A Pile of Simply Horrendous Advice

 | May 20, 2013 | 7:40 AM EDT
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You've been an idiot if you've sold almost any stock so far since the start of 2013. You've been a moron if you've been waiting for revenue to pick up before you've bought. You have been a fool if you've feared the Federal Reserve would act imminently. You've been a total bozo if you've listened to President Obama about the crashing of the economy because of the sequester -- particularly if you've sold the defense names, which have been the best-acting stocks in the book.

In fact, the moves are eerie. It is as if there had been an edict that every stock -- other than gold stocks, a copper or an iron ore stock and maybe a few steels -- that everything has to go higher.

To me this speaks directly to the notion of underinvestment and the supply and demand of equities.

For years and years now, companies have been taking in supply. Other than the equity sells mandated by the Troubled Asset Relief Program and the endless master limited partnerships, very little stock has been issued. One year after Facebook (FB), and the only two initial public offerings of any real size have been Pinnacle Foods (PF), a $3 billion company and Quintiles TransNational (Q), about a $6 billion company.

Plus, it isn't as if we have had a lot of stock-for-stock deals that have seen a flood of new equity from mergers and acquisitions -- hardly. The very few deals we've gotten have tended to be cash-related.

Meanwhile, the share retirement is out of control. While this market has simmered for the past three years, a huge amount of stock has vanished. Procter & Gamble (PG) has gone from 2.9 billion shares to 2.74 billion; CBS (CBS) has shrunk from 694 million to 638 million; Time Warner (TWX) had 1.145 billion and now has 950 million; Intel (INTC) went from 5.5 billion to 4.9 billion; Pfizer (PFE), at 8 billion, is now down to 7.2 billion; Wal-Mart (WMT) went from 3.87 billion to 3.3 billion; and Exxon Mobil (XOM) went from 4.8 billion to 4.48 billion. Even growth stocks like Celgene (CELG) have taken down their share count. Celgene's has fallen from 469 million to 432 million.

These were simply random stocks that I looked up -- just anything that came to my head. It is astonishing. It's almost impossible to find stocks with increased float. Only the banks haven't been able to retire stock due to the Fed. But, believe me, if they did I have to believe these stocks would march much higher.

I think these buybacks are creating the situation we have now. Fund managers who have been skittish for years, and hedge funds who try to run balanced books, are just getting their heads handed to them. In fact, anyone who has sold anything has had their head handed to them, and there is no way you could have beaten these averages without using leverage, which I know mutual funds don't do. While I am sure there are hedge funds that borrow to buy, there simply aren't that many out there that do so.

So you get a situation in which people start putting money into their IRAs and 401ks again after years of what I bet are desultory contributions, and the funds have to reach just to do any buying.

That's the only explanation I see for these wondrous charts. For years it was all zero-sum: When you saw UnitedHealth (UNH) or Allstate (ALL) move up, you could bet that Eaton (ETN) and Cummins (CMI) were being killed. There was no way you could ever have the airlines, travel and leisure and oil all go higher. These moves we're getting now had been inconceivable at any time since the start of the millennium.

I know, doesn't matter. We will hear the same old questions asked time and again: Doesn't the Fed scare you? Aren't you worried about the revenue not coming through? May isn't over, so maybe it isn't too late to sell, because it is such a horrid month.

It's been a huge pile of garbage. All that cautious advice has been horrendous. But there's one thing you know for certain. Those who have dispensed it, or have been worried about it, are never wrong. They just aren't as rich as they should be.

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