Stocks are cheap, valuations are at the cheapest levels in 26 years

When you hear that stocks are cheap, you should generally start to become a bit suspicious/anxious about where the market is headed. But when you hear that stock are the cheapest they've been in 26 years... and both pundits and contrarians tell you there is too much fear... there are very serious concerns to have.

June 20 (Bloomberg) — [...] Standard & Poor’s 500 Index companies will earn 18 percent more this year than in 2010, according to the average estimate of more than 9,000 analysts compiled by Bloomberg. Higher profits haven’t stopped the gauge from falling 6.8 percent since April 29, pushing valuations to the cheapest levels in 26 years. Even if companies posted no growth, price-earnings ratios would be lower than on 96 percent of days in the past two decades.

The average estimate of 9,000 analysts is that the S&P will earn 18% more than last year. Is that fear? Is that worry? Specially since we're just trying to get out of 25 years of financial mania and that profit earnings have been at an historical extreme?

Valuations are the cheapest they have been in 26 years? Certainly not since a big chunk of the earnings of the S&P are coming from market-to-fantasy of the financials.

Our good ol' friend, the VXO is here to tell us that fear was not what has been experienced in the past several weeks.