as a pool party. The conventional analyst’s view says what matters most is the quality of the swimmers. Good companies float higher than bad ones. Strong earnings keep you above water. Weak fundamentals pull you under. All of that is true.
It’s just not the most important thing.
The most important thing is how much water is in the pool.
When the pool is full, even mediocre swimmers do fine. When the drain opens, strong swimmers sink too, just a bit more slowly. The 2020 market crash and recovery weren’t primarily a story about corporate fundamentals. The crash was the drain opening. The recovery was roughly nine trillion dollars in coordinated global liquidity refilling the pool over about five months. Earnings barely entered into it.
This makes fundamentals second-order. They aren’t unimportant, but certainly aren’t running the show.
Before asking “is this a good company?” it’s worth asking a prior question: “where are we in the liquidity cycle?”
The rhythm of the tide
Here’s the part that surprised me most when I first encountered Howell’s work: the tide isn’t random.
His research confirms a cycle in global liquidity that’s approximately 65 months, just over five years, and its held across decades of data. The cycle maps onto a structural feature of the global economy: the average maturity of the world’s outstanding debt. Every 65 months or so, the refinancing wave that rolls through global credit markets crests and troughs. Those crests and troughs show up as bull and bear markets in risk assets with a timing consistency that earnings seasons and Fed meetings simply don’t produce.
The cycle has four phases:
Turbulence: Liquidity is tightening. Credit is harder to access. Early stress appears in asset prices and in companies that were surviving mainly on cheap borrowing.
Rebound: Conditions are stabilizing. Risk appetite starts returning. The early movers into this phase tend to be rewarded.
Calm: A sustained expansion. Markets broadly rising. This is the phase that feels “normal” — steady gains, low volatility, confidence gradually rebuilding.
Speculation: Late-cycle excess. Valuations stretch. The pool is very full, and increasingly, what’s floating in it doesn’t deserve to float. This phase means the end is on the horizon.
Many people have lived through multiple full cycles without ever having a name for the phase they were in. They experienced the emotions from the crash, the grinding recovery, the extended calm, the sudden excess, without a map for where those moments sat relative to each other. Others have lived them through asleep at the wheel
It’s important to understand this as a map to understand where things are heading. Cycle timing is always a range and never exact. Geopolitical shocks can compress or extend phases. But an approximate map is more useful than no map at all.
What this means for everything you read
The news explains the weather. The tide does the heavy lifting.
Earnings reports are a lagging signal. They measure how companies performed in a liquidity environment that already shaped their results, often six to twelve months prior. Rate decisions are reactive — the Fed raises rates to cool conditions that liquidity already created, and cuts rates to stimulate conditions that liquidity has already impaired. Economic data reflects conditions the liquidity cycle determined well before anyone published a report.
None of this makes financial news useless, but I certainly wouldn’t make it my North Star for decision making.
A practical shift: before parsing a company’s quarterly call, ask where we are in the 65-month cycle. Before treating a rate cut as unambiguously bullish, ask whether global liquidity is expanding or contracting and where the blob is going. Before reacting to a CPI print, ask what the water level in the reservoir is doing.
The investors who seem to have a consistent edge aren’t necessarily smarter about individual companies. They’ve often just learned to read the water.
The most sensitive instrument we have
From ten years of weekly data across multiple economic regimes, global liquidity explains approximately 41% of Bitcoin’s systematic price variation. That’s a remarkably strong signal for a single variable in a system as complex as global financial markets.
More importantly: global liquidity leads Bitcoin by roughly thirteen weeks. The tide rises and Bitcoin moves around 12 to 14 weeks later. The tide falls and it’s the same in the opposite direction.
That’s not what you’d expect from a speculative gambling chip. Speculation responds to sentiment, social media momentum, and narratives that spike and collapse in days. A ~13 week leading relationship with global credit conditions is a different kind of behavior entirely.
What it suggests is that Bitcoin isn’t primarily a currency or a speculation vehicle. It may be the most sensitive barometer ever built for detecting the pressure inside the global monetary system, picking up movements that the broader economy takes months or years to surface. And given what Episodes 1 and 2 established:
That the tide has a structural upward bias baked into the mechanics of fiat debt
Bitcoin’s long-run direction isn’t surprising. It’s downstream of the system those earlier episodes described.
Most people spend their financial lives watching the weather. Checking the forecast. Reacting to yesterday’s earnings call, this morning’s CPI print, whatever the Fed chair said at the press conference. That’s not wrong, but it’s certainly incomplete.
The tide has been running for decades. It runs on a rhythm that predates all of us. And now that you can see it, not as a guaranteed map of what comes next, but as a framework for understanding what’s actually moving — the daily financial news starts to look different.
Antiquated financial education teaches you to watch the swimmers. What if the more important skill is learning to read the water?
The Hidden Tide is a series exploring the forces that shape money, markets, and wealth — for readers who never planned to become financial experts. Each piece stands alone. Read them in sequence and the picture gets bigger.