Introduction: Anchoring in Leads – Why the Cycle Looks Bullish Despite the Noise
A simple table can shift how you see the world. In Julien Bittel’s latest update from the Macro Investing Tool, released on 23 October 2025, a heatmap glows mostly green. It tracks 16 major economies, from the United States to China and the Eurozone. Over 81 per cent sit in what Bittel calls the Expansion quadrant. That means lead indicators – things like yield curves and credit impulses – are not just rising. They are climbing above the long-term trend of growth. Yet headlines scream slowdown. Factory orders dip. Job reports feel limp. The ISM manufacturing index hovers below 50, a level often linked to contraction. How can this be?
As someone born in 1971, growing up in the UK amid the tail end of the three-day week and sterling’s wobbles, I know doubt well. Those years taught me economies do not always follow tidy rules. Bittel’s tool, built with Raoul Pal at Real Vision, offers a way through. It divides the business cycle into four phases: Contraction, Recovery, Expansion, and Slowdown. Each calls for different portfolio moves. Contraction suits cash and bonds. Expansion favours shares and riskier bets. The key? Prioritise leads over lags. Leads point ahead, like a car’s headlights in fog. Lags, such as unemployment figures, confirm what has already happened.
Bittel’s September data, shared despite a US government shutdown delaying fuller updates, shows no rush to Slowdown. The table’s uniformity – green across big players like Japan and Major Asia – suggests breadth, not a fluke. This is not one rogue number. It draws from multiple sources, cross-checked for signals. Bittel notes on page 3 of his report: these leads have kept his approach “on the right side of risk” since late 2022. They flagged the turn from contraction before jobs data caught up. Now, with over 80 per cent in Expansion, the instinctive pull is caution. A peak here might signal rotation, as in the usual cycle flow. But Bittel sees no confirmation yet. His time-series chart on page 5 holds steady at 81 per cent, far from the 100 per cent spike that warned of the 2007 crisis eight months early.
This sets the stage for the next 12 months, from November 2025 to October 2026. Shutdown noise and tariff talk from across the Atlantic add static. Yet the leads whisper a grind higher. Bittel’s ISM projection on page 6 shows it trailing now but rebounding to the high 50s by mid-2026. For everyday investors, this means tuning out the shouts. Position for ebbs and flows, not panic. As a UK resident watching gilt yields twitch, I find comfort in the global spread. No single economy drags the rest. But signals alone do not drive the engine. Liquidity does. It is the fuel that turns green lights into motion.
The Liquidity Wall: Fuelling the Grind from Global Backstops
Liquidity moves like water under a bridge. You feel its current before seeing the river rise. In Bittel’s follow-up thoughts on his October report, he sketches a dip in his Global Macro Investor Total Liquidity Index this month. Blame the US Treasury General Account rebuild and the shutdown halting routine drains. It feels like a pause. But Bittel calls it noise. “This too shall pass,” he writes. What follows is a wall – a surge from central banks that could lift the cycle higher.
Start with the US. Weak job prints, those lagging echoes of tighter policy, keep the Federal Reserve watchful. Bittel dubs it “MOAR COWBELL” – more monetary easing to stir the herd. Lower rates flow to sensitive spots like housing starts. Families borrow cheaper for homes. Builders hire. The loop recurs: growth feeds on itself. Post-shutdown, expect Treasury spending to flood out. Add 25 to 50 basis points in cuts. Quantitative tightening winds down. Repo operations ease any funding squeezes. By January, talk of easing supplementary leverage ratios could free banks to lend more. The Fed shifts to an “ample reserves” stance. This is not theory. It mirrors 2020’s playbook, when floods of cash turned a plunge into rebound.
But fixating on the Fed misses the view. Bittel’s index aggregates worldwide flows. It captures the People’s Bank of China, the European Central Bank, and the Bank of Japan too. Remember 2017? The Fed hiked rates, squeezing its own tap. Yet bitcoin and shares soared. Why? Eastern and European banks poured in. China eased yields from 3 per cent in early 2023 to 1.6 per cent this year. Consensus called it gloom. Bittel pushed back: it signalled easing from the East.
