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*                       FIEND'S SUPERBEAR MARKET REPORT                     *

*                                  January 2, 2026                          *

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*                       e-mail: fiendbear@fiendbear.com                     *

*                    web address: http://www.fiendbear.com                  *

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Fiend Commentary

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December 2025: The Month Liquidity Came Back in Style

December didn’t end with a classic “Santa Claus rally.” It ended with a reminder that markets don’t always need good news to go up — they just need liquidity and a convincing narrative.

Yes, gold and silver made the loudest headlines. But the bigger December story wasn’t the fireworks in metals — it was the quiet policy pivot underneath nearly every asset class: the Federal Reserve shifted from “draining” to “maintaining,” and Wall Street treated that as permission to keep risk-on behavior alive into year-end.

1) The Fed’s December pivot: rate cut + “reserve management” that looks a lot like easing

At its December meeting, the Fed cut the policy rate by 25 bps to a 3.50%–3.75% target range. The statement also acknowledged softer labor conditions (“job gains have slowed,” unemployment has “edged up”) while noting inflation “remains somewhat elevated.”

But the most telling line was about the balance sheet: the Fed judged reserves had fallen to “ample” and said it would initiate purchases of shorter-term Treasury securities as needed to maintain ample reserves.

That’s not the same as pandemic-era QE in spirit or scale — but in market terms it has the same psychological effect: the Fed is no longer pulling liquidity out of the system and is now prepared to add it back when needed. In a market conditioned to respond to liquidity, that matters more than semantics.

2) QT ended — and the balance sheet stopped shrinking

December was also the month when the Fed’s QT program effectively ended (as previously announced). Starting Dec. 1, the Fed stopped the runoff and moved to roll Treasury maturities and reinvest agency principal into Treasury bills.

That’s a meaningful regime shift: a central bank that stops shrinking its balance sheet in a market already priced for calm is basically saying, “We don’t want tighter financial conditions. We want stable plumbing.”

3) A year-end tell: banks leaned on the Fed’s standing repo facility

Another underappreciated December headline was the spike in usage of the Fed’s standing repo facility — banks borrowed roughly $26 billion on Dec. 29, one of the highest readings since the facility launched.

Year-end funding stress is not unusual. But the optics are important: the system is still reliant on backstops, and the Fed has been actively encouraging smoother use of those backstops (including removing a daily limit on the facility, per Powell). Markets may look calm, but the plumbing still matters — and December reminded us that liquidity is managed, not guaranteed.

4) Inflation looked better — but the data itself was messy

December’s CPI report for November gave markets what they wanted: inflation came in cooler than expected (2.7% YoY), providing cover for dovish expectations.

However, there was a critical caveat: the CPI was distorted by missing October observations because of prior disruptions, and the BLS explicitly said it couldn’t provide specific guidance for users navigating those missing observations.

That creates a subtle but real problem: when markets have to price policy based on imperfect data, confidence becomes fragile. It’s one reason liquidity tends to dominate: when the statistics are noisy, investors lean on the assumption that the Fed will err on the side of support.

5) Stocks levitated anyway — AI euphoria remained the dominant bid

Despite December’s late wobble and a weak final session, 2025 closed with large annual gains: the S&P 500, Nasdaq, and Dow all posted double-digit returns. AI enthusiasm remained central to the story — Nvidia even became the first public company to reach a $5 trillion market cap.

In other words: December did not bring a broad “risk reset.” It brought a continuation of the same psychology that has defined late-cycle markets for years: investors are willing to pay up for growth stories as long as financial conditions stay easy.

And the VIX? It spent part of late December at its lowest close since December 2024, which is the market’s way of saying: “We don’t feel any urgency to hedge.”

6) Metals were the symptom, not the whole story

Gold and silver were extraordinary in December — but the more useful interpretation is not “metals are going up.”

It’s this: in a month when equities stayed calm and volatility got cheaper, the metals market still demanded a premium for hard assets. That’s a vote — not necessarily for imminent disaster, but for skepticism about long-run purchasing power and policy discipline.

What December is really telling us about 2026

If December had a single takeaway, it’s that 2026 will likely be a tug-of-war between two forces:

1.     Liquidity support (rate cuts, balance sheet stability, reserve purchases) that can keep asset prices elevated even with a softening economy; versus

2.     Inflation and credibility risk — the possibility that policy support arrives faster than inflation truly cools, forcing markets to reprice the “easy money forever” assumption.

The most important question isn’t whether we get another cut.

It’s whether the Fed can stay supportive without re-igniting inflation psychology — and whether investors will keep paying record multiples while relying on central bank “plumbing” as the safety net.

That’s the real December story. The metals just made it impossible to ignore.

 

 

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