Two weaknesses in the bullish scenario
Stock market bear Robert Shiller debate stock market bull Jeremy Siegel .
As long time readers know, . Beyond that, I could add that Siegel's argument that the 10-year P/E ratio shouldn't be trusted because it is affected by write-offs overlooks that over the long run, write-offs don't affect earnings.
What I mean by that is they reflect real world losses suffered by companies. While these losses often aren't created during the exact quarter when there is a write off, that only means that losses are overestimated that particular quarter, that only means that losses are underestimated by a similar quantity other quarters. As a result, it is simply not true that write offs distort 10-year earnings measures.
Another of Siegel's argument, where he looks at analyst expectations for future earnings is also invalid. "Analyst expectations" are in a quite systematic matter consistently extremely over-optimistic (), and are therefore useless for the purpose of stock valuations.
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