Now comes phase two of what Bittel terms the Everything Code – a global debt refinancing story. China’s rate drop cleared the path. Debts roll over at bearable levels. With the dollar softer, the central bank expands its balance sheet. It hit records this month. Projections point to $8 trillion by late 2026. That marks the liquidity peak, not some early stumble next year. Bittel sees it extending the upswing, not capping it.
His phasing chart lays it bare: financial conditions lead liquidity by three to six months. Liquidity then pulls the ISM higher by another six to nine. Post-2023, the front lag may have stretched a touch – a near-perfect fit at six months without forcing the line. Either way, the index climbs. Excess liquidity, beyond what growth absorbs, tracks share valuations with a six-month delay since the 1980s. It points to re-ratings ahead.
Picture a garden hose kinked by winter frost – the Ukraine war’s energy spike and tariff fears from Trump-era echoes. Supplies snarl. Prices jump. Central banks hike to tame inflation, much like the 1970s oil shocks that pinched UK households. But thaw comes. The kink straightens. Water – liquidity – rushes. For the next 12 months, this wall aligns with Bittel’s green table. Q4 seasonals add tailwinds. Shutdown ends. Tariffs stay talk. The grind holds.
In the UK, where base rates bit hard on mortgages, this global flow matters. Gilt markets watch the Fed’s lead. A wall here could steady sterling without the old inflationary bite. Yet water seeks level ground. What shapes the riverbed? Policy scars from recent years – the very delays that rubber-band the cycle.
The Late-Start Heuristic: Decoding the Phased Grind
Rivers do not always rush straight. Sometimes they meander, slowed by rocks or bends. So too with business cycles. What looks like an unusually long Expansion may simply be one that started late. Bittel’s framework helps spot this. His ISM chart on page 6 shows the index lagging leads by eight to twelve months. It sits low now, but climbs as expansion breadth widens. The usual four-year arc – contraction to peak – feels stretched to five or six here. From the 2021 bottom, that puts the crest around late 2026. Twelve months from now, we watch for early signs, not the end.
The bend begins with rates held high for longer. Central banks, scarred by post-pandemic surges, peaked the US federal funds rate at 5.25 to 5.50 per cent through mid-2024. Borrowers shied from long-term bonds. Yields there priced in pain. Instead, they piled into short-dated paper – the front end of the curve. Think of it as parking in a driveway, waiting for the garage door to open. Average US debt maturities stretched a year during zero-rate days. This deferred the rollover cliff that loomed for 2025. No sharp snap-back, like the credit crunch of 2008.
Exogenous shocks kinked the hose further. Russia’s invasion of Ukraine in February 2022 sent Brent crude above $130 a barrel. Supplies choked. Food and energy costs soared. US consumer prices hit 9 per cent. In the UK, where I watched similar shadows in the 1970s, it echoed the oil embargo’s pinch – queues at pumps, budgets stretched thin. Central banks hiked to cool the fire, compressing the Recovery phase from 2021 to 2023. Yield curves stayed inverted longer. Credit impulses slowed. Factories idled.
Layer in tariff fears. Rhetoric from US politics – echoes of 2018’s trade spats – whispers higher import costs. A 10 October 2025 flare-up rattled markets. Bittel dismissed it as noise in his liquidity note. Yet it feeds the hangover: inflation paranoia that justifies caution. Borrowers hunker short-term, betting on cuts to refinance cheap. This is no accident. It is policy’s scar tissue, turning potential contraction into a stutter-step.
Bittel’s process shines here. On page 3, he stresses pulling from multiple sources. Cross-verify. Leads like conference board composites rise above trend, keeping 81 per cent in Expansion. The heatmap on page 4 shows no red clusters – contraction limited to outliers like South Africa. Even laggards rotate yellow, toward Recovery. This breadth overrides the single-point trap. One weak ISM? It trails. The time-series on page 5 grinds at 81 per cent, dipping but holding. No surge to 100 per cent, that 2007 harbinger where Slowdown shares jumped, flashing market tops eight months out.
