The Analyst’s Course · Macro Regimes
Liquidity Regimes — QE, QT, and Risk Assets
The plumbing, in three sentences
When the Fed buys bonds (QE), it pays with reserves — bank deposits at the Fed — which raises the system's cash-like liquidity and suppresses term premia across the curve. Portfolios rebalance: with Treasury yields suppressed, marginal dollars chase risk (credit, equities, crypto). Reverse it (QT) and the flow runs the other way. Liquidity is not the economy — it is the water level under asset prices, and it moves first.
2020 and 2022: one mechanism, two directions
March 2020: the Fed added ~$3T in months — the fastest expansion ever — and the melt-up followed almost mechanically: everything with a bid rose, fundamentals irrelevant (even bankrupt-carrier equities rallied). 2022: QT began with rate hikes; the water level dropped and the most duration-sensitive, least cash-flow-backed assets fell first and hardest. Same plumbing, opposite directions. The regime lesson: identify which lever is moving before attributing price action to stories.
Where it shows up first
The liquidity wave hits in sequence: (1) the front end and bills, (2) the long end via premia, (3) credit spreads, (4) equities' multiple, (5) the most speculative cohorts last in, first out. The macro panel's Treasury data covers stages 1–2; the curve shape is the fingerprint. When the front end falls while the long end holds (bull-steepening on cuts), that is liquidity returning; when the long end rises while the front is pinned (bear-steepening), that is premium — different portfolios react differently to each.
Front end → long-end premium → credit → equity multiple → speculative cohort
Liquidity sequence — The wave moves in order; the panel's curve data shows stages 1–2 in real time.
The RRR of it all — 2020's everything rally
Between March and December 2020, the Fed's balance sheet grew ~$3T while GDP collapsed. Result: the S&P +67% off the March low, Bitcoin +800%, junk spreads at 15-year tights, bankrupt companies' equity trading in billions. The dispersion of outcomes was enormous; the direction was uniform. No fundamental model explains a rally in bankrupt equities; a liquidity model explains it in one line. That is the use of regime analysis — it explains the inexplicable before it happens again.
What you'll practise
The first asset class to feel a liquidity change is…
3 graded checkpoints · certification exam at the end of the track
Sources
Shiller, Irrational Exuberance (3rd ed.); Estrella & Mishkin (1996); multpl.com; US Treasury
Learn content is for education only — not individualized financial advice, a recommendation, or a solicitation to buy or sell any security. Options involve substantial risk. Examples are simplified and historical patterns never guarantee future results.