US Stocks ARE Undervalued

Reading Barron's this AM, I saw the table of the earnings of the companies comprising the Dow Jones Industrial Average. The median P/E based on 2007 EPS [probably low] is 16.4x. That's a robust statistic unaffected by outlier low or high low P/E's. These are mostly large, well-capitalized, good credits. Average earnings growth for 2006 to 2007 is 8.5%. So what are these companies really worth, assuming my moderate growth, disinflation economic trajectory is correct?

I'll be conservative: assume 5% compound earnings growth for 5 years - that's slightly LESS overall growth than a more probable 7% earnings growth and one full year of slowdown [zero growth] in the same 5 year period. I'll even use actual 2006 earnings of $787, even though we know that first quarter earnings were good and grew at more that 7% vs. 2006. Discount rate - 10% - likely too high for these good credits. So I'm tying both arms behind my back in this exercise.

Plugging into my valuation model gives .................... ta da ..................... Dow 16,500 :-))
Fair value P/E is 21x off 2006 actual earnings.
We have a long, long way to go BEFORE any ideas about "overvaluation" mean anything real.
Warren Buffet agrees, based on his recent statement on Bubblevision.

Year to Date:
Krypto Fund +4.68% [gold & real estate dragging it a little lately]
Alpha Fund +29.7% [this is my more actively managed stocks]
Commodity Fund +29.1%

"The Trend is Your Friend"