Global backstops straighten the path. The US hike cycle sidelined its own flows. But others stepped in. China’s yield easing – from 3 per cent to 1.6 per cent on ten-year bonds – was not collapse. It primed sustainable debt rolls. With a weaker dollar, the People’s Bank deploys its sheet. Bittel’s Everything Code phase two unfolds: refinancing at levels economies can bear. This sync – Fed dovish, East amplifying – bootstraps the impulse. Weak lags pull more easing. Cuts cascade to housing. Builders act. The loop turns.
From a UK view, this late start resonates. Base rates above 5 per cent squeezed households, much like Thatcher’s squeeze in the early 1980s. Mortgages reset higher. Spending paused. Yet global rivers feed local streams. ECB easing steadies the euro. Sterling finds footing without solo hikes. The phased grind – compressed early, thrusting now – suits this interconnected age. No old-playbook snap. Instead, a meander toward late 2026.
But rivers carry more than water. Boulders shift the flow too. Enter artificial intelligence – a wildcard bending the bed in ways we sense but cannot fully map.
AI as Hinge: From Brakes to Accelerant in the Productivity Puzzle
A hinge swings both ways. Push too hard, it sticks. Ease in, and doors fly open. So it goes with artificial intelligence in today’s cycle. Bittel’s leads capture the promise – capex surveys green, credit flows to tech. Yet lags feel the drag: hiring freezes, factory indices stuck low. This tension mirrors the late start we just traced. Rates crimped the front. Now AI adds hesitation at the back. Firms pause, weighing the shift. But tip the balance, and it accelerates the grind.
Consider the brakes first. If you run a mid-sized factory in the Midlands, AI is no distant buzz. It is tools that draft reports or spot defects on lines. Yet adoption lags. Over 77,000 tech jobs vanished this year alone, many to automation pilots. Bosses trim headcount, reallocating to servers over salaries. Why rush? The payoff hides. This echoes the Solow paradox from the 1980s: computers everywhere, but productivity stats yawn. Bittel’s ISM, that lagging pulse on page 6, sits below 50 partly for this. Services dip as confidence wanes. Retail footfall eases two per cent month-on-month in the UK and US. No hires mean no pub rounds or supermarket splurges.
In my own recent essay, “From Our Habits to Machine Minds,” I explored how AI learns through linear steps – habit loops building to agency. Firms test these now, like mechanics tuning an engine. A London bank might deploy chat agents for queries. Output rises, but staff hold breath. Is this the end of routine roles? Mid-skill work – coding snippets, data entry – faces the blade. The World Economic Forum eyes 40 per cent of employers cutting where AI fits. Uncertainty mutes the cycle. Bittel’s table on page 4 stays green because leads sniff the bets: Nvidia chips stack in warehouses. But coincides – output now – chill.
This hesitation fits the rubber band. Ukraine’s scars and tariff whispers delayed Recovery. AI adds a modern twist: not policy, but potential. CEOs scramble “AI-first,” as I put it in that essay. Shift opex to capex. Road-test copilots before scaling. It is like the 1980s PC rollout in UK offices – memos typed faster, but typists waited for the next role. Bittel’s cross-check on page 3 grounds it: data first, then the cycle read. Leads like capex intentions rise above trend. Expansion holds at 81 per cent.
Now the swing to accelerant. Tip the hinge, and force multiplies. Microsoft’s $80 billion data-centre pledge this October signals it. Amazon follows with custom chips. Global AI spend tops $1 trillion by year-end. This floods adjacents: builders for hyperscalers, trainers for models. Wharton’s models forecast 170 million new jobs by 2030, offsetting losses. Energy demands boom – grids strain, but hires follow. Productivity climbs 1.5 per cent annually at first, scaling to three per cent. No wage spirals yet; margins fatten.
Bittel’s liquidity wall pours fuel here. Excess cash, beyond growth’s soak, chases these bets. The GMI index trends up, financialising into shares. AI absorbs it like a sponge – compute and power without 1970s bottlenecks. In the UK, where chip design clusters in Cambridge, this pulls euros and dollars. Sterling steadies as exports gleam. The hinge tips around quarter one 2026. Linear training, as I traced, sparks “beyond” – emergent tasks machines handle, freeing humans for oversight.
