Siemens of Germany is Europe's larges industrial group. It reported an €89bn order backlog in July - - the highest in its 163-year history.

Earnings of big US and European companies have been impressive in 2010.

Net profits for the leading US companies which make up the Standard and Poor’s 500 index are expected this year to almost return to the 2006 peak, while total earnings will surpass 2007’s high of $743bn, according to analysts at Bank of America/Merrill Lynch. The result of big job shedding during the recession, lower capital spending and other costs has resulted in record cash hoards. US non-financial companies had $1.8trn in cash and other liquid assets on their balance sheets at the end of March, according to the US Federal Reserve. That is equivalent to 7% of all corporate assets, the highest percentage in half a century.

Bloomberg reported in late August that European stocks in the pan-European Stoxx 600 were trading at 14.8 times the reported earnings of its companies, near the cheapest valuation since 2008. Companies in the Stoxx 600 that had reported earnings since July 12th had topped analysts’ net income projections by an average of 5.3%. Analysts are expecting European earnings to rise about 25-35% this year before falling to 10-15% next year.

AFP reports that companies listed on the Paris CAC 40 stock index have reported earnings rises of nearly double this year on a 12-month comparison, while the unemployment rate in the country is still nearly 10%.

Karine Berger, an economist at Euler Hermes, a French credit insurance company, said the figures to track are those from the small and medium-sized enterprise sector, which give a truer picture.

"The real economy is small and medium-sized enterprises. Judging the situation by the earnings of major companies is falsifying the model," she said.

Despite the rise in earning in the US, investors withdrew $16.1bn from stock mutual funds in June and July. They added $50bn to bond funds, according to the Investment Company Institute (ICI). In the period January 2008 through June 2010, outflows from equity funds totaled $232bn while bond funds have seen a massive $559bn of inflows.

The ICI also reported that funds invested in domestic equities have shown outflows for three months; year-to-date through July of $29.6bn. Funds invested in international equities were in net inflow through July. Year-to-date through July, these funds had net inflows of $27.9bn.

Investors have sought the safety of Treasuries, sending the yield on the 10-year bond to an 18-month low, below 2.5%, last month. Yields on two-year notes dipped to a record low of less than 0.5%.

When interest rates rise will rise, bond prices will fall. So bonds are not always for the risk-averse.

Jeremy Siegel, a professor of finance at the University of Pennsylvania's Wharton School, warns that purchasers of bonds are risking disaster. He says that due to economic growth the dividends from stocks, in contrast with coupons from bonds, historically have increased more than the rate of inflation. The average dividend income from a portfolio of S&P 500 Index stocks grew at a rate of 5% per year since the index's inception in 1957, fully one percentage point ahead of inflation over the period. That growth rate includes the disastrous dividend reductions that occurred in 2009, the worst year for dividend cuts by far since the Great Depression.

The Wall Street Journal reports that the stock market's average price/earnings ratio has plunged about 36% during the past year, the largest 12-month decline since 2003. It now stands at about 14.9, compared with 23.1 last September, based on trailing 12-month earnings results. Based on profit expectations over the next 12 months, the P/E ratio has fallen to 12.2 from about 14.5 in May.

Companies are benefitting from record low interest rates the big ones with a global reach, are getting increased business from emerging markets. Others such as Apple are gaining from discretionary spending on consumer electronics.