The Liquidity Tide Is Turning: Warning for Risk Assets
•February 6, 2026
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Why It Matters
Understanding the Fed’s balance‑sheet reduction is crucial because it reshapes market dynamics and risk premiums across all asset classes. Investors who recognize this liquidity shift can adjust portfolios proactively, protecting capital amid tightening financial conditions.
The Liquidity Tide is Turning: Warning for Risk Assets
Risk markets are sending a clear signal—it’s the end of easy money. After a spectacular three-year run, risk assets from Bitcoin to high-growth tech stocks are skidding. This isn’t a coincidence. It’s the direct result of a fundamental shift in the most powerful driver of financial markets: Global Liquidity.
The US Federal Reserve, under presumptive Chair Kevin Warsh and egged on by Treasury Secretary Bessent, is now explicitly threatening to shrink its balance sheet—a process known as quantitative tightening (QT). This hawkish pivot, potentially guided by the philosophy of influential backers like star investor Stan Druckenmiller, marks a decisive turn from the era of endless support.
This piece is not a ‘sell everything’ recommendation, but a recognition that the investment clock is ticking. What’s more, we are not predicting a sudden crash. Rather we offer perspective and favour rotation into more defensive investments to protect wealth.
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