Who’s afraid of quantitative tightening? Everyone we know. 

The withdrawal of liquidity, their concern goes, reverses the dynamic that supported all risk assets and will lead to sharp market declines. When the Fed last quickened the pace of its balance-sheet reduction, in October 2018, bad things happened. Also Fed chief Jerome Powell said at the time that the central bank still had “a long way” to go until rates turned neutral. 

The S&P 500 tumbled 14 percent in the fourth quarter of 2018, leading to the worst equity outflow on record in both dollar and percentage terms. To experience Q4 declines of similar force you’d have to go back to the Great Depression between 1932 and 1937, or follow the attack on Pearl Harbor in 1941, or Black Monday in 1987, or the collapse of Lehman Brothers in 2008.

The 2018 fall was the second-worst ever for global stocks and bonds. The S&P 500’s PE multiple fell 20 percent, the third-biggest drop in valuations since 1991. The dollar rose 9 percent, whereas US high-yield and EM debt posted negative returns. Oil prices plunged 40 percent in the fourth quarter to $45 a barrel.

Source: Top Down Charts

According to Nobel Prize-winning psychologist Daniel Kahneman, confidence in one’s beliefs is not always a measure of the quality of evidence but of the coherence of the story tha