By the time Powell steps to the microphone this afternoon, most of Wall Street will already be wrong. |
They will be fixated on the headline. |
Did the Fed cut a quarter point or not How many cuts are penciled into the dot plot Which adjectives Powell chose for the prepared remarks
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In other words, they will obsess over the theater. |
What actually matters for your money is something far more basic and far more powerful: |
Is the Federal Reserve draining liquidity from the system, or quietly adding it back in. |
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We are very close to a moment that only comes around a few times per cycle. |
A point where the direction of liquidity flips. |
And if you understand how that flip works, you will know why some corners of the market are about to become very dangerous, while others are setting up for the kind of multi-year runs that can rewrite your net worth. |
Most investors will miss it completely. |
You do not have to be one of them. |
Everyone Is Arguing About The Wrong Thing |
If you flip on financial TV today, you will hear the same tired script. |
One camp says the Fed is "behind the curve" and needs to cut aggressively.
The other says inflation is still too high and the Fed "cannot afford" to ease. |
Both sides want to drag you into a political argument. |
Here is the problem. |
The market already made its judgment long before Powell opens his mouth. |
Futures have been pricing a path of cuts for months Curves have already steepened and then flattened again in anticipation Credit markets have quietly shifted how they price growth and default risk
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In other words, by the time we get the press conference, most of the easy reaction trade in the front end of the curve is already gone. |
What is not priced in yet is how this all plays out over the next 12 to 24 months now that the Fed has effectively stopped draining the pool. |
Because while everyone was yelling online about "higher for longer," something important already changed in the plumbing. |
Quantitative tightening is ending. |
QT Just Ended. That Changes The Game. |
For the last couple of years, the Fed has been shrinking its balance sheet. |
That is the part of policy almost no one talks about at cocktail parties, yet it is the one that often matters most to markets. |
Here is the simple version: |
During QE, the Fed was buying bonds and pushing fresh reserves into the banking system During QT, the Fed was letting bonds roll off and pulling those reserves back out
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Think of QE as opening a fire hose into financial markets.
Think of QT as closing the valve and letting the excess drain into the floor. |
We have been in that draining phase. |
The green line in the chart below is the Fed's balance sheet. It explodes higher in 2020 when QE hits, tops out in mid-2022, and then quietly rolls over. From that peak forward, the Fed has been shrinking its balance sheet almost every month, even as the S&P candles keep marching to new highs. |
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Now we are at the pivot point. |
The Fed has effectively stopped shrinking the balance sheet and started talking about "reserve management" again. |
They do not want to call it QE.
They will not stand up and say "we are printing money." |
Instead, they will dress it up in technical language. |
You will hear phrases like: |
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Translated: they are done yanking liquidity out of the system and are laying the groundwork to keep it abundant. |
It does not sound dramatic, which is exactly why most investors will ignore it. |
But if you look at how markets behaved the last time QT ended, you will understand why this moment matters. |
What A Liquidity Flip Usually Does To Markets |
When the Fed shifts from active draining to neutral or gently adding, the effect is rarely instantaneous. |
You do not wake up tomorrow to a straight line higher. |
Instead, liquidity moves through the system in stages. |
First, the stress points ease. |
Dollar funding pressures calm down Certain credit spreads stop widening and begin to grind tighter The wildest volatility in rates settles into smaller, tradeable ranges
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Then the "liquidity sponges" start to respond. |
These are the parts of the market that soak up every extra unit of easy money. |
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They do not all move together, and they do not all survive the full cycle. |
Some become the next big winners.
Others become the next spectacular blowups. |
Finally, once enough investors realize the regime has changed, capital starts to rotate. |
Out of assets that only made sense in a world of artificial scarcity.
Into assets that can actually compound in a world where capital is getting cheaper again. |
That is the phase that produces the biggest long term winners. |
It is also the phase that almost no one prepares for ahead of time. |
The Collision Course In December |
Why does this matter today of all days |
Because we are heading into one of the most crowded months of cross-currents I have seen in years. |
On one side, you have the Fed. |
A likely move toward cuts over the next year An end to active balance sheet runoff The first hints of quiet bill buying and reserve management
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On the other side, you have a packed calendar of real world market events. |
In crypto, December is loaded with: |
Big token unlocks that dump supply into the market A halving event that cuts emissions for one of the most talked-about AI tokens Upgrades on major chains that change how capital flows across L2s
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At the same time, in traditional markets, you have: |
Energy and hard assets still trading at clear discounts to fair value Certain high quality cash generators priced as if money will stay scarce forever Hyper-crowded "AI darlings" that already baked in years of perfection
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That is what happens when you slam a monetary turning point into a month full of catalysts. |
Liquidity that was scarce becomes less scarce. |
Supply that was manageable becomes less manageable. |
Traders who have been on one side of the boat all year suddenly realize the water level is changing beneath them. |
And because most of them are watching the wrong dial, they are likely to be late. |
Where The Real Opportunity Lives |
If you are thinking like a serious investor, the question you should be asking this morning is not: |
"Will the Fed cut 25 basis points today" |
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The question is: |
"If the direction of liquidity has quietly flipped, which parts of the market are the most mispriced for a 2026 world" |
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I believe the opportunity breaks into three buckets: |
Assets that become safer as liquidity improves, because they were never priced for perfection in the first place Assets that can channel cheap capital into real, measurable cash flows Assets that are pure speculation and only make sense if the fire hose turns back on at full blast
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Most of the content you will see today will treat them all the same. |
Everything will be framed as "risk on" or "risk off." |
