If it’s any mystery to you how the market can continue to assail new heights amid all of the world’s uncertainty and all of the data we’ve presented herein, I believe I can sum it up with one chart.

Federal Reserve Total Assets:



Need more explanation? Okay


The ginormous move from September of last year in the size of the Fed’s balance sheet represents injections of liquidity into the banking system in exchange for assets (treasury securities in particular). While it was, and still is, necessary to keep the nation’s financial plumbing flowing — yes, something’s broken — it absolutely lessens the supply and lowers the return of safe assets and inspires folks to buy riskier assets. Said folks emboldened by the prevailing crowd-think that screams that as long as liquidity remains high (via Fed money printing) risk remains low. I.e., there’s absolutely nothing fundamentally-positive (the opposite in fact) going on here.


Here’s the evidence.


Same chart with the S&P 500 layered in:



Same chart with Apple and Tesla layered in:



By the way, that’s a 49% move for Apple, and a 249% for Tesla; since the day in September when the Fed opened up the spigots! What could go wrong?


Here are three critically important quotes (the third in particular) from Howard Marks’s critically important book The Most Important Thing Illuminated:

“When you pay for perfection, you don’t get what you expected, and the high price you pay exposes you to risk of loss when reality comes to light. This is truly one of the riskiest things.”

“Recognizing risk often starts with understanding when investors are paying it too little heed, being too optimistic and paying too much for a given asset as a result. High risk, in other words, comes primarily with high prices. Whether it be an individual security or other asset that is overrated and thus overpriced, or an entire market that’s been borne aloft by bullish sentiment and thus is sky-high, participating when prices are high rather than shying away is the main source of risk.”

“In 2005–2007, belief that risk had been banished caused prices to rise to bubble levels and investors to participate in what later turned out to be risky activities. This is one of the most dangerous of all processes, and its tendency to recur is remarkable.”