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Fair Value of S&P 500

|Includes:SPDR S&P 500 Trust ETF (SPY)

Standard & Poor’s currently projects 2009 earnings on S&P of $54.15.

1.  Over the 20 year period to 2008, the index traded at an average of 19.4 times earnings
2. That 20 year period includes a 12 yr bubble; taking a longer term average of around 15 times earnings
3. 1890 to 2009 historical average for the S&P 500 PE multiple has been 16.37 times the trough earnings
So applying this data, fair value of S&P 500 today is as follows based on:
1.   20 year period:    19.4 x 54.15 =   1,050
2.   20 year w/o  12 yr bubble: 15 x 54.15 = 812
3.   Historical:  16.37 x 54.15 = 886   C... today at 906.83 
Bear Argument:  I would say we are at fair value today, and have some room to drop to 812 if considering the last 20 years without the 12 year bubble.
Bull Case:   Happy days are back! Just like the great 20 year period, so have room to go up to 1050.  That is where you are hearing all this giddy talk of S&P 500 to 1050 from!

Disclosure:  Long SPY

Stocks: SPY