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Tel Aviv stocks sank on Sunday, with the notable exception of Tiv Taam. Shares in the supermarket chain leaped a huge 47.5% after investors learned that Arcadi Gaydamak is buying it for 80% beyond its market value.

Gaydamak claims that the price he paid is sensible and that anyone who doesn't get it is "jealous or stupid."

But he also declares that he will stop selling "provocative products" like pork at the chain, close it on Saturdays and even use the retail chain to provide subsidized food for the poor. The road straight into the heart of the Israeli consensus: anti-pork and pro-poor.

What will be left of Tiv Taam? Not much. Its entire relative edge will be eliminated and it will not be long before other enterprising souls open a competing non-kosher supermarket chain to pick up Tiv Taam's customers.

Gaydamak doesn't care. He's on a spree, buying anything and everything at inflated prices.
 
The insane prices that Gaydamak is paying reflect - to a certain extent - what happens on a stock market after four straight years of gains.

The consensus explanation for the boom is Israel's brisk economic growth and soaring corporate profits. Foreign investors are also contributing to the gain. But another explanation is liquidity.

The past three years have seen a revolution in fiscal management. The government learned how to operate on a low deficit, and many entities have been privatized. The state therefore didn't need to raise more debt to finance a nonexistent deficit, leaving NIS 10-15 billion a year at the institutional investors, seeking a place to go.

Also, the treasury is gradually phasing out designated bonds for pension funds, releasing another NIS 14 billion a year onto the market.

The result is massive surplus liquidity looking for investments, and much of it is going to bonds and shares. The result is a sizzling market and climbing prices. There's good reason 2007 has become the Year of the IPO.

In the first quarter of 2007, a record NIS 37 billion in bonds and shares were issued. In the second quarter, which ends at the end of June, the record will be broken with 200 fund-raising efforts, 80 from new companies. An impressive record.

And who is buying up all these issues? Mostly institutionals who have the big money: insurance companies, pension funds and provident funds.

They have also started investing abroad. In recent years, they have undergone two revolutions. The first was in 2001-2002, when global markets were opened to them. The second came in 2005, when the tax discrimination against foreign investment was canceled. As a result, about 10% of the institutionals' assets are invested abroad or NIS 50 billion of their NIS 500 billion total.

In another five years, investment abroad will increase and account for 30 percent of the institutional portfolio. In other words, in the coming years, another NIS 100 billion will emigrate. And, it is now clear, we invest in foreign markets more than they invest in us.

Because institutionals understand that with all due respect to the sizzling Israeli market, the day will come when it reverses - due, for instance, to tensions with Syria or a political-budgetary crisis. On that cloudy day, every investment manager will be praised for the returns he gets on his overseas investments.

Here, too, a little luck helps, and the luck this time comes in the form of the development of Internet and the information revolution. This allows investment managers here to be plugged into foreign markets without leaving their Tel Aviv offices. They can track goings on in global markets, follow news and analysis in real time, via the Internet, and invest overseas without incurring high costs.

The advantage for the Israeli investor is huge. This allows him to diversify and reduce risk. Investment overseas is an insurance policy against the risks of the unstable Israeli market. After all, not everyone has Gaydamak's billions or the ability to lose them in a flash.