Quote from harrytrader:
We are at 19.67 http://www.djindexes.com/jsp/avgStatistics.jsp
Remember also that the pilar of Finance is discounted Cash Flow. The fair value of an asset today is discounting the value of the asset not in 1 year but theorically in infinite number of years in the future in practice in at least ten years. So the so called "consensus" reflects this future not the present that is to say the present fair value is normally LOWER than the future value. So the P/E of the supposed fair value of DJI should be lower than what the consensus expect, historically it is rather 12 to 15. So we are overvalued already fondamentally. This fundamental value could be considered as a STATIC evaluation whereas the DYNAMIC evaluation follows a path that is quite different on relative short term basis (ie my model equations 
).
And the recipes to boost earnings with accounting tricks are well known and used by the "go-go funds" of the 60s and now used by all the whole financial community and Government. This is well described by Soros in the Alchemy of Finance (I can't quote as I have the french version) but here a similar comment from him:
"In the conglomerate boom of the 1960s, for instance, the misconception was that growth in earnings per share is equally valuable whether it is achieved by internal growth or acquisitions. I remember vividly how, after the conglomerate boom's collapse, the president of Ogden Corporation (to whom I had sold my brother's engineering business) told me at lunch that the company's earnings were falling apart because "I have no audience to play to"--with the stock price down, he could no longer use that stock to acquire companies and thus magically boost earnings.
We are now in a similar situation. During the recent boom, corporations used every device at their disposal to boost earnings to satisfy the ever-rising expectations that sustained ever-rising stock prices. Clever financial engineers invented ever-new devices--and when they ran out of legitimate ones, some corporations turned to illegitimate ones. When the market turned, some of these illegitimate practices were exposed. For instance, Enron, like many companies, used special purpose entities (SPEs) to keep debts off its balance sheets. But unlike many other companies, it used its own stock to guarantee the debt of its SPE. When its stock price fell, the scheme unraveled and Enron was pushed into bankruptcy, exposing a number of other financial misdeeds the company had committed. The Enron bankruptcy reinforced the downtrend in the stock market, which led to further bankruptcies and news of further corporate and individual misdeeds. Both this downtrend and the clamor for corrective action gathered momentum in a self-reinforcing fashion--just as reflexivity envisions.
<font color=red>There is nothing surprising about this course of events. It has happened many times before. The real surprise is that we are surprised</font> [
my comment: I would rather say this is just hypocrisis for those who use these accounting tricks and ignorance for newbies generation]. After all, many of the practices that are now condemned were carried on quite openly. Everybody knew that the best companies, such as General Electric and Microsoft, were massaging the numbers to maintain the appearance of a steady progression of earnings. Indeed, investors put a premium on management's ability to do just that. SPEs could be bought off the shelf, and investment banks maintained structured finance departments to provide custom-made designs. Tyco's management proudly proclaimed that they could generate earnings growth by acquiring companies, some of which could be moved offshore by virtue of Tyco's Bermuda incorporation, and investors put a high multiple on its earnings. <font color=red>Stock options were not only accepted but considered a useful device for boosting shareholders' values since they provided executive compensation without incurring any costs and encouraged management to focus on the stock price above all other considerations</font>.
If there is a major difference between today's crisis and, say, the late '60s conglomerate boom--where investors also rewarded per-share-earnings growth without regard to how it was achieved--it is a difference of scope. The conglomerate boom involved only a segment of the stock market--the conglomerates and the companies they acquired--and a segment of the investing public, spearheaded by the so-called "go-go" funds. When the conglomerates began to threaten the overall financial establishment, that establishment closed ranks against them. By contrast, the '90s boom encompassed the entire corporate and investment community, and today's establishment, including today's political establishment, was fully complicit. Enron, WorldCom, and Arthur Andersen could not have gotten away with their nefarious activities without encouragement and active reinforcement from virtually all sectors of American society--their corporate peers, investment professionals, politicians, the media, and the public at large. Whereas the conglomerate boom ended because of resistance from the establishment, in this case the boom was allowed to run its course, and the search for corrective measures started only after the collapse. Even now, a pro-business administration is trying to downplay the damage. In looking for remedies, it is not enough to make an example of a few offenders. We are all implicated and must all reexamine our view of the world. "
