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The Tel Aviv Stock Exchange closed down on Sunday, but the hero of the day, Tiv Taam, leaped no less than 47.5 percent. That was investor response to the news that over the weekend Arcadi Gaydamak had bought the supermarket chain at 80 percent above its market value.

Gaydamak claims that the price he paid is logical, and 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 its doors on Saturdays and will 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 in favor of poor.

But what will be left of Tiv Taam? Not much. Its entire relative edge will be erased, and it will not be long before other enterprising souls open a competing non-kosher supermarket chain to pick up Tiv Taam's customers. But Gaydamak is unmoved. He is in the midst of an expensive shopping spree on the stock exchange, buying anything and everything at exaggerated prices.

The wild prices that Gaydamak is paying reflect - to a certain extent - what happens on a stock market after four straight years of gains. The accepted explanation for the flourishing bourse is rapid growth and rises in company profits. Foreign investors are also contributing to the gain. But another explanation, unjustly concealed, is liquidity.

The past three years have seen a revolution in fiscal management. The state has learned to maintain a particularly low deficit, and many entities have been privatized. So the state didn't have to issue bonds to finance a deficit - which doesn't exist - leaving NIS 10-15 billion a year in search of a capital market investment. In addition, the state is gradually phasing out the designated bonds for the pension funds, releasing another NIS 14 billion a year onto the market. This has created a huge surplus liquidity looking for goods on the capital market, and that money is directed to the stock exchange to buy private offerings of bonds and shares. The result is a sizzling market and climbing prices. There's good reason 2007 has become the Year of the Issue.

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 percent 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 will change its tune - 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.