Looking at the group, a bunch of newcomers are cheering again, "The Fed has stopped shrinking its balance sheet, liquidity is warming up, the bull market is coming!" I can't help but feel a bit sighing. I thought the same in 2019, but ended up heavily invested and trapped, with my holdings shrinking by 30% in a month. That lesson made me realize an important truth—treating stopping the bloodshed as releasing water is the biggest trap for beginners.

**What exactly is stopping the balance sheet shrinkage?**

Simply put, stopping the balance sheet shrinkage means the Fed turns off the water pump. Quantitative easing is desperately printing money to flood the market, while shrinking the balance sheet is pulling water out. Stopping the shrinkage is just halting the water removal, not starting to release water. The difference between the two is huge, but many people confuse them.

**Why is the Fed forced to stop?**

On December 1, the Fed announced to halt balance sheet reduction, which sounds like a policy shift, but in reality, it’s a "self-rescue" pushed into a corner. Bank reserves have already fallen below the safe threshold of $3 trillion, and the overnight repo rate once spiked to 6%. The market almost has no cash flow. Continuing to drain liquidity would cause a systemic crisis. This is almost identical to the night before the 2019 repo crisis—the Fed isn’t trying to rescue the market, it’s afraid of a system collapse.

**The true intention behind the policy**

Powell says "the economy needs support," but in fact, he’s plugging liquidity holes. Ironically, the Treasury is issuing bonds simultaneously, pulling out $400 billion, which is like stopping the bleeding while bleeding more. What kind of good news is this? It’s clearly risk hedging.

Understand this logic, and you’ll see why a mere policy shift message isn’t enough to trigger a real bull market. The market needs genuine liquidity supply, not passive measures like stopping the bloodletting. Don’t be fooled by surface news.