That is how you end up buying the wrong things at exactly the wrong time. |
My hope is that this article will help you to tell the difference. |
Which brings us to the part of this report you will not hear about on TV. |
The specific ways I am positioning as this liquidity flip takes hold. |
How I Am Positioning For The Liquidity Flip (With Tickers To Watch) |
If the only thing you do after today's Fed meeting is make a directional bet on the S&P, you are playing a very small game. |
The real edge is in understanding which specific assets are mispriced for a world where liquidity is no longer getting tighter every month. |
I break that into three buckets and attach real tickers in each. This is a watchlist, not personal advice, but it will give you a concrete starting point. |
Bucket 1: Quality Yield And Hard Assets |
Here I want real cash flows, durable balance sheets, and assets that get safer as liquidity improves. |
A. Energy and midstream income |
Morningstar and other fundamentals shops still have pieces out arguing that large cap energy is undervalued relative to the S&P, with names like Occidental Petroleum (OXY) and Devon Energy (DVN) screening cheap versus intrinsic value. |
For the "pipes and toll roads" I like to watch: |
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These sit in the middle of the energy value chain, clip fees on volume, and historically have delivered steady distributions while being mostly insulated from day to day oil price noise. |
B. Precious metals royalty and streaming |
If the Fed is moving from drain mode to refill mode, anything tied to long term debasement risk deserves a look, but I prefer royalty structures over tiny, capital hungry miners. |
On my watchlist: |
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These collect streams and royalties across portfolios of mines, which gives exposure to the metal without betting the farm on any single project. |
C. Quiet industrial and infrastructure compounders |
For the "own the plumbing of the real economy" side of this bucket I am watching big, diversified names like: |
Caterpillar (CAT) Eaton (ETN) Honeywell (HON)
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They are not as flashy as high beta tech, but they sit right at the intersection of infrastructure spending, industrial automation, and reshoring. |
In this bucket I build positions in stages, focus on dividends and buybacks, and assume the payoff is measured in years, not weeks. |
Bucket 2: High Beta Liquidity Sponges |
When liquidity stops tightening and begins to ease, the biggest percentage moves usually happen in what I call liquidity sponges. They soak up every extra unit of risk capital. |
I treat these as trades with strict risk controls, not core holdings. |
A. Crypto miners and leveraged digital plays |
Bitcoin miners are among the purest expressions of risk appetite and dollar liquidity. A few that are on my radar: |
Riot Platforms (RIOT) CleanSpark (CLSK) Cipher Mining (CIFR) TeraWulf (WULF)
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JPMorgan recently upgraded Cipher and CleanSpark with higher price targets into 2026, and several of these names have triple digit year to date moves. That tells you all you need to know about both upside and downside potential. |
My rules here: |
Position sizes stay small. I define exits in advance. I assume a lot of noise around crypto unlocks and macro headlines.
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B. Smaller growth that survived the tightening cycle |
I am less interested in story stocks that need a bubble to exist and more interested in companies that actually used the last few years to get leaner and more profitable. |
A couple of examples I am watching: |
C. H. Robinson (CHRW) – freight logistics using AI to drive real margin gains and cost cuts. Rockwell Automation (ROK) – automation and control systems leveraged to industrial and AI related capex, with improving earnings momentum.
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These are still "growthy" names, but they already make money and have proven they can adjust to a higher rate world. If liquidity goes from hostile to neutral or friendly, they can re-rate higher. |
In this bucket I often prefer defined risk options structures (credit spreads, call spreads, diagonals) over straight stock, so my maximum loss is clear the moment I enter. |
Bucket 3: Next Generation Rotation Plays |
This is where the long term upside lives if the cycle we are entering looks more like an extended build out than a one quarter sugar high. |
I am focusing on AI infrastructure, robotics, and automation that convert cheaper capital into real capacity. |
A. AI infrastructure and data center backbone |
Big Tech is on track to spend hundreds of billions on AI infrastructure, with 2026 shaping up as a breakout year for foundries and chip makers that sit behind the scenes. |
My core watchlist: |
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These are not undiscovered secrets, but they are the toll roads and tool makers of the AI build out. If the Fed stops fighting liquidity with both fists, the capex wave into this group has more room to run. |
B. Robotics, automation, and "do more with less humans" |
Rather than trying to pick every single winner, I like to track both individual names and thematic vehicles. |
Watchlist here: |
Rockwell Automation (ROK) again for factory and industrial automation. Global X Robotics and Artificial Intelligence ETF (BOTZ) – diversified basket of robotics and applied AI names. ROBO Global Robotics and Automation ETF (ROBO) as a broader robotics and automation index.
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These capture the "automation of everything" theme: factory floors, logistics, healthcare robots, and autonomous systems. |
Here I am patient. I build positions slowly as breadth, credit spreads, and volatility confirm that the tightening cycle is truly behind us. |
How I Use Today's FOMC Around This Watchlist |
I am not guessing every word Powell will say. I am watching for which path becomes more likely. |
If we get a small cut and tough language, I look to add on dips in Bucket 1 and the sturdier names in Bucket 3, and trade Bucket 2 with tight risk. If they pair cuts with a clear signal on slowing or ending QT, I am more willing to scale into this watchlist, especially midstream, royalties, and selected AI infra. If they surprise on the hawkish side, I keep powder dry, but I do not throw out the framework. The plumbing still points to a liquidity flip over the coming quarters.
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You do not need to own every ticker on this list. |
The point is to have a map: which names benefit from a world where the Fed is no longer draining the pool, which ones are pure hot money, and which sit in the real economy that still has to function no matter what Powell says this afternoon. |
If you are reading this as a new subscriber, welcome. |
My goal is not to guess this afternoon's headline. It is to give you a repeatable framework for making sense of what comes next: |
Understand how liquidity is actually changing. Know which buckets benefit or suffer from that shift. Have a concrete, risk-defined way to express your view.
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If you enjoyed this and see it's value consider upgrading to a paid member to receive all of my analysis and trade alerts. |
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