Makings of a Melt-Up

This column was originally published on RealMoney on Oct. 27 at 7:42 a.m. ET. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

How do you get a melt-up? You know that's what we are having. You see it in the way buyers are willing to pay above the offerings for stocks. You see it in how little buying power it takes to move a stock up.

I have two theories, and they work together. First, you shrink the supply. You take out the natural sellers who don't want to own stock anymore. And then you make demand bigger, by attracting more money. Both are happening now.

When we look back at this period, we are going to call it the post-capital phase of investing, where the major companies in America simply don't need any capital to run their businesses. Instead, they generate endless amounts of capital, or at least it seems to be the case.

If you think back five, 10, 20 or even 30 years ago, companies used the stock market to raise capital to expand. Not anymore. If I didn't know any better, I would say that they use the stock market to buy back stock. That's the theme of quarter after quarter.

You have to listen to the conference calls or read the transcripts to know what I am talking about. Every one of them sounds almost the same: "We bought back 2% to 3% of the stock so far this year, and we want to buy more." How many companies simply said, "We think our stock is so cheap, we had to be aggressive"? You get anomalies like Comcast CMCSA, long an issuer of stock, buying back billions of dollars' worth as it goes up; it's the best use of its capital because the future is so bright.