Excellent Article on Forward PEs

This great piece of article from the Value Restoration Project answers most of the doubts that I always have about forward PEs.

One of the most consistent messages I’ve heard throughout my career is that the market is inexpensive or at least “fairly valued” based on next years earnings. We hear it at heights of euphoria and the depths of despair. I don’t recall ever hearing the consensus or even a vocal minority calling the market overvalued based on forward earnings estimates. In fact, we rarely even hear perma-bears cite high P/Es based on forward estimates as the primary cause for concern. Over a decade with low and often significantly negative returns, how can that be?

Read the rest of the article here.

P.S.: On an unrelated note, I can't help myself but to bring this up, did anyone watch Stephen Roach on CNBC with Bernie Lo? When he described the grim situation in US, all sort of unemployment and consumption data came out. When he talked about China, no data or numbers, just stories about how great the Chinese govt is. China is so unique that we do not need to talk about the numbers? As I say, the problem with China bulls is that, they tell stories but do not talk about numbers. Then, he talked about the 12th 5-year Plan ("十二五"), about how the Chinese govt is going to transform its economy. I wonder how many of these experts that talked about the 5-year Plan actually read the entire thing and understand what it really is...Sometimes it is not what is IN the plan that is important, it is what is NOT IN the plan that is important.