Real-world glimpses show the path. A Birmingham warehouse uses AI for picking; errors drop 30 per cent. Staff shift to planning. Output lifts without headcount bloat. Globally, it hyperscales: cheaper software slashes SaaS prices 20 per cent in trials. Goods cost less. Wallets stretch. Bittel’s phasing holds: liquidity pulls ISM higher by mid-2026. No 2007 spike on page 5 – just a steady 81 per cent grind.
Yet hinges creak under weight. Not all doors open smoothly. Displacement and price shifts test the frame before the rush.
Friction and Override: Human Scars in the Machine Age
Doors do not swing without pushback. Hinges groan under uneven loads. So with AI’s rise: promise pulls one way, human costs the other. Bittel’s lags – those job and spending prints – capture the strain. Over 300 million roles worldwide face moderate risk by 2030, per Goldman Sachs. Mid-level office work vanishes first. No cheque means no weekly shop. Retail quiets. Yet the override comes from AI’s core gift: efficiency that refills the well.
The scars run deep. Picture a call-centre worker in Manchester, replaced by voice bots. Redundancy hits. Savings dwindle. Spending drops – fewer takeaways, delayed holidays. This echoes 1980s UK steel towns: pits closed, communities hollowed. Bittel’s ISM below 50 on page 6 flags it. Services sub-index softens. Unemployment edges to 4.2 per cent. Confidence surveys dip. In the late-start cycle, this friction amplifies the stutter. Liquidity walls wait, but empty pockets mute the loop. Housing stays sidelined if families retrench.
Deflation adds rub. AI’s productivity nudge – 0.1 to 1.5 per cent yearly – compresses costs. Algorithms tune supply chains. Mark-ups on clothes or cloud services fall 20 to 30 per cent. Shoppers gain: a £50 jumper now £40. But if wages stall, it feels like less, not more. The Solow trap bites again – tech everywhere, pay packets flat. A 0.5 to 1 per cent GDP muter in this brakes phase, say economists. UK high streets, already pinched by energy bills, see footfall ease. Bittel’s coincides lag; leads on page 3 cross-verify the undercurrent.
The override flips the groan to glide. Capex’s halo shines brighter. That $1 trillion infra wave spawns roles: data labellers in Leeds, ethicists in Edinburgh. Wharton’s net: 170 million jobs by 2030. Cheaper goods reallocate spend – from basics to outings or courses. Retraining blooms; governments eye universal basic income pilots. Bittel’s balance works here: data grounds the read. Expansion’s 81 per cent on page 4 holds because credit to AI flows unchecked. Liquidity soaks in, no inflationary boil.
In UK terms, it steadies gilts. Bank of England watches wage calm amid the shift. Sterling finds poise. The machine age scars, but mends – ecosystem over individual. Bittel’s green uniformity whispers it: friction folds into lags, overridden by leads’ steady hum.
This path leads to choices. For the next 12 months, how do we walk it?
Conclusion: Constructive Tilt for the Next 12 Months – Watchpoints and Tilts
Paths converge at forks. We have traced ours: from Bittel’s green table to liquidity’s wall, the late start’s meander, AI’s hinge, and frictions’ rub. The next 12 months unfold as rubber-banded momentum – a grind higher, not a sprint. Bittel’s leads anchor it: 81 per cent Expansion, ISM trailing to mid-2026 highs. No Slowdown rush. Probabilistic tilt? Seventy per cent odds on the crest late 2026. Constructive, not blind.
For everyday portfolios, this nudges risk. Overweight cyclicals – shares tied to growth, like industrials or tech enablers. Crypto fits too, as liquidity’s pointy end. Underweight defensives: utilities or staples wait for rotation. In the UK, favour FTSE exporters eyeing AI chains. Hold cash for dips, but lean in on rebounds. Q4 seasonals – holiday boosts, year-end flows – align with the wall. Post-shutdown data refreshes the ISM. Watch for Slowdown shares ticking up in Bittel’s table – that 2007 whisper. Or liquidity peaking early if China stumbles.
