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A Quick Look At The S&P500 Free Cash Flow. As Long As The Real Economy Remains On-Track, Expect Healthy Corrections, Not Protracted Bear Markets.

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

FCF over time (1990-2014):

Assuming an Equity Risk Premium (ERP) of 6.75% and a FCF Growth rate of 5% p.a. (at each point in time) … a theoretical Fair Value of the SP500 can be computed:

Equity Risk Premium so that ... Theoretical FV = Observed SP500 Value? (where the discount factor = ERP + 10Y Yields)

c.p. … FCF growth … to have Theoretical FV = Obverved SP500 Value? Keeping RP at 6.75% … (where the discount factor = ERP + 10Y Yields)

I would not be surprised if this bull market ... does still have plenty of room to go. A key requirements ... is ... however ... that the Economy does not slip into a recession (but this is another story).

Corporations have never generated that much Cash in their history. Next phase would to see them ... starting increasing CAPEX investments ... ... that's when we will probably see the market rally big.

Disclosure: I am long END.

Additional disclosure: I am using this sell-off to closing out some of my shorts DDD ZU ONVO(anyway going to 0) .. and increasing some of my longs such as END YGE PPHM