[quote=livinincali]While P/E has historically been measure of valuation I’m not sure it applies as well during this period of borrowing money to do stock buybacks.

For example I have a company that has 1 billion shares that are $100/sh I have total revenue of $50 billion year and earning or $10 billion per year. So my P/E is 100/10 = 10 and my earnings/share = 10/100 = 10. I then borrow $10 billion to buy back my stock. So now my market cap is $90 billion and I have $10 billion in debt and I still have earnings of $10 billion. Now my P/E is 9 and my earnings per share are 10/90 = 11.11. If I do that is my company anymore valuable than it was before? Before I had 10/sh in earnings and 0 debt. Now I have 11.11/sh in earnings and $10 billion in debt. Assume that my revenues and total earnings are flat. I made company look more valuable than it was before on a P/E ratio but I didn’t change asset value of my company in doing so.[/quote]I doubt every company in S&P is doing that. We’re talking about S&P 500 here and the average across the entire index, not just one company trying to manipulate things. BTW, here’s the historical earning of the S&P 500: http://www.macrotrends.net/1324/s-p-500-earnings-history. I don’t see earning declining. There was a slight decline in 2012, but it has more than recovered since then.

In January 2000, S&P 500’s earning was at $68.42 and the index was at 1872. That gives you a P/E if 27.36. in January 2014, S&P 500’s earning was at $102.29 and S&P was at 1848. That gives you a P/E if 18.06. This is an entire index, not likely to be manipulated like you described compare to 1 stock. So, to be in the same ballpark as 99-00 bubble, S&P has to be at 2798 based on today’s earning.