Michael Mann 
Maybe new investors don’t care about valuations. Maybe new exchange-traded funds can take Wall Street by storm. Maybe insiders aren’t in a hurry to sell. Maybe earnings are going to be much better than we think. Maybe some part of the market mechanics has broken down. Or, maybe the whole market has a new expectation of stocks — and, stocks are delivering on those expectations and then some. I never want to say that too much money is being made in the market. I also hate to be — and I keep using this word — a scold. But when you get stocks that just go straight up and then up and then up some more, you have to wonder whether something really has changed. I want to pick on Applovin for a moment. Applovin is a profitable company that connects businesses to users — 1.4 billion of them, over various platforms. It uses generative artificial intelligence to enhance the performance of those ads. If you had to design a company with a better description for this moment, one that could make the most sense considering all that is happening in the advertising world, it would be this one. Maybe that’s why it is up more than 900% for the year. Maybe that’s why it is now a roughly $140 billion company. APP YTD mountain Applovin YTD There has been some insider selling, but nothing gigantic. According to regulatory filings, Chief Legal Officer Victoria Valenzuela just sold 17,925 shares for $6.3 million. But Valenzuela had control over 405,000 other shares. Applovin director, Mary Georgiadis sold $10 million of stock in the last week of November. But Georgiadis still owns 154,500 shares through a partnership and 35,000 directly. Hardly a dump. Another director, Dawson Alyssa Harvey, sold 3,000 shares, netting $977,000. But she still owns 7,359 shares. There have been other big sellers. Andrew Karam, vice president of product, sold 5.8 million shares but still owns 13.1 million shares. That’s certainly not a fire sale I point these sales out because if this were 2000-to-2002 we would see those positions cleaned out. The insiders then were selling at a clip that was incredible. But, not as fast as the companies were. An outfit like Applovin would have been filing shelf after shelf to dump stock to pay the bills. But Applovin doesn’t need to do that. Profit growth is accelerating. It’s truly a remarkable company. Helping it to go up and up and up is that every time it takes out a new level one analyst after another raises their price targets on the stock. It’s a virtual circle. Oh, and one thing that certainly doesn’t matter is the valuation. It sells at 120 times current earnings and 98 times future earnings. Don’t worry about those valuations either. Applovin is an enterprise software company, and these no longer need valuation underpinnings to go higher. How about a piece de resistance here. This company’s valuation was $13 billion a year ago. With its newfound market cap, the company is ripe to be added to the S & P 500 . There had been furious bidding in the stock for most of last week on an ill-advised bet that it would be added after the close of trading Friday. It wasn’t. So, you might see it down Monday morning after Friday’s nearly 4% slide. But for who knows how long. As I hunt around for clues for what is really going on in this market, I find myself continually coming back to one thing and one thing only: There is no supply. We don’t have new companies issuing any supply because even as we are at all-time highs, there is so much resistance by companies to going public. It’s difficult and intrusive. With so many other opportunities to raise money — such as private equity and venture capital firms trying to get in — the stock market almost doesn’t matter. It’s not the way to raise money, it’s just another way, with a Securities and Exchange Commission that isn’t willing to shift a more caveat emptor, buyer beware, approach. You literally need the SEC to start blessing things faster without much scrutiny and just tell people that you need to be wary of all stocks. Just doing that and looking for outright lies may be all we need. I am, of course, more paternalistic than that and I like a tough SEC. But I wanted a tough SEC on all crypto save bitcoin and ether. My view was, at the end of Gary Gensler’s tenure as SEC chairman, he was way out of step with America. It’s an odd thing to have qualms about not having enough stock. But only new supply can bring this market down because valuation has ceased to mean much for most of the market. If you have an S & P 500 that’s about 28 times earnings, one multiple turn short of where it was before the crash of 1987, and no new large sellers are either coming out of the public woodwork or being found attractive to the private, then I really don’t know what to say. As it is, with interest rates coming down, that will only make stocks more attractive and bring in more money through index funds, which will sop up whatever new meager supply that might be available. Oh, and just in case you think we are about to have a deluge anyway, remember that we are about to have a new wave of mergers and acquisitions – by all accounts — given that President-elect Donald Trump’s incoming administration is not going to be as anti-merger as President Joe Biden’s has been. I say that quite vocally, because there has never been an administration that hated takeovers as much as this one. Last week, I went on and on about animal spirits, and how they can often move up the price of stocks by having larger and larger price-to-earnings multiples for the same earnings. That multiple expansion can explain a lot of what’s been going on of late. That’s how you have that S & P 500 with a P/E that’s so sky high. I can point to excesses of course. There’s complacency according to the VIX, which is very low. The VIX, short for the CBOE Volatility Index , is Wall Street’s so-called fear gauge. We have a very small spread between junk bonds and higher credit bonds and Treasurys, a sign that risk isn’t being priced right. We don’t seem to have the worry that is usually associated with wars or uncertainty overseas of which there are plenty. We are not all that concerned about shortfalls when we get them. Complacency again? Or perhaps just an understanding that if you sell on these shortfalls, you almost always regret it – at least in this market. To that, I say, I will not be the boy who cried wolf. I will be the boy who obeys the S & P 500 Short Range Oscillator , a trading momentum indicator I have trusted for decades. It’s coming down nicely, dropping Friday out of overbought territory where it spent the previous five sessions. The Oscillator is not oversold by any means. So, we won’t be buying stocks until they do come down. I am, however, genuinely furious at myself for being stuck in toolmaker Stanley Black & Decker , life sciences company Danaher , electronics retailer Best Buy and Mexican brewer Constellation Brands because they are losers in a market of winners. This market only likes winners. There is no room for a company that imports from China, Best Buy and Stanley Black & Decker. There is no room for a company that imports from Mexico, Constellation. There is no room for a company that is marginal that does business in China, Danaher. But, the good news is that we have tons of other stocks in the Club portfolio that don’t share those liabilities. As long as we do, I can tolerate the loser positions. I just know, though, that those four represent value and the worst possible thing you can say about a stock is that it represents value, especially if it has anything whatsoever to do with tariffs. I am not sanguine. I am not unhappy. I am perplexed because we have always been taught that you can’t repeal the laws of human nature, and that people will always be greedy and always be fearful. But there is very little fear – and strangely, If you judge the desire of insiders to stay in their stocks, very little greed because they truly must believe their stocks are going higher or it would never ever be like this. And, yes, here we are, it has never ever been like this in my 42 years of investing. Can it last? Oh, stop it. It has been lasting for a very long time, and all the traders I hear on air have traded out of this market so many times that I don’t regard their judgments as worth listening to. They, not the “simpletons” who buy and hold on to stocks, have been the losers. The winners? Those who believe in stocks of companies that have unfettered growth or might gave unfettered growth in the future. You may judge them harshly. I judge them right. (Jim Cramer’s Charitable Trust is long SWK, DHR, BBY, STZ. See here or a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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Maybe new investors don’t care about valuations. Maybe new exchange-traded funds can take Wall Street by storm. Maybe insiders aren’t in a hurry to sell. Maybe earnings are going to be much better than we think. Maybe some part of the market mechanics has broken down. Or, maybe the whole market has a new expectation of stocks — and, stocks are delivering on those expectations and then some.