Broader glimpses stir. This phased cycle hints at a flatter world. AI and global sync dull old edges – no sharp UK recessions if euro flows steady. Born in 1971, I see echoes of North Sea oil: shocks first, then lift. Yet speculation tempers: what if tariffs bite? Or displacements spark unrest? Bittel’s process guides: cross-check, balance data with gut. It builds a quiet edge.
The path invites steps. Join quarterly AMAs with Bittel and Pal for queries. Track the heatmap monthly. For me, it sparks essays like this – mapping the bend. In a world of shouts, leads light the way. Walk steady. The grind rewards.
Important Disclaimer
This essay shares personal reflections on macroeconomic themes, inspired by Julien Bittel’s Macro Investing Tool and public data. It is for informational purposes only and does not constitute financial, investment, or professional advice. Markets involve risks, including loss of capital; past trends do not guarantee future results. Views expressed are my own and may change. Consult a qualified adviser before acting on any ideas here. No endorsement of specific products or services is implied.
References
Burns, A. F., & Mitchell, W. C. (1946). Measuring Business Cycles. National Bureau of Economic Research. https://www.nber.org/system/files/chapters/c2980/c2980.pdf This seminal work provides the foundational framework for identifying business cycle phases (Contraction, Expansion, etc.), underpinning the essay’s heuristic on leads over lags in Bittel’s MIT quadrants (Section III).
Bittel, J. (2025, October 23). The Macro Investing Tool: Business Cycle Update. Real Vision Alpha. https://www.realvision.com/shows/the-macro-investing-tool Bittel’s monthly report, with its Growth Summary Table and ISM projections, anchors the essay’s core signals of 81% global Expansion and the 12-month grind horizon (Sections I and II).
Goldman Sachs Research. (2025, August 13). How Will AI Affect the Global Workforce? https://www.goldmansachs.com/insights/articles/how-will-ai-affect-the-global-workforce This analysis estimates 300 million jobs at displacement risk by 2030, informing the discussion of AI’s human frictions and capex overrides in the machine-age scars (Section V).
Hosie, A. (2025, October 28). From Our Habits to Machine Minds: How Linear Training Builds AI and Why It Sparks the Beyond. Aron Hosie. https://aronhosie.com/from-our-habits-to-machine-minds-how-linear-training-builds-ai-and-why-it-sparks-the-beyond The author’s essay on AI’s iterative learning ties directly to the hinge metaphor, exploring the shift from hesitation to emergent productivity in the brakes-to-accelerant transition (Section IV).
Pal, R., & Bittel, J. (2025, September 28). Raoul Pal ft Julien Bittel | The Everything Code 2025 [Video]. YouTube. https://www.youtube.com/watch?v=u40WmxyIEoc This dialogue unpacks global liquidity’s role in debt refinancing and cycle extension, shaping the essay’s wall-of-liquidity heuristic and PBoC Phase 2 amplifier (Section II).
Solow, R. M. (1987). The Solow Productivity Paradox: What Do Computers Do to Productivity? Brookings Institution. https://www.brookings.edu/articles/the-solow-productivity-paradox-what-do-computers-do-to-productivity/ Solow’s classic observation—”You can see the computer age everywhere but in the productivity statistics”—echoes the essay’s Solow Paradox redux for AI’s current hesitation muting lags (Section IV).
World Economic Forum. (2025). The Future of Jobs Report 2025. World Economic Forum. https://www.weforum.org/publications/the-future-of-jobs-report-2025/ The report’s finding that 40% of employers plan AI-driven workforce reductions grounds the essay’s data on 77,000+ tech layoffs and transitional frictions (Sections IV and V).
Wharton School, University of Pennsylvania. (2025, September 8). The Projected Impact of Generative AI on Future Productivity Growth. Penn Wharton Budget Model. https://budgetmodel.wharton.upenn.edu/issues/2025/9/8/projected-impact-of-generative-ai-on-future-productivity-growth This model projects AI boosting GDP by 1.5% by 2035 (scaling to 3.7% by 2075), supporting the essay’s accelerant flip with 170 million net new jobs offsetting displacements (Sections IV and V).