Bears like to point to the unsustainable level of corporate profits in a slow-GDP economy, but...

Bears like to point to the unsustainable level of corporate profits in a slow-GDP economy, but the S&P 500 - trading at just 14.7X earnings vs. a long-run average of 16.6 - may have priced this in, writes Scott Grannis. If the economy stays slow - but avoids recession - stocks should do just okay, but if we get a pickup in growth, look out for far higher prices.

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Comments (9)
  • Tack
    , contributor
    Comments (16498) | Send Message
    The problem, which starts coming into view post election, is that we have one would-be President, who wants to aggressively raise taxes and the other, who wants to contract the money supply. Neither would be good for the economy or the markets.


    Some other course is required if present performance, much less new growth, is to be sustained.
    28 Sep 2012, 11:04 AM Reply Like
  • lindsay lopez
    , contributor
    Comments (40) | Send Message
    Only on incomes over $250k.
    28 Sep 2012, 01:31 PM Reply Like
  • Tack
    , contributor
    Comments (16498) | Send Message


    In case you failed to notice, those are the folks who provide the bulk of spending, investment and job creation in our society.
    28 Sep 2012, 01:35 PM Reply Like
  • J 457
    , contributor
    Comments (1000) | Send Message
    Agreed, each candidate must move more toward middle ground.


    The nation needs to face reality and understand the only way to improve long-term fiscal health is to significantly reduce spending, while at the same time raise taxes on everyone. Simpson-Bowells study was the coming reality. Yes there will be short term pain, but long term it is what's necessary for future generations. I welcome the fiscal cliff, but the cuts are not nearly deep enough.


    Entitlement/pension reform #1 on my list.
    Health care reform (not Obama failed plan) is #2.
    Energy independence is #3.
    28 Sep 2012, 11:25 AM Reply Like
  • Windwood Trader
    , contributor
    Comments (4217) | Send Message
    Bernanke is considered one of the most knowledgeable people on the subject on the Great Depression. As such he has done what he says SHOULD have been done in the early 30's- Pushing money into the economy. Unfortunately the rest of the world is not able to do this and their outlook is just short of grim.


    I'm not sure that the S&P PE has indeed factored in the drop in earnings that would be due to our major trading partners like China, the EU and Japan not being able to grow. In addition most of our top industry companies like GE, Caterpillar, Microsoft, HP and dozens of others will see earnings affected since many of these companies derive over 40% of their sales from outside the USA.


    Are we at the bottom? I don't think so.
    28 Sep 2012, 11:35 AM Reply Like
  • Mike from Canmore
    , contributor
    Comments (13) | Send Message
    Do these quantitative easing (QE) measures ACTUALLY put money into the economy though ? The theory is that this should be leading to "looser" lending practices by the banks to regular consumers and small businesses - lower %age money down, lower requirement for assets to secure the loan, lower interest rates charged to consumers, etc.


    Is there evidence that is actually what has occurred with each round of QE or not ? I am genuinely asking that question, if anyone can provide some quantitative data on the matter I'd appreciate it.
    28 Sep 2012, 01:49 PM Reply Like
  • Tommy the Cork
    , contributor
    Comments (80) | Send Message
    What if the markets are pricing in a dysfunctional system growing more so by the week? Liberty, the rule of law, free markets and the concept of limited government are under attack. Uncertainty regarding things normally taken for granted make current valuation ratios almost meaningless. These are not normal times.
    28 Sep 2012, 12:43 PM Reply Like
  • 1234gel
    , contributor
    Comments (1915) | Send Message
    Tommy the "Correct" ..... Yep, you have it figured. As we get down to the end of the election period, it is really about sentiment. On one side of the tug-a-war are those that are experiencing fear of the anticipated outcome, and on the other those that feel positive hope. Today fear is the sentiment of the day. The QE stimulus is just noise at this point, as the effects will not be felt for months to come.


    Look for more volatility as we get closer to Nov.6, and we should all understand the uncertainty. If we are faced with four more years of the same, then the downward trajectory in most all economic indicators experienced for the last four years will continue. This is negative to the markets and a blow to job creation.


    If we should see a change in our government, then hope for a positive change of direction will prevail, and the markets will rise .... ( maybe even go euphoric ).


    I guess the decision will be made by the statistical outcome, as to who shows up to vote - more free-loaders or more free-marketers.
    28 Sep 2012, 03:58 PM Reply Like
  • had1rian
    , contributor
    Comments (5) | Send Message
    My own experience in business has been that an expectation of demand drives investment decisions. Personal or business tax rates, in my experience, affect the absolute level of expected net profitability but the existence of demand is always the key driver in moving forward on hiring or investing. Put another way, decreasing my taxes does not in anyway motivate me to invest in my business. The argument is made that lowered taxes indirectly improves demand, which is true to a degree. This effect is actually the smallest in the higher income groups who will just add most of it to savings. Stimulating demand through direct infrastructure investment by government is the most effective way to drive demand and will directly motivate businesses to hire and invest. The business investment by the wealthy will occur even if their taxes are increased to pay for the infrastructure costs. This is due to the observation stated above that tax rates really are only a secondary consideration for a business in deciding to expand; increasing demand is real driver for business investment, not taxes.
    30 Sep 2012, 05:34 PM Reply Like
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