The Moral Hazard Epic

The mountain is high
The valley is low
And you're confused on which way to go
So I've come here to give you a hand
And lead you to the promised land
--Edgar Winter

Marc Faber observes that "You need to buy stocks when there is no reason to buy them. And I will be careful about stocks when you can't see why they can go down."

The 'why they can't go down' relates to the Federal Reserve's interventionary might. It is becoming common wisdom that as long as the Fed is pouring money into the system, stocks will continue to levitate.

David Rosenberg has cited a .86 correlation between movements in the Fed's balance sheet and the SPX since the onset of QE. Here's a portion of that relationship:

Needs updating--something I hope to do shortly. The relationship is clear nonetheless.

The moral hazard in the market is truly epic, as the Fed emboldens more people to catch a free ride.

A familiar script, though, as we've seen this movie before.