Then, in a final sleight of hand, this number is compared against the historic, "as reported" P/E ratio of 15.5. This is a bogus comparison. You can't use forecast earnings in one ratio calculation and historic in another; earnings grow on average about 6% a year so the projected P/E is automatically biased to look cheaper. And you certainly can't compare P/E's based on "operating earnings" to the much lower "as reported" numbers.
Using "as reported" earnings as of September 30, 2010, a more appropriate measure of economic profits, the following graph compares three different historic P/E measures since 1871 against their current counterparts. The first is the cyclically-adjusted, real 10-year average P/E ratio that balances out the distortive impacts of both the business cycle and inflation on profits. The second is the average P/E ratio since 1871 during the expansion phase of every business cycle while the third is simply the long-term average incorporating all years.
Every "as reported" price-earnings measure shows that the market is overvalued relative to historic norms. There is a wide variation ranging from 7% to 30% so there is room to debate the degree of overvaluation, but the verdict is clear. The market is not cheap. The "overvaluation" advocates have it right. We wish it were otherwise.
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