The S&P 500 ($SPY) Intrinsic Value* is a calculation performed solely by myself and is based on Knut Wicksell’s 1898 definition of how he perceived investment rates of return arbitraging over a business cycle to the “Natural Rate” or the average rate of growth of all investments in one’s economy. For the US economy this is the Real GDP + Inflation and I call this the “Prevailing Rate”. The term Prevailing Rate is the long term average return of Real GDP + the best measure of 12mo Inflation which comes from the Dallas Fed as 12mo Trimmed Mean PCE. Today this rate is 4.62% with the inflation measure at 1.6%. *SP500 Intrinsic Value is solely my own construction and not endorsed by Oppenheimer&Co. Over time (since 1978) investors have priced the median average of SP500 earnings at a level consistent with the Indigo Line in the chart below titled SP500 Earnings Trend Index(Intrinsic Value). The relationship remained fairly close with periods of over/under valuation till 1995 when Hedge Funds gained prominence as investment vehicles and we suddenly found that wide variation was beginning to occur. Mainly this variation was towards excess pricing with the Internet Bubble of 2000 and a
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