Where is the money coming from and is there enough to sustain the rally? In the last few weeks we have seen a dramatic issuance of new shares with the really big ones coming now: DoorDash (DASH) , Airbnb and then, soon, Robinhood, the youthful brokerage house. Plus there are SPACs all over the place and many of them are not being absorbed well into the market, which, at times, has hardly functioned, with stocks gapping by 30%, 40%, even 50% as people rush in to find the next big thing.
Mind you, I am not a bear. I know that margin debt is fueling some of the rally. But, oddly, it is not out of control yet. I call it moderately high, as high as we have seen at some tops but not others. The Fed is, once again, forcing money into stocks with low rates that are starting to really hurt savings.
However, that money isn't going into the hot sectors, it tends to seek dividends. We know that spending money, the money once spent on going out, is languishing and as stocks go higher with no commissions, younger people are drawn to stocks at a pace no one has ever seen.
It's entirely possible that the entire market is undervalued because we went down so low believing that a vaccine was far far off. President Trump recently put out a telling video showing just how wrong so many health professionals were when they talked about the impossibility of a vaccine any time soon. Their sobering negativity influenced so many older people, especially boomers, to flee the market. I think they now feel they have to come back but they are doing so ever reluctantly while the younger cohort goes to work finding stocks every day.
If all stocks are, indeed, undervalued, then one can sense there is a level where they can top out, basically where they started ex the stocks that have dramatically improved their lot because of the pandemic and aren't coming down any time soon. The digitization stocks in particular, the ones that powered the gigantic exodus from the central office, explains a lot of the move.
Now, though, things get tougher. We have to ask ourselves at what point does the money run out. Can this market absorb more stocks of companies that can have excellent year over year comparisons because of the pandemic, like Airbnb and DoorDash, or will insider sellers at last materialize and provide too much supply because, alas, they have no profits until they cash out?
This is the fundamental question that will decide the next leg, not earnings, not the Fed, and not the president. Greed will determine it. Do the people who really own these stocks, the execs, the rank and file, whoever got the stock, stay with their paper riches or ring the register.
It's not something we have to worry about today. Or tomorrow. Or even to the end of the year. But with taxes most likely going higher for capital gains and with lots of unregistered stock about to be registered, keep in mind that supply wrecks the bull, not the macro because the macro is probably going to improve as the scourge is defeated.
So, keep in mind, the tug of war starting in 2021 will be between the insiders who wish to preserve their wealth, and the outsiders who will want to do the same. In 2000 and 2001 the dumping insiders won because their companies weren't worth what the outsiders thought.
This time? I think the companies are more real, but greed? It never changes.