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Published by Chris Turner
Combined Fair Market Value 3rd Quarter 2010 for S&P 500
Combined Fair Market Value 3rd Quarter 2010 for S&P 500

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Published by: Chris Turner on Nov 14, 2010
Copyright:Attribution Non-commercial


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(Data as of 15 Oct 10)
Combined Fair Market Value(CFMV)S&P 500 Fair Value
A Comparison of Professor Robert Shiller’s
 Cyclically Adjusted Price to Earnings (CAPE 10),Nominal Price to Earnings,Monthly Price to Earnings,And Year
Year Earnings Growth
By Chris Turner
Results for CFMV Q3-10:
The results for 3
Quarter CY-10 earnings (Jul-Sep) Combined Fair Market Value (CFMV) using data setsfrom the S&P Website(S&P Website ) and Professor Robert Shiller(Shiller Online Data)are listed below:
Nominal period trailing earnings
Calculated using Shiller’s method of current S&
P 500 Index priceat month close divided by average earnings over column period earnings.
CPI Adjusted (Shiller Method-CAPE)
Professor Shiller adjusts current S&P 500 Index price and 4quarter trailing earnings at month close by CPI, then divides CPI-adjusted price by CPI-adjustedearnings 10 years. The 10 year calculation is the original Shiller Method
the other periods arecalculated the same method but for differing periods.
Monthly P/E Averages
Calculated by dividing monthly price by monthly 4 quarter trailing earnings.NOTE: This calculation results in the same number whether using CPI or nominal.
Historical Y-O-Y Earnings Growth:
Calculated by averaging of entire time period earnings growthyear over year.
Combined Fair Market Value -
Calculated by averaging Current Price (sentiment), average of allperiods nominal and Monthly P/E, and Y-O-
Y earnings growth. This does not include Shiller’s CAPE.
 S&P Index = Average of daily closes for month end.
: Yale Professor of Economics Robert Shiller,(Bio Here), developed a cyclically adjusted price to earnings ratio (CAPE) that simply uses monthly CPI- adjusted S&P 500Index and divides that by an average of 10 years worth of CPI adjusted trailing monthly earnings.Professor Shiller uses this data and creates a long term chart that compares this ratio over time with abackdrop of long term interest rates
shown below:
NOTE: Shiller Chart as of 13 Oct 2010 (21.17 does not reflect latest earnings for Q2
using Q2 earnings,
data would be 19.70)
Professor Shiller uses the long term average for price to earnings for 10 years(currently 16.36) to arrive at an over or under valued metric based on those earnings. The value 19.70minus 16.36 provides an overvalued metric of 16.94%. With the S&P June Index at 1083 (average of daily closes for June 10), a 17% percent correction would result in the S&P being 898 as fair value.
Financial pundits, economists, and TV persona seem to relish
chart and do not
question the metrics involved in creating the chart. The first question that occurred to me was “Whyuse the BLS CPI?” Head
over to John Williams Shadowstats website and we see that BLS changed
metrics back in the early 80’s and inflation has been underreported by as much as 7%
at present.
Wouldn’t this change the picture? To answer that question – 
I downloaded
and beganto examine the spreadsheet. By analyzing the data, I wanted to determine what impact, if any, a changein the CPI vs nominal might exist.

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