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Are The Big Guys Tapped Out?

November 16, 2017

It’s hard to imagine the news getting much sunnier than it was for the earnings cycle just reported. What will Amazon, Apple, Google and the other FANG stocks do for an encore? More to the point, what will they do for the next three months?  At these very high prices, the task of rotating institutional cash till January, when earnings are next reported, will be like juggling bowling balls. The task will be even harder because Wall Street doesn’t have much “story” left to sell, at least none that could conceivably top what we’ve just heard.  Think about it. Nearly every human being on the planet already has a relationship with Facebook, Netflix, Google, Apple, Amazon or Microsoft.  We see the investable implications of companies with global customer base in the enormous leap Netflix took in early October, when they announced a $1.00 price increase for subscriptions. The stock rocketed from $176 to $204 in two weeks, expanding the economic effect of the $1.00 surcharge like dry kernels popping in a kettle. It’s not every day that Wall Street gets to deploy vast sums of cash in the shares of a company that can actually produce a profit. That’s assuming someone in Netflix’s entertainment division doesn’t go all Cecil B. DeMille on them.

Are The Big Guys Tapped Out?

With the best imaginable news already past, it’s hard to imagine what will keep stocks afloat in the months ahead. And that’s why the weakness of the last two days should not simply be shrugged off as benignly corrective to the needs of institutional buyers. Are the big guys tapped out? Well, perhaps in a way. For even if they individually have assets that pile effortlessly to $50 billion or more, all of it is currently working — and working hard, mainly in stocks.  They can warehouse spare cash in such occasionally serious asset classes as bonds or bullion; but probably not in real estate, which is way too pumped to be viewed as a safe-haven; or in commodities, which have gotten somewhat ahead of the supposed global economic boom said by the Wall Street Journal the New York Times et al. to be incipiently under way.  As for rotating huge sums of Other People’s Money from sector to sector, think of those bowling balls.

None of these things should present much of a problem for the bull market, provided there remains a fresh and plentiful supply of good news to stoke buyers’ animal spirits. But are you perhaps beginning to doubt, as I am, that a major piece of that news, tax reform, can continue to inspire confidence in investors, let alone ebullience. The tax bill sausage may ultimately do less harm to the economy than Obamacare, but that doesn’t mean it holds any real benefits for savers and investors.  We would know it if it were otherwise, since the reform supposedly was about “simplifying” the tax code. If this has truly been the case, then why can not one American in ten thousand explain how he, personally, will benefit, or who the winners and losers will be? 


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