Big Lie

Profits Are at Record Levels, So Why Aren't Stock Prices?

So if stock prices are a reflection of future earnings, why hasn’t the U.S. benchmark returned to this record high yet? Currently, the S&P 500 is 20 percent below that 2-year old peak.

“The expectation is that earnings may decline if Europe can’t get out of its own way,” said Karen Finerman, president of hedge fund Metropolitan Capital Advisors.

In other words, investors aren’t willing to pay as much for these earnings this time around with a possible European recession set to depress the future profits of U.S. multinationals, not to mention gum up the international banking system. The S&P 500, at a price-earnings ratio of 12.1, is near its lowest valuation of the last decade.

--CNBC

QE2 could hit US$1.5t

SINGAPORE - Analysts expect the United States Federal Reserve to pump more cash into the economy if its US$600 billion ($773 billion) bond-buying plan fails to prevent deflation. 

Some market watchers say the Fed's so-called quantitative easing (QE2) programme could eventually grow to as much as US$1.5 trillion, despite criticism from other countries, including China. 

"It's almost as if the Federal Reserve is trying to put out a fire with a leaky bucket, but it's the only bucket it has," said Mr Kevin Logan, chief US economist at HSBC. "Is the Fed being reckless? I don't think so."

But critics of QE2 say it may not do much to spur growth, prevent deflation or bring down unemployment in the US. Liquidity may leak out of the US and cause asset bubbles in emerging markets, where prospects for economic growth are stronger. 

Mr Logan, though, is more optimistic. He expects economic growth in the US to quicken to between 3 and 3.5 per cent by the end of next year, and the jobless rate to ease to 9 per cent in a year, from 9.6 per cent now. Jonathan Peeris