Most of you follow not only VICL but the stock market in general and I was hoping you might answer a question that's been bothering me. The DOW just hit the 13000 level, the highest since 2008. With unemployment at 8.3% (and real unemployment nearer 13%), gas prices rising, recession looming in the Euro Zone, housing on the mend but still depressed, political unrest in the middle east and elsewhere, consumer confidence rising but not at pre-crash levels, and our debt as a percentage of GDP far to high, why would we be at pre-crash levels in the DOW?
There were lots of good comments but at the risk of being redundant let me add my own.
Increasing Money Supply
1) Value and money are related but not the same thing. When the quantity of money increases, value remains the same but the price for something of the same value goes up. This is called supply and demand.
2) When the quantity of money goes up, it increases the price for consumables, e.g., gasoline, and for investments, e.g., stocks.
3) Demographics suggest the European and North American markets are more concerned with increasing their financial assets rather than increasing their consumption. I.e., the baby boomers are still working but rapidly approaching retirement and so want financial assets that will support them in their retirement.
Bottom line we are experiencing a long anticipated bubble in financial assets...again. Just like the bubble in real estate.
Shift from the Industrial Age to the Information Age
Capitalism was the primary economic theory that drove a shift from an agrarian to an industrial society. It did this by shifting the concept of "wealth" from land measured in acres to capital measured in currency, e.g., dollars.
As the foundation for wealth shifts from capital to knowledge, the concept of "wealth" will also shift presumably from capital to knowledge. How economists will measure knowledge is yet to be determined.
When society shifted from an agrarian base to an industrial base, some used their land to acquire capital and retained their elite status. Others failed. Today our goal is to shift our capital into knowledge. Some will succeed. Others will fail.
The Fed is printing money. That's good for stocks as long as inflation remains tame. Inflation has remained tame thus far because the money printed by the Fed has only made up for a portion of the money lost in the 08-09 crash. The administration is, however, running up so much debt that, unless a new government that actually begins to cut government spending is elected in November, the dollar will gradually lose its status as the world's reserve currency and severe inflation or severe deflation in the US will then be inevitable.
<<< why would we be at pre-crash levels in the DOW? >>>
I agree that earnings are improving and this helps stocks. However, my primary view is that many asset classes are being strongly boosted by an unprecedented extended period of extremely loose monetary policy. Globally, nearly all major economies are being boosted by easy monetary policy. Central banks around the world are printing money, and it has to go somewhere. Our Fed's negative real treasury rates drive money into other higher risk assets, like stocks. Like they say: Don't fight the Fed!
I appreciate all of your replies and agree with most of the comments. For example, "trickle down" economics is voodoo and illogical. As far as corporations doing more with less, you are correct and will continue to do so until consumer demand increases and is sustainable. I've read that corporations may not have the excess cash that some say as may be evidenced in the drop in durable goods orders. My concern is that the stock market is pretending like its 2008 and its not! If 13000 was a fair value in 2008, I don't believe it's a fair value now and I see a correction coming. As to VICL, I'm long and I hope I'm right. I read the transcript from the last presentation and I thought Mr. Sanjay appeared disjointed in his comments though I liked his comments in general. Hope you all have a good day.
dumsani...You need to put thing in prespective....1st The DOW is only 30 stocks! The S& P is far more important to watch...1400 would be NICE...1340 would NOT BE GOOD! We are at 2373 right now! VICL is listed under the NASDAQ.. is where Apple..AAPL, PCLN, GOOG, BIDU, CSCO, INTL, MSFT play and dominate!
dumsani....The stock market follows EARNINGS...EARNINGS and EARNINGS! Corporations have found that they can make more money with less people. 2008, 2009, and 2010 taught them a lesson..cut the LABOR force and streamline you organization and you can be very profitible...even selling jelly beans! Now they have CASH, a streamlined LABOR FORCE and MARGINS are HIGHER....$1 TILLION in the bank.....they are not looking to change anything RIGHT NOW! Plus the Corporate world is scared to death of DODD-FRANK and OBAMA CARE....There is not ONE PERSON who can tell the corporations everything in those LAWS...it's still a guessing game...even the govrnment keeps formulating these LAWS as I write this thread/response....it CRAZZZZZY! The ECONOMY will not turn around for US, the average person until these LAWS are recinded or at least clarified to the business world. Start asking questions to your businessmen/bankers in your commmunity about DODD-FRANK and OBAMA CARE...listen to their answers....you'll learn a lot! Good luck!
The dow is made up of only 30 stocks. Losers throughout the years are taking out of the dow and replaced. Interest rates are the main reason for the current market. They have been low for years now. Once interest rates rise you will certainly see a decline. Until that takes place the market will be ok. Look at the current margin rates. Are you aware that oil speculators can purchase one million dollars of oil furures by putting up 5% or only 50,000 dollars.