NEW YORK (Real Money) -- Twenty-eight billion dollars in? How much out? I'm talking about the $28 billion in initial public offerings raised in this market in a little less than two weeks' time and how that supply is now roiling the market. At the same time, not enough stock has come off the table from buybacks and mergers and acquisitions to offset the Alibaba (BABA) -led deluge.
I know this has been a huge year for buybacks. Companies in the S&P 500 will spend about $500 billion buying back stock that would otherwise be laying all over this market. The trillion dollars in deals done already, well in excess of where we were last year, takes even more out of the market.
So how can such a meager amount of IPO-driven money be an issue? I think it's because this new stock comes at a time when big accounts want to sell, not buy, and the methodical buybacks and sporadic M&A can't handle or absorb that rapid-fire slug of new stock.
The Alibaba deal was like a tipping point in more ways than one. It made for a real easy top call, of course, and it was made all over the place.
More importantly, Alibaba expended a huge amount of capital from classic mutual fund types, while the hedge fund flippers took the money from the deal and ran to the sidelines or the short side, betting that with the Fed no longer at the bulls' backs and the selling season coming into focus, it was just a good time to leave.
Plus, I think that there are so many people looking for a correction now, that action like Friday's rally really is done on the backs of shorts who have laid endless ground work on the case that we need and must go lower now that the Fed isn't easing.
Further, out of nowhere, the "fed funds need to be at 4%" crowd is now in charge of the discourse, and they are sounding smarter than ever laying out the case for giant rate hikes. Why? Is there something we don't know that's good about a recession? Do they need to create a recession instantly in the name of the profits for their hedge fund partners? Why doesn't anyone ask what would happen to their returns if fed funds were to go to 4%?
So the combination of stepped-up sales by hedge fund managers, heavy initial public offerings that drain real buying power, and no additional capital to speak of coming into the S&P 500 funds -- which can't buy these IPOs anyway, but could sop up some of the overload -- has created a momentary imbalance that allows a market to go up or down on a hair trigger.
The amazing thing is that the Fed is more powerless than these hedge funds think. When the Fed is done buying bonds, it is hard to see how rates will go higher. Any slight increase in rates here brings money from overseas so quickly that we can't seem to take out the 2.70% 10-year level. It's not Janet Yellen that's keeping rates down. It's the horrendous economic contraction that is occurring in China by way of Europe and the concomitant strength of the dollar. I see downshifting everywhere in the world except for us and India, and it isn't like we are in an acceleration mode; we are growing more slowly than we were a few months ago.
Without more personal earnings, we aren't getting more savings; without more savings we aren't getting the mutual fund fuel that allows these natural buyers of new merchandise keep their old merchandise.
So, I think the fate of the next 5% in this market depends on supply -- specifically, holding IPOs back from the market. If the deluge continues into a historically tough month of October, then we will have more days of defeat then we will of victory for the bulls, for as long as the deal parade continues. In other words, it's not the Fed, it's the supply. And it's not going away. It's increasing.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
Editor's Note: This article was originally published at 6:14 a.m. EDT on Real Money on Sept. 29.