Doug Short doesn't say "fair value", but about 1000 should be the fair value level of the index using regression analysis, here (where he has, as always, a vivid chart):
The peak in 2000 marked an unprecedented 152% overshooting of the trend — nearly double the overshoot in 1929. The index had been above trend for two decades, with one exception: it dipped about 11% below trend briefly in March of 2009. But at the beginning of July 2013, it is 62% above trend. In sharp contrast, the major troughs of the past saw declines in excess of 50% below the trend. If the current S&P 500 were sitting squarely on the regression, it would be around the 998 level. If the index should decline over the next few years to a level comparable to previous major bottoms, it would fall to the 450-500 range.
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Investors with a memory will remember that when TARP was signed on October 3, 2008, the S&P500 was at 1099 and then fell dramatically from there until early March 2009, and that on the third anniversary of TARP in October 2011 the index revisited 1099 exactly, in the wake of the summer debt ceiling brouhaha. But we haven't looked back since.
Unfortunately, the S&P500 has another date with the depths, but just hasn't set it